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The IRS Issues Interim Guidance on SECURE 2.0 Act’s EPCRS Expansion

The IRS Issues Interim Guidance on SECURE 2.0 Act’s EPCRS Expansion

Section 305 of the Secure 2.0 Act of 2022, enacted on December 29, 2022 as part of the Consolidated Appropriations Act, 2023, expanded use of self-correction for inadvertent plan errors under the Employee Plans Compliance Resolution System (EPCRS). Section 305 was effective on the date of enactment, but gave the IRS two years to issue guidance about that expansion. In response to a barrage of practitioner questions about whether they can begin using the expanded self-correction now or must wait for the IRS to issue guidance, the IRS just issued Notice 2023-43.


EPCRS, the comprehensive IRS system of programs for correcting qualified plan errors, is currently set forth in Revenue Procedure 2021-30. Under that procedure, plan sponsors may, before their plans are under audit, be eligible to self-correct certain qualified plan errors under the Self-Correction Program (SCP) instead of having to apply under the Voluntary Correction Program (VCP) and pay a compliance fee, but only if the plan sponsor has established practices and procedures designed to facilitate compliance with applicable Internal Revenue Code (Code) requirements. In addition, a plan sponsor is eligible to self-correct “significant” operational errors only if the correction is substantially completed by the end of the third plan year after the year in which the error occurred.

Act section 305 now permits plan sponsors to self-correct eligible “inadvertent” plan errors (significant or insignificant), which occur despite having procedures in place designed to avoid them, indefinitely, so long as those errors are (1) corrected within a “reasonable period” after discovery in accordance with general IRS correction principles, (2) not discovered by the IRS before self-correction is started, and (3) not egregious and do not involve the diversion or misuse of plan assets or an abusive tax avoidance transaction. In addition, Act section 305 eliminated the requirement to file a VCP application to correct inadvertent loan errors and requires the IRS to issue guidance on correction methods to be used to correct eligible inadvertent plan errors.

Notice 2023-43 Highlights

In notice 2023-43, the IRS responds to many practitioners’ questions about the application of the Act’s EPCRS expansion pending the IRS’s update of Revenue Procedure 2021-30. Specifically, before the IRS updates that revenue procedure:

  • A plan sponsor may generally self-correct an eligible inadvertent error, including one related to a participant loan, under Revenue Procedure 2021-30, but only if all of the conditions for self-correction in the Act and the revenue procedure described above are satisfied.
  • A plan sponsor may not self-correct certain eligible inadvertent errors, including the failure to initially adopt a written plan, an error in an orphan plan, a significant error in a terminated plan, a demographic failure using a method other than one set forth in IRS regulations, an operational error by retroactive plan amendment that disadvantages participants or beneficiaries, and an ESOP error that involves tax consequences other than plan disqualification.
  • Certain of Revenue Procedure 2021-30’s provisions don’t apply to self-correction of eligible inadvertent errors, including the requirement that the plan have received a favorable determination letter, the prohibition against self-correction of demographic and employer eligibility errors, the prohibition against self-correcting certain loan errors, provisions relating to self-correction of significant errors that have been substantially completed before audit, and the requirement that the correction of a significant error be substantially completed before the end of the third plan year after the year of the error.
  • An eligible inadvertent error is treated as having been identified by the IRS when the plan or plan sponsor comes under examination – that is, once the plan or plan sponsor is under examination, the error is no longer eligible for self-correction, unless the plan sponsor has demonstrated a specific commitment to implement the self-correction before then.
  • A plan sponsor may self-correct an insignificant error even if it or the plan is under examination and even if the error is discovered on examination.
  • The IRS will determine whether the plan sponsor has demonstrated a specific commitment to self-correct an eligible inadvertent error based on all the facts and circumstances, but the actions taken must generally demonstrate the plan sponsor is actively pursuing the correction – a compliance audit or a general statement of intent alone are insufficient.
  • The IRS will generally determine whether an eligible inadvertent error has been self-corrected within a reasonable period after its discovery based on all the relevant facts and circumstances, but an error (except an employer eligibility error) that has been corrected within 18 months after its discovery will meet that requirement. An employer eligibility error will meet that requirement only if the plan sponsor ceases all contributions to the plan as soon as reasonably practicable, but no more than six months, after the error is discovered.
  • A plan sponsor may self-correct an eligible inadvertent error on or after December 29, 2022 even if the error occurred before that date.
  • A plan sponsor must still file a VCP application to request relief from certain excise taxes, including those that would otherwise apply under Code section 4974 to the failure to timely make required minimum distributions, Code section 4972 to a correction that requires nondeductible contributions, Code section 4979 to an error involving excess contributions or excess aggregate contributions, and Code section 72(t) to early distributions as part of the correction of certain overpayment errors.

The notice also confirms that Act section 305 does not impose any new recordkeeping requirements for self-correction of eligible inadvertent errors. Thus, as under the current revenue procedure, plan sponsors must, if requested on examination, be able to provide documentation that describes the error, explain how it occurred despite established practices and procedures, substantiates the correction, and describes changes to practices and procedures to avoid its recurrence.

Finally, the IRS cautions that the notice is intended to assist plan sponsors and practitioners by providing interim guidance in advance of its update to Revenue Procedure 2021-30, not comprehensive guidance.

For More Information, Please Contact:

Edward Bernard
Edward Bernard
San Francisco, CA