As I noted in the February edition of The Speed Reader, the SECURE 2.0 Act of 2022 (“SECURE 2.0”) significantly expanded many plan sponsors’ ability to self-correct compliance issues, as opposed to correcting issues via the filing of an application with, and paying an application fee to, the IRS.
SECURE 2.0 provides that any “eligible inadvertent failure” to comply with the rules governing qualified plans, 403(b) plans, SIMPLE IRAs, or SEPs can be self-corrected, except to the extent that (1) the failure was identified by the IRS before the plan sponsor took any actions demonstrating a specific commitment to implement a self-correction with respect to the failure; or (2) the self-correction is not completed within a “reasonable period” after the employer identified the failure. The term “eligible inadvertent failure” means a failure that occurs despite the existence of practices and procedures which satisfy specific IRS standards.
On May 25, 2023, the IRS published guidance addressing certain provisions of SECURE 2.0 in this regard. Notice 2023-43 constitutes interim guidance in advance of an update to IRS Revenue Procedure 2021-30, which sets forth the current version of the IRS’s correction program for retirement plans. That program is called the Employee Plans Compliance Resolution System (“EPCRS”). Under Notice 2023-43:
- Several types of eligible inadvertent failures cannot be self-corrected under the EPCRS. Those include an operational failure that is corrected by a plan amendment that conforms the plan’s terms to the plan’s prior operations in a manner that is less favorable for a participant or beneficiary than the original terms of the plan.
- If actions taken by a plan sponsor demonstrate a “specific commitment” to implement self-correction of an issue identified during an IRS plan audit, the issue can be self-corrected. A determination as to whether actions taken by a plan sponsor demonstrate a “specific commitment” to implement the self-correction will be made based on all the facts and circumstances.
- For purposes of ascertaining whether the self-correction of an eligible inadvertent failure has been completed within a “reasonable period” after it is identified by the plan sponsor, a reasonable period is determined by considering all relevant facts and circumstances. However, a failure that has been corrected by the last day of the 18th month after the date the failure is identified by the plan sponsor will generally be treated as having been completed within a “reasonable period.”
- Plan sponsors are not prevented from self-correcting an eligible inadvertent failure on or after December 29, 2022 (the date of SECURE 2.0’s enactment) merely because the failure occurred before December 29, 2022. In other words, even failures that occurred before SECURE 2.0’s enactment can be corrected pursuant to SECURE 2.0 and Notice 2023-43.
- Plan sponsors can submit a Voluntary Correction Program application, and pay a fee to the IRS, to correct an eligible inadvertent failure (including a participant loan failure).
- SECURE 2.0 does not impose any new IRS recordkeeping requirements with respect to the self-correction of any eligible inadvertent failure.
Given that Notice 2023-43 constitutes interim guidance, it can only be relied on from May 25, 2023 (its publication date) to the date on which the IRS updates Revenue Procedure 2021-30.