Feds change fee structure for key compliance program: How it impacts Finance

Heads up: The IRS is no longer charging employers who take advantage of its Voluntary Correction Program (VCP) by the number of plan participants they have.

The VCP is part of the agency’s Employee Plans Compliance Resolution System (EPCRS). That system gives firms the following three ways to correct errors:

• The Self-Correction Program (SCP) – plans can correct the issues themselves without involving IRS
• The Voluntary Correction Program (VCP) – plans must file an application and get IRS approval of the correction, and
• The Audit Closing Agreement Program (Audit CAP) – initiated by IRS and allows plans under investigation to take certain IRS-approved steps, pay a penalty and enter a closing agreement.

Previously, the agency had six fee levels in the VCP that were based on plan participant number. Those levels started at $500 for a plan with 20 or fewer participants and went up to $15,000 for a plan with more than 10,000 participants.

From $1,500 to $3,500

For VCP submissions after Jan. 2, 2018, there will only be three levels, and they will be based entirely on net plan assets.

The three fee levels are:

• $1,500 for plans with $500,000 or less in net plan assets
• $3,000 or plans with over $500,000 to $10,000,000 and
• $3,500 for plans with over $10,000,000.

In addition, under the previous fee structure, reduced fees were available for certain streamlined filings. These reduced fees are no longer available.

One of the safest options

As employers know, plans that aren’t currently being audited by the IRS can apply under the VCP to correct plan errors they uncover for a variety of reasons. The VCP program is one of the safest options for employers to correct plan document or operation errors before those mistakes wind up costing the plan its tax-favored status or lead to costly penalties.

The VCP centers on an arrangement between the IRS and the plan sponsor to correct the plan errors without harsh penalties. When a plan sponsor and the feds with the proposed correction of plan failures enter an agreement under the VCP, the feds send out a compliance statement to the plan sponsor.

The statement lists all of the plans failures as well as the VCP applicant’s (aka, the plan sponsor’s) proposed corrections and is contingent upon the plan sponsor taking care of those failures before the end of an agreed upon correction period — generally 150 days.