The Small Plan “Fix” Just Got Expensive by Darren Holsey. The IRS Voluntary Correction Program (VCP) allows employers sponsoring retirement plans to correct errors that occurred in the operation of their retirement plans. This includes both operational corrections and the late adoption of required plan documents. Employers pay a fee to the IRS in exchange for a Compliance Statement indicating the IRS’ acquiescence to the method of correcting the plan error and a promise that the IRS will not pursue further action.
In the past, the amount of the fee was taken from a schedule based on the number of participants in the plan, so the smaller the participant count, the smaller the fee. In addition, the IRS charged reduced fees for certain common errors that occurred with participant loans, required minimum distributions, and documents not timely executed. It all seemed pretty fair. In fact, the trend has been for the IRS to reduce VCP fees over time and to offer the discounted fees for common error corrections through streamlined filings. Prior to 2018, the VCP fee schedule was:
$500 – if the plan has 20 or fewer participants;
$750 – if the plan has 21 through 50 participants;
$1,500 – if the plan has 51 through 100 participants; and so on.
The top fee was $15,000 for plans with 10,000 or more participants.
At the beginning of each year, the IRS announces the fees it will charge for that year. Not only did they change the fees for VCP for 2018, but – much to everyone’s surprise – the IRS changed the methodology for determining the VCP fee to the following:
$1,500 – if the plan has assets of $500,000 or less;
$3,000 – if the plan has assets of $500,001 to 10,000,000; and
$3,500 – if the plan has assets in excess $10,000,000.
With this change in methodology, the fee for the largest plans was significantly reduced. But, since it is not unusual for a plan of up to 50 participants to have assets over $500,000, the fee for that plan increased by 300%! Gone too are the reduced fees for correcting certain common errors.
The IRS does provide guidance for correcting certain plan errors under their Self Correction Program (SCP). Although SCP does not provide the same assurance in the event of an IRS plan audit that a VCP Compliance Statement does, for small plans, a closer look at this program may be warranted when an employer finds itself in need of a “fix.”
Darren Holsey, ERPA, APA, APR, QPA, QKA is a shareholder with Premier Retirement Plan Services, a third-party administration firm in the Portland, OR area. firstname.lastname@example.org Premier RPS provides unique, reliable and personalized retirement plan solutions for employers of any size with the specific goal of helping businesses to “Plan for Your Employees’ Tomorrow, Today.” Darren is also a longtime volunteer for the National Institute of Pension Administrators (NIPA) helping with the annual conference, on the education committee, as a speaker and member of the Board of Directors.