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CCH® PENSION — 06/9/11

IRS offers tips on how to avoid making mistakes with VCP submissions

Plan sponsors can correct errors in their retirement plans by using the IRS's Voluntary Correction Program (VCP). The IRS's Employee Plans (EP) Voluntary Compliance staff have recently noticed some common mistakes with VCP submissions. In the latest issue of the Retirement Plans for Employers newsletter, the IRS has provided some tips to sponsors on how to avoid processing delays for their VCP submissions.

VCP program

A plan sponsor that maintains a plan that experiences one or more qualification failures may seek to preserve the tax benefits of its retirement plan. If the plan sponsor discovers the problems prior to the plan coming under examination, it may bring such failures to the attention of the IRS through the Voluntary Correction Program (VCP). In virtually all cases, the VCP compliance fee, which is based on the size of the plan, is equal to only a small fraction of the amount of tax benefit preserved.

Tips to avoid VCP processing delays

To avoid processing delays in their VCP submissions, the IRS urges plan sponsors to follow these five tips:

1. Include the required compliance fee. All VCP submissions must include the appropriate compliance fee. Compliance fees are fixed and cannot be reduced or waived by the IRS. Most plan sponsors, including sole proprietors and governmental entities, are required to pay the fee. Beginning June 1, 2011, the IRS will automatically return the entire VCP submission if it does not contain a check for the compliance fee. In addition, the IRS will no longer contact the plan sponsor to ask for the missing fee. If a submission is returned for lack of payment, the sponsor may resubmit it with the appropriate fee. However, resubmission will be treated as a new case, subject to the compliance fee in effect on the date of the new VCP submission.

2. Identify late interim amendment failures. Plan sponsors must specifically describe any late interim amendments associated with a change in tax law that are to be included in the VCP submission. These may include changes required by the Pension Protection Act of 2006 (PPA; P.L. 109-280) or the Heroes Earnings Assistance and Relief Tax Act (HEART) of 2008 (P.L. 109-227). Sponsors must list each PPA or HEART Act provision that was adopted late. A general statement that is limited to "The plan was not timely amended for PPA or HEART" is not acceptable.

3. Properly complete Appendix F, Schedules 1 and 2. Plan sponsors should check the boxes applicable to their submission and not check other boxes. For example, they should only check boxes for amendments applicable to their type of plan.

4. Ensure that the right person signs the forms. The applicant's representations in Part III of Appendix F (also known as the penalty of perjury statement) must be signed by an authorized officer of the plan sponsor, and not by the sponsor's legal representative. If a Power of Attorney, Form 2848, is included, it should be signed by an authorized person, such as an officer of the plan sponsor. Generally, the above items cannot be signed by a plan trustee or plan administrator unless the plan is a multiemployer plan or a governmental plan governed by an independent board of trustees.

5. Remember the limits of the compliance statement. The review of a plan sponsor's VCP submission is limited to the failures and correction methods that the sponsor identifies. The IRS Voluntary Compliance staff will not review the language in the plan document or plan amendments submitted to resolve late amender plan document failures or conduct a compliance review of all paperwork included with a submission to see if there are other plan document failures that may not have been noted in the VCP submission. If the plan sponsor includes a determination letter application with the VCP submission, it will not be reviewed by the IRS Voluntary Compliance staff. It will be transferred to the EP Determinations staff to process. They will then review the determination letter application independently. Once a VCP case is closed, the issued compliance statement cannot be used to resolve additional failures that may be subsequently discovered by the EP Determinations or Examinations staff.

Source: IRS Retirement News for Employers, Spring 2011, May 17, 2011.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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