Expansion of Retirement Plan Self-Correction Program

The Secure 2.0 Act of 2022, enacted on December 29, 2022, expanded the ability of plan sponsors to self-correct retirement plan errors without IRS approval. Congress desired to make it easier for plan sponsors to correct retirement plan compliance errors to increase administrative efficiency and to encourage employers to sponsor plans. Previously, certain failures such as plan document, loan, eligibility and demographic failures generally were not eligible for self-correction under the IRS Employee Plans Compliance Resolution System (“EPCRS”). The legislation requires the IRS to revise its written EPCRS procedures within two years to allow for self-correction of any “eligible inadvertent failure” which is broadly defined as any operational, document or demographic failure that violates IRS qualification requirements and occurs notwithstanding established practices and procedures supporting compliance.

In May, the IRS released Notice 2023-43, which provides interim guidance and green-lights immediate use of these broader self-correction procedures for 401(a) and 403(b) plans. The Secure 2.0 Act also expands self-correction to IRAs but IRA custodians and owners must wait to employ this relief until the IRS issues further guidance. The Notice lists certain failures that cannot be self-corrected until the IRS updates EPCRS, including failures to initially adopt a written plan and correcting failures by plan amendment in a manner that results in a cut-back to a participant. Abusive or egregious failures and non-qualification failure are also not eligible for self-correction. Self-correction must be completed within a reasonable period after the failure has been identified.