IRS Updates Program for Fixing SEP and SIMPLE IRA Plan Mistakes

By Joe Cicchinelli, IRA Technical Expert

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The rules for operating an employer retirement plan are complicated and mistakes are sometimes made. Recently, the IRS released Revenue Procedure 2013-12 with information that updates the Employee Plans Compliance Resolution System (EPCRS) for addressing various retirement plan compliance problems.

EPCRS is a system of correction programs for sponsors of employer retirement plans such as 401(k)s, SEPs and SIMPLE IRA Plans. When employers make mistakes operating their retirement plans, technically the plan could be disqualified and the tax breaks of that plan could be lost for both the employer and employees. EPCRS allows employers to correct these plan mistakes and continue to provide their employees with retirement benefits on a tax-favored basis. Depending on the mistake, the employer may have to pay the IRS a fee.

For small businesses or self-employed business owners, the complexity of the retirement plan rules can be difficult to adhere to at times. Ideally, business owners should hire a competent professional to help them comply with the retirement plan rules. If the rules aren’t followed, the plan could be disqualified, even if the only person with money in the retirement plan is the business owner him/herself.

Many small businesses operate a SEP or a SIMPLE IRA plan. While SEP and SIMPLEs are both IRA based retirement plans that are less complicated than other retirement plans such as a 401(k), mistakes can be, and often are, made. EPCRS can be utilized to fix those mistakes.

For example, in a SEP or SIMPLE IRA plan, perhaps the employer did not make a contribution for everyone who was entitled to one. Technically, that mistake would eliminate the employer’s tax deduction for all the retirement plan contributions made for the year. Fortunately though, under EPCRS, the employer can fix that problem by contributing “make-up amounts” adjusted for interest from the date of the failure to the date of correction.

You can find EPCRS on the IRS website at: http://www.irs.gov/Retirement-Plans/Correcting-Plan-Errors.

Article Highlights

• IRS recently released Revenue Procedure 2013-12 with information that updates the Employee Plans Compliance Resolution System (EPCRS) for addressing various retirement plan compliance problems. 
• EPCRS is a system of correction programs for sponsors of employer retirement plans (i.e. 401(k)s, SEP or SIMPLE IRAs.