The US Internal Revenue Service (IRS) recently issued Revenue Procedure 2019-19 (the Revenue Procedure) effective as of April 19, 2019, replacing previous guidance on correcting retirement plan (eg, 401(k) plan) errors in operations and in documentation. The Revenue Procedure expands the list of certain retirement plan failures that can be fixed through self-correction versus submitting a filing under the Employee Plan Compliance Resolution System (EPCRS) to the IRS.

In particular, the Revenue Procedure expands the application of self-correction of plan loan failures as well as operational failures by plan amendment (herein afterwards collectively referred to as "operational failures"). Self-correction requires an analysis of the facts of a plan operational failure to determine whether self-correction is an option as well as the correction process. It is imperative, in our view, to maintain the correction data and document the process taken to correct a mistake as evidence of the decision to self-correct and the manner in which the correction was made.


The IRS established the EPCRS to provide retirement plan sponsors a mechanism of correcting a retirement plan's operational failures. The EPCRS is available to qualified retirement plans (401(k) plans, profit sharing plans, pension plans), SEPs, Simple IRAs and 403(b) plans. A plan's operational failure(s) can be addressed in one of the following ways:

  • Self-correction program (SCP)
  • A voluntary IRS filing (VCP) and
  • Audit closing agreement program (Audit CAP).

The SCP is divided into two self-correction programs. One is for insignificant operational failures and the other is for significant operational failures. If an operational failure does not satisfy the requirements of either SCP method it is only correctable through VCP or Audit Cap. VCP is not available if the retirement plan is under IRS examination, and SCP is available only in limited circumstances.

Correcting through SCP is preferable for many reasons. The obvious reason is that VCP and Audit Cap require a cost for preparing the filing and the payment of a user fee or sanction.


Plan loan failures

Defaulted loans

The IRS broadened the availability of self-correcting missed loan payments that may have previously resulted in a defaulted loan. Correction can be made by a single payment of the sum of missed payments plus interest on such missed payments or amortization of the loan over the remaining period of the loan or the maximum period allowed, under the Code, from the original date of the loan.

There is currently a conflict between the IRS correction method of defaulted loans under the EPCRS and the Department of Labor's Voluntary Fiduciary Correction Program (VFCP). The VFCP requires a correction of a defaulted loan be made under VCP.  We anticipate this conflict to be resolved in the near future.

Spousal consent

Retirement plans that offer a life annuity are required to obtain a spousal consent as part of the loan procedure. Self-correction is now available if a spouse's written consent was not obtained but is later received.  A VCP filing is the required correction method if after reaching out to the spouse, his/her consent is not received.

Number of plan loans

The majority of retirement plans limit the number of loans that can be outstanding at a time. Loans are generally limited to no more than two loans at one time. Self-correction through retroactive plan amendment is now available if a retirement plan violates its own terms by exceeding the number of plan loans allowed.

Reporting plan loan failures – 1099-R

The Revenue Procedure also provides a change to the timing of reporting a loan failure that is not properly or timely corrected. The Form 1099-R may now report a deemed distribution in the year of correction and not the year of failure.

Loan failures only corrected by VCP

It is important to keep in mind that not all plan loan failures can be self-corrected under the EPCRS. Plan loans that exceed the IRS statutory loan amount, term maximums or the level amortization requirement must be corrected through a VCP filing.


Although possibly limited in its application, retirement plans are now able to retroactively amend operational defects through retroactive plan amendments.  This is valuable in situations in which the terms of the plan may have been more restrictive than its operation (eg, eligibility, service requirement and entry dates). A retirement plan is eligible for self-correcting by retroactive amendment to conform the terms of the plan to its operation if the amendment (i) results in an increase in a benefit, right or feature, (ii) is available to all eligible employees, and (iii) complies with the Code and the correction principles of the EPCRS.

Self-correction is now available to correct plan document failures such as a failure to execute a required plan amendment or a restatement if the failure is corrected within the significant self-correction time period and the failure was not the execution of the initial plan document.


The Revenue Procedure lists the operational failures that are permitted to be corrected under the EPCRS. If a failure satisfies the requirements for self-correction a plan administrator may correct such plan failure by complying with the prescribed correction methods. If the requirements of self-correction are not satisfied, a plan sponsor may file for correction under the VCP.

Significant versus insignificant operational failures

The self-correction process can be utilized if the failure is properly characterized by the plan sponsor as either an insignificant or significant failure. The IRS has provided plan sponsors and advisors with several different factors to analyze when attempting to characterize an operational failure as significant or insignificant.  An insignificant failure can be corrected at any time while a significant failure must be corrected before the end of the second plan year following the plan year in which the failure occurred or substantially corrected within a reasonable time.

The IRS has provided two alternatives for determining whether an operational failure is substantially corrected. First, the correction must be completed within 120 days after the end of the second plan year following the plan year in which the failure occurred. Second, an operational failure is deemed to be substantially corrected within a reasonable time if at least 65% of affected participants have received a correction within the two year correction period and the remainder of the operational failure is completed in a diligent manner.

The date that the operational failure occurred is important because if it is discovered outside the significant self-correction period it should be corrected by VCP unless it is deemed an insignificant operational failure. The IRS did not provide safe harbors for making a determination of what is or is not significant or insignificant. The IRS instead provided a list of factors to utilize in making this determination.

The factors to determine whether a failure is significant or insignificant are as follows:

  • other failures in the same period (not how many people are affected)
  • percentage of plan assets and contributions involved
  • number of years the failure occurred
  • participants affected relative to the total number in the plan
  • participants affected relative to how many could have been affected
  • whether correction was made soon after discovery
  • reason for the failure


It is extremely important to create and retain a roadmap that describes the decision making of any self-correction. The determination of whether an operational failure is significant or insignificant can be challenged by a plan's own auditors, the Department of Labor or the IRS. Whether an operational failure should have been filed as a VCP or self-corrected is a matter of interpretation of the facts of the operational failure. The correction should be the same, whether or not it is filed under VCP. Proper documentation may result in a disagreement with the IRS being simply resolved by the payment of the applicable user fee.

All evidence of the correction should be maintained, along with a narrative describing the correction. Plan sponsors may want to organize records of a self-correction by following the Procedural Requirement Checklist located at the end of Form 8950. This could be extremely helpful if a self-correction is challenged under audit.

SCP versus VCP

Correcting operational failures by self-correction is generally the most efficient method of correction. Plan sponsors deciding to self-correct should, however, consider the benefit of the finality that a VCP offers. If a decision is made to self-correct a mistake, the plan sponsor may want to consider having its advisors provide a file that contains a narrative describing each step of the correction process, the data used to calculate the correction, and copies of all participant communications pertaining to such correction. The file should be retained in the event that the plan is audited.

Learn more by contacting any of the authors.

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