Rev Proc 2021-30

Rev. Proc. 2021-30
TABLE OF CONTENTS
PART I. INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION
SYSTEM ........................................................................................................................ 6
SECTION 1. PURPOSE AND OVERVIEW ................................................................... 6
.01 Purpose ......................................................................................................... 6
.02 General principles underlying EPCRS ........................................................... 6
.03 Overview........................................................................................................ 7
SECTION 2. EFFECT OF THIS REVENUE PROCEDURE ON PROGRAMS .............. 7
.01 Effect on programs ........................................................................................ 7
.02 Correction of Overpayment (defined benefit plans) ....................................... 8
.03 Description of other modifications................................................................ 10
.04 Future enhancements .................................................................................. 11
PART II. PROGRAM EFFECT AND ELIGIBILITY ....................................................... 11
SECTION 3. EFFECT OF EPCRS; RELIANCE .......................................................... 11
.01 Effect of EPCRS on retirement plans .......................................................... 11
.02 Compliance statement ................................................................................. 12
.03 Excise and other taxes ................................................................................ 12
.04 Reliance....................................................................................................... 12
SECTION 4. PROGRAM ELIGIBILITY ........................................................................ 12
.01 EPCRS Programs........................................................................................ 12
.02 Effect of examination ................................................................................... 13
.03 SCP eligibility requirements relating to plan documents .............................. 13
.04 Established practices and procedures ......................................................... 14
.05 Correction by plan amendment.................................................................... 15
.06 Availability of correction for Employer Eligibility Failures and Demographic
Failures .............................................................................................................. 16
.07 Availability of correction for a terminated plan ............................................. 16
.08 Availability of correction for an Orphan Plan ................................................ 16
.09 Availability of correction for § 457(b) plans .................................................. 17
.10 Egregious failures ........................................................................................ 17
.11 Diversion or misuse of plan assets .............................................................. 17
.12 Abusive tax avoidance transactions ............................................................ 18

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PART III. DEFINITIONS, CORRECTION PRINCIPLES, AND RULES OF GENERAL
APPLICABILITY ........................................................................................................... 19
SECTION 5. DEFINITIONS ......................................................................................... 19
.01 Definitions for Qualified Plans...................................................................... 19
.02 Definitions for § 403(b) Plans ...................................................................... 23
.03 Definitions for Orphan Plans ........................................................................ 26
.04 Earnings ...................................................................................................... 26
.05 IRA .............................................................................................................. 26
.06 SEP ............................................................................................................. 26
.07 SIMPLE IRA Plan ........................................................................................ 27
.08 Under Examination ...................................................................................... 27
SECTION 6. CORRECTION PRINCIPLES AND RULES OF GENERAL
APPLICABILITY ........................................................................................................... 28
.01 Correction principles; rules of general applicability ...................................... 28
.02 Correction principles .................................................................................... 28
.03 Correction of an Employer Eligibility Failure ................................................ 35
.04 Correction of a failure to obtain spousal consent ......................................... 36
.05 Determination letter application not permitted ............................................. 37
.06 Special rules relating to Excess Amounts .................................................... 38
.07 Correction of plan loan failures .................................................................... 43
.08 Correction under statute or regulations ....................................................... 45
.09 Matters subject to excise or other taxes ...................................................... 46
.10 Correction for § 403(b) Plans....................................................................... 47
.11 Correction for SEPs and SIMPLE IRA Plans ............................................... 48
.12 Confidentiality and disclosure ...................................................................... 50
.13 No effect on other law .................................................................................. 50
PART IV. SELF-CORRECTION (SCP) ....................................................................... 51
SECTION 7. AVAILABILITY OF SCP FOR CERTAIN OPERATIONAL FAILURES
AND PLAN DOCUMENT FAILURES ........................................................................... 51
.01 In general..................................................................................................... 51
.02 Operational Failures .................................................................................... 51
.03 Plan Document Failures .............................................................................. 51
SECTION 8. SELF-CORRECTION OF INSIGNIFICANT OPERATIONAL FAILURES 52
.01 Requirements .............................................................................................. 52
.02 Factors......................................................................................................... 52
.03 Multiple failures............................................................................................ 52
.04 Examples ..................................................................................................... 52
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SECTION 9. SELF-CORRECTION OF CERTAIN SIGNIFICANT OPERATIONAL
FAILURES AND PLAN DOCUMENT FAILURES ......................................................... 54
.01 Requirements .............................................................................................. 54
.02 Correction period ......................................................................................... 54
.03 Substantial completion of correction ............................................................ 54
.04 Examples ..................................................................................................... 55
PART V. VOLUNTARY CORRECTION PROGRAM WITH IRS APPROVAL (VCP) ... 56
SECTION 10. VCP PROCEDURES ............................................................................ 56
.01 VCP pre-submission conference ................................................................. 56
.02 VCP requirements ....................................................................................... 57
.03 Identification of failures ................................................................................ 57
.04 Effect of VCP submission on examination ................................................... 57
.05 No concurrent examination activity .............................................................. 57
.06 Determination letter applications not related to a VCP submission ............. 58
.07 Processing of submission ............................................................................ 58
.08 Compliance statement ................................................................................. 61
.09 Effect of compliance statement on examination .......................................... 63
.10 Anonymous submissions not permitted ....................................................... 63
.11 Special rules relating to group submissions................................................. 63
.12 Multiemployer and multiple employer plans ................................................. 65
SECTION 11. SUBMISSION PROCEDURES FOR VCP ............................................ 65
.01 General rules ............................................................................................... 65
.02 Submission of model forms ......................................................................... 66
.03 Mandatory Submission Process using the Pay.gov website ........................ 67
.04 PDF file submission contents ...................................................................... 68
.05 User fee due at the time of VCP submission using the Pay.gov website ..... 71
.06 Additional user fee due for group submissions ............................................ 71
.07 Additional amounts due for certain submissions.......................................... 71
.08 Power of attorney requirements................................................................... 71
.09 Acknowledgement of filing ........................................................................... 72
.10 Maintenance of copies of submissions ........................................................ 72
.11 Assembling the submission ......................................................................... 72
SECTION 12. VCP USER FEES ................................................................................. 74
.01 User fees ..................................................................................................... 74

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PART VI. CORRECTION ON AUDIT (AUDIT CAP) .................................................... 74
SECTION 13. DESCRIPTION OF AUDIT CAP ........................................................... 74
.01 Audit CAP requirements .............................................................................. 74
.02 Payment of sanction .................................................................................... 74
.03 Additional requirements ............................................................................... 75
.04 Failure to reach resolution ........................................................................... 75
.05 Effect of closing agreement ......................................................................... 75
.06 Other procedural rules ................................................................................. 75
SECTION 14. AUDIT CAP SANCTION ........................................................................ 75
.01 Determination of sanction ............................................................................ 75
.02 Factors considered ...................................................................................... 75
.03 Transferred Assets ...................................................................................... 77
.04 Sanction for Nonamender Failures discovered during the determination letter
application process ............................................................................................ 77
PART VII. EFFECT ON OTHER DOCUMENTS; EFFECTIVE DATE; PAPERWORK
REDUCTION ACT ........................................................................................................ 78
SECTION 15. EFFECT ON OTHER DOCUMENTS.................................................... 78
SECTION 16. EFFECTIVE DATE ............................................................................... 78
SECTION 17. PUBLIC COMMENTS........................................................................... 79
SECTION 18. PAPERWORK REDUCTION ACT ........................................................ 79
DRAFTING INFORMATION ......................................................................................... 80
APPENDIX A ................................................................................................................ 81
OPERATIONAL FAILURES AND CORRECTION METHODS ..................................... 81
.01 General rule ................................................................................................. 81
.02 Failure to properly provide the minimum top-heavy benefit under § 416 to
non-key employees ........................................................................................... 82
.03 Failure to satisfy the ADP test set forth in § 401(k)(3), the ACP test set forth
in § 401(m)(2), or, for plan years beginning on or before December 31, 2001,
the multiple use test of § 401(m)(9) ................................................................... 82
.04 Failure to distribute elective deferrals in excess of the § 402(g) limit (in
contravention of § 401(a)(30)) ........................................................................... 82
.05 Exclusion of an eligible employee from all contributions or accruals under
the plan for one or more plan years. .................................................................. 83
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.06 Failure to timely pay the minimum distribution required under § 401(a)(9) .. 93
.07 Failure to obtain participant or spousal consent for a distribution subject to
the participant and spousal consent rules under §§ 401(a)(11), 411(a)(11), and
417 .................................................................................................................... 93
.08 Failure to satisfy the § 415 limits in a defined contribution plan ................... 94
.09 Orphan Plans; orphan contracts and other assets....................................... 95
APPENDIX B ................................................................................................................ 97
CORRECTION METHODS AND EXAMPLES; EARNINGS ADJUSTMENT METHODS
AND EXAMPLES ......................................................................................................... 97
SECTION 1. PURPOSE, ASSUMPTIONS FOR EXAMPLES AND SECTION
REFERENCES ............................................................................................................. 97
.01 Purpose ....................................................................................................... 97
.02 Assumptions for Examples .......................................................................... 97
.03 Designated Roth contributions..................................................................... 98
.04 Section references....................................................................................... 98
SECTION 2. CORRECTION METHODS AND EXAMPLES......................................... 98
.01 ADP/ACP Failures ....................................................................................... 98
.02 Exclusion of Otherwise Eligible Employees ............................................... 101
.03 Vesting Failures ......................................................................................... 117
.04 Section 415(c) Failures and Correction of Overpayments (Defined
Contribution Plans and § 403(b) Plans) ........................................................... 119
.05 Section 415(b) Failures and Correction of Overpayments (Defined Benefit
Plans) .............................................................................................................. 121
.06 § 401(a)(17) Failures ................................................................................. 129
.07 Correction by Amendment ......................................................................... 130
SECTION 3. EARNINGS ADJUSTMENT METHODS AND EXAMPLES .................. 133
.01 Earnings Adjustment Methods ................................................................... 133
.02 Examples ................................................................................................... 136

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PART I. INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION
SYSTEM
SECTION 1. PURPOSE AND OVERVIEW
.01 Purpose. This revenue procedure updates the comprehensive system of
correction programs for sponsors of retirement plans that are intended to satisfy the
requirements of § 401(a), 403(a), 403(b), 408(k), or 408(p) of the Internal Revenue
Code (the “Code”), but that have not met these requirements for a period of time. This
system, the Employee Plans Compliance Resolution System (“EPCRS”), permits Plan
Sponsors to correct these failures and thereby continue to provide their employees with
retirement benefits on a tax-favored basis. The components of EPCRS are the SelfCorrection Program (“SCP”), the Voluntary Correction Program (“VCP”), and the Audit
Closing Agreement Program (“Audit CAP”).
.02 General principles underlying EPCRS. EPCRS is based on the following
general principles:
•

Sponsors and other administrators of eligible plans should be encouraged to
establish administrative practices and procedures that ensure that these
plans are operated properly in accordance with the applicable requirements
of the Code.

•

Sponsors and other administrators of eligible plans should satisfy the
applicable plan document requirements of the Code.

•

Sponsors and other administrators should make voluntary and timely
correction of any plan failures, whether involving discrimination in favor of
highly compensated employees, plan operations, the terms of the plan
document, or adoption of a plan by an ineligible employer. Timely and
efficient correction protects participating employees by providing them with
their expected retirement benefits, including favorable tax treatment.

•

Voluntary compliance is promoted by establishing limited fees for voluntary
corrections approved by the Internal Revenue Service (“IRS”), thereby
reducing employers' uncertainty regarding their potential tax liability and
participants' potential tax liability.

•

Fees and sanctions should be graduated in a series of steps so that there is
always an incentive to correct promptly.
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•

Sanctions for plan failures identified on audit should be reasonable in light of
the nature, extent, and severity of the violation.

•

Administration of EPCRS should be consistent and uniform.

•

Sponsors should be able to rely on the availability of EPCRS in taking
corrective actions to maintain the tax-favored status of their plans.

.03 Overview. EPCRS includes the following basic elements:
•

Self-correction (SCP). A Plan Sponsor that has established compliance
practices and procedures may, at any time without paying any fee or
sanction, correct insignificant Operational Failures under a Qualified Plan, a
§ 403(b) Plan, a SEP, or a SIMPLE IRA Plan. For a SEP or SIMPLE IRA
Plan, SCP is available only if the SEP or SIMPLE IRA Plan is established
and maintained on a document approved by the IRS. In addition, in the case
of a Qualified Plan or § 403(b) Plan that satisfies the requirements of
sections 4.03 and 4.04, the Plan Sponsor generally may correct significant
Operational Failures and Plan Document Failures without payment of any
fee or sanction if the correction is made within the time specified in section
9.02.

•

Voluntary correction with IRS approval (VCP). A Plan Sponsor, at any time
before audit, may pay a limited fee and receive the IRS's approval for
correction of a Qualified Plan, § 403(b) Plan, SEP, or SIMPLE IRA Plan
failure. Under VCP, there are special procedures for anonymous
submissions and group submissions. However, effective January 1, 2022,
the anonymous submission procedure is eliminated. VCP submissions may
not be submitted on an anonymous basis on or after that date. Additionally,
an anonymous, no-fee, VCP pre-submission conference procedure is added,
effective January 1, 2022.

•

Correction on audit (Audit CAP). If a failure (other than a failure corrected
through SCP or VCP) is identified on audit, the Plan Sponsor may correct the
failure and pay a sanction. The sanction imposed will bear a reasonable
relationship to the nature, extent, and severity of the failure, taking into
account the extent to which correction occurred before audit.

SECTION 2. EFFECT OF THIS REVENUE PROCEDURE ON PROGRAMS
.01 Effect on programs. This revenue procedure modifies and supersedes Rev.
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Proc. 2019-19, 2019-19 I.R.B. 1086, the most recent prior consolidated statement of
the correction programs under EPCRS. This update to Rev. Proc. 2019-19 is a limited
update and is published primarily to:
(1) expand guidance on the recoupment of Overpayments;
(2) eliminate the anonymous submission procedure under VCP, effective
January 1, 2022;
(3) add an anonymous, no-fee, VCP pre-submission conference procedure,
effective January 1, 2022;
(4) extend the end of the SCP correction period for significant failures by one
year (which has the result of also extending the safe harbor correction
method for Employee Elective Deferral Failures lasting more than three
months but not beyond the extended SCP correction period for significant
failures);
(5) expand the ability of a Plan Sponsor to correct an Operational Failure under
SCP by plan amendment; and
(6) extend by three years the sunset of the safe harbor correction method
available for certain Employee Elective Deferral Failures associated with
missed elective deferrals for eligible employees who are subject to an
automatic contribution feature in a § 401(k) plan or § 403(b) Plan (from
December 31, 2020, to December 31, 2023).
.02 Correction of Overpayment (defined benefit plans). (1) In general. Rev.
Proc. 2015-27, 2015-16 I.R.B. 914, clarified the permissible methods for correcting
Overpayments under EPCRS by noting that, depending on the facts and
circumstances, correcting an Overpayment under EPCRS may not need to include
requesting that Overpayments be returned to the plan by plan participants and
beneficiaries. The Department of the Treasury (“Treasury Department”) and the IRS
also requested comments in Rev. Proc. 2015-27 on potential changes relating to the
recoupment of Overpayments. In light of comments received, the Treasury
Department and the IRS are modifying Rev. Proc. 2019-19 to further clarify and
expand options available for the recoupment of Overpayments.
(2) Modifications to current correction methods. Sections 6.06(3), 6.06(4), and
Appendix B, section 2.05, are revised to provide that Plan Sponsors may provide
Overpayment recipients the option of repaying an Overpayment in a single sum
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payment, through an installment agreement, or through an adjustment in future
payments.
(3) New correction methods. Section 6.06(3) is revised to provide two new
Overpayment correction methods, the funding exception correction method and the
contribution credit correction method. These methods reduce the need for defined
benefit plans to seek recoupment from Overpayment recipients and ease the process
for Overpayment recipients repaying Overpayments, while balancing the interest of
other participants in the plan.
(i) Funding exception correction method. Section 6.06(3)(d)(i) sets forth the new
funding exception correction method, which provides that corrective payments are not
required for a plan subject to § 436, provided that the plan’s certified or presumed
adjusted funding target attainment percentage (“AFTAP”) determined under § 436 that
is applicable to the plan at the date of correction is equal to at least 100 percent (or, in
the case of a multiemployer plan, the plan’s most recent annual funding certification
indicates that the plan is not in critical, critical and declining, or endangered status (as
defined in § 432), determined at the date of correction). Future benefit payments to an
Overpayment recipient must be reduced to the correct benefit payment amount. For
purposes of EPCRS, no further corrective payments from any party are required, no
further reductions to future benefit payments to an Overpayment recipient, or any
spouse or beneficiary of an Overpayment recipient, are permitted, and no further
corrective payments from an Overpayment recipient, or any spouse or beneficiary of an
Overpayment recipient, are permitted. See section 6.06(3)(d)(i) and Appendix B,
section 2.05(3).
(ii) Contribution credit correction method. Section 6.06(3)(d)(ii) sets forth the
new contribution credit correction method, which provides that the amount of
Overpayments required to be repaid to the plan is the amount of the Overpayments
reduced (but not below zero) by: (A) the cumulative increase in the plan’s minimum
funding requirements attributable to the Overpayments (including the increase
attributable to the overstatement of liabilities, whether funded through cash
contributions or through the use of a funding standard carryover balance, prefunding
balance, or funding standard account credit balance), beginning with (1) the plan year
for which the Overpayments are taken into account for funding purposes, through (2)
the end of the plan year preceding the plan year for which the corrected benefit
payment amount is taken into account for funding purposes; and (B) certain additional
contributions in excess of minimum funding requirements paid to the plan after the first
of the Overpayments was made. This reduction is referred to as a “contribution credit.”
Future benefit payments to an Overpayment recipient must be reduced to the correct
benefit payment amount. For purposes of EPCRS, if the amount of the Overpayments
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is reduced to zero after the contribution credit is applied, no further corrective
payments from any party are required, no further reductions to future benefit payments
to an Overpayment recipient, or any spouse or beneficiary of an Overpayment
recipient, are permitted, and no further corrective payments from an Overpayment
recipient, or any spouse or beneficiary of an Overpayment recipient, are permitted.
However, if a net Overpayment remains after the application of the contribution credit,
the Plan Sponsor or another party must take further action to reimburse the plan for the
remainder of the Overpayment. See section 6.06(3)(d)(ii) and Appendix B, section
2.05(4).
.03 Description of other modifications. The other modifications to Rev. Proc.
2019-19 that are made by this revenue procedure include the following -1. Eliminating the condition previously set forth in section 4.05(2)(a)(ii) (relating
to correction by plan amendment of Operational Failures under SCP for
Qualified Plans and § 403(b) Plans) that requires a plan amendment that
increases a benefit, right, or feature to apply to all participants eligible to
participate under the plan.
2. Increasing from $100 to $250 the threshold for certain de minimis amounts
for which a Plan Sponsor is not required to implement correction. See
sections 6.02(5)(c), 6.02(5)(e), and 6.11(5)(c).
3. Modifying the structure of section 6.06(4) and Appendix B, section 2.04, to
be more consistent with changes made to section 6.06(3) and Appendix B,
section 2.05, and to clarify the correction principles relating to Overpayments
from defined contribution plans and § 403(b) Plans.
4. Extending the end of the SCP correction period for significant failures (set
forth in section 9.02) from the last day of the second plan year following the
plan year for which the failure occurred to the last day of the third plan year
following the plan year for which the failure occurred (which has the result of
also extending the safe harbor correction method set forth in Appendix A,
section .05(9)(b) for Employee Elective Deferral Failures lasting more than
three months but not beyond the extended SCP correction period for
significant failures) and modifying the examples in section 9.04 to reflect this
extension.
5. Revising section 10.01 to add an option, effective January 1, 2022, for Plan
Sponsors to request a no-fee anonymous VCP pre-submission conference
under specified circumstances.
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6. Eliminating the anonymous submission procedure described in section 10.09
of Rev. Proc. 2019-19, which permits submission of a Qualified Plan,
§ 403(b) Plan, SEP, or SIMPLE IRA Plan under VCP without initially
identifying the applicable plan, the Plan Sponsor, or the Eligible
Organization, effective January 1, 2022, and making conforming revisions to
sections 11.04(16) and 11.08(2) to reflect the elimination of this procedure.
See section 10.10 of this revenue procedure.
7. Requiring that Audit CAP sanctions be paid through the Pay.gov website
(instead of by certified check or cashier’s check) beginning January 1, 2022.
See section 13.02.
8. Revising Appendix A, section .05(8), to extend by three years (from
December 31, 2020, to December 31, 2023) the sunset of the safe harbor
correction method available for certain Employee Elective Deferral Failures
associated with missed elective deferrals for eligible employees who are
subject to an automatic contribution feature in a § 401(k) plan or § 403(b)
Plan.
.04 Future enhancements.
It is expected that the Treasury Department and the IRS will continue to update
the EPCRS revenue procedure, in whole or in part, from time to time, including further
improvements to EPCRS based on comments received. Accordingly, the Treasury
Department and the IRS continue to invite further comments on how to improve
EPCRS. For information on how to submit comments, see section 17.
PART II. PROGRAM EFFECT AND ELIGIBILITY
SECTION 3. EFFECT OF EPCRS; RELIANCE
.01 Effect of EPCRS on retirement plans. For a Qualified Plan, a § 403(b) Plan,
a SEP, or a SIMPLE IRA Plan, if the eligibility requirements of section 4 are satisfied
and the Plan Sponsor corrects a failure in accordance with the applicable requirements
of SCP in section 7, VCP in section 10, or Audit CAP in section 13, the IRS will not
treat the plan as failing to satisfy the requirements of § 401(a), 403(b), 408(k), or
408(p), as applicable, because of the failure. For example, if the Plan Sponsor
corrects a failure in accordance with the requirements of this revenue procedure, the
plan will not thereby be treated as failing to satisfy § 401(a), 403(b), 408(k), or 408(p),
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as applicable, for purposes of applying §§ 3121(a)(5) (FICA taxes) and 3306(b)(5)
(FUTA taxes).
.02 Compliance statement. If a Plan Sponsor or Eligible Organization receives a
compliance statement under VCP, the compliance statement is binding upon the IRS
and the Plan Sponsor or Eligible Organization as provided in section 10.08.
.03 Excise and other taxes. See section 6.09 for rules relating to excise and
other taxes.
.04 Reliance. Taxpayers may rely on this revenue procedure, including the
relief described in section 3.01.
SECTION 4. PROGRAM ELIGIBILITY
.01 EPCRS Programs. (1) SCP. SCP is available to correct Operational
Failures and certain Plan Document Failures as follows:
(a) Operational Failures. A Plan Sponsor of a Qualified Plan or § 403(b) Plan
that is otherwise eligible for correction under SCP may use SCP to correct significant
and insignificant Operational Failures (including certain plan loan failures described in
section 6.07). Operational Failures that are significant may be corrected under SCP
only if the correction of the failure is completed or substantially completed (in
accordance with section 9.03) by the last day of the correction period described in
section 9.02.
(b) Plan Document Failures. A Plan Sponsor of a Qualified Plan or § 403(b)
Plan may use SCP to correct certain Plan Document Failures, as defined in section
5.01(2)(a) for a Qualified Plan and section 5.02(2)(a) for a § 403(b) Plan, that are
otherwise eligible for correction under SCP. A Plan Document Failure consisting of the
initial failure to adopt a Qualified Plan, or the failure to adopt a written § 403(b) Plan
timely in accordance with §1.403(b)-3(b)(3) and Notice 2009-3, 2009-2 I.R.B. 250, is
treated as a Plan Document Failure that is not eligible to be corrected under SCP. All
Plan Document Failures that are eligible to be corrected under SCP are treated as
significant; thus, the correction must be completed by the last day of the correction
period described in section 9.02.
(c) SEPs and SIMPLE IRA Plans. SEPs and SIMPLE IRA Plans are eligible to
be corrected under SCP only with respect to insignificant Operational Failures.

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(d) Demographic Failures and Employer Eligibility Failures. Demographic
Failures and Employer Eligibility Failures may not be corrected under SCP.
(2) VCP. Qualified Plans, § 403(b) Plans, SEPs, and SIMPLE IRA Plans are
eligible for correction under VCP. VCP provides general procedures for correction of
all Qualification Failures: Operational, Plan Document, Demographic, and Employer
Eligibility. VCP also provides general procedures for the correction of plan loan failures
(see section 6.07). Effective January 1, 2022, VCP submissions may not be submitted
on an anonymous basis.
(3) Audit CAP. Unless otherwise provided, Audit CAP is available for the
correction of Qualified Plans, § 403(b) Plans, SEPs, and SIMPLE IRA Plans for all
failures found on examination that have not been corrected in accordance with SCP or
VCP. Audit CAP also provides general procedures for the correction of plan loan
failures (see section 6.07).
(4) Eligibility for other arrangements. The IRS may extend EPCRS to other
arrangements.
(5) Appropriate use of programs. In a particular case, the IRS may decline to
make available one or more correction programs under EPCRS in the interest of sound
tax administration.
.02 Effect of examination. If the plan or Plan Sponsor is Under Examination,
VCP is not available. SCP is available only as follows:
(1) Insignificant Operational Failures. While the plan or Plan Sponsor is Under
Examination, insignificant Operational Failures may be corrected under SCP.
(2) Significant Operational Failures. If correction of significant Operational
Failures has been substantially completed (as described in section 9.03) before the
plan or Plan Sponsor is Under Examination, the Plan Sponsor may complete correction
of those failures under SCP.
.03 SCP eligibility requirements relating to plan documents. (1) Requirements
for Qualified Plans and § 403(b) Plans. The provisions of SCP relating to certain Plan
Document Failures, as described in section 4.01(1)(b), and significant Operational
Failures, as described in section 9, are available for a Qualified Plan that, as of the
date of correction, is the subject of a Favorable Letter. See section 5.01(4) for the
definition of Favorable Letter for a Qualified Plan. The provisions of SCP relating to
certain Plan Document Failures and significant Operational Failures are available for a
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§ 403(b) Plan if the conditions for being treated as having a Favorable Letter in section
6.10(2) are satisfied. See section 5.02(5) for the definition of Favorable Letter for a
§ 403(b) Plan.
(2) Requirements for SEPs and SIMPLE IRAs. The provisions of SCP relating
to insignificant Operational Failures (see section 8) are available for a SEP only if the
plan document consists of either (i) a valid Model Form 5305-SEP, Simplified
Employee Pension--Individual Retirement Accounts Contribution Agreement, or 5305ASEP, Salary Reduction Simplified Employee Pension--Individual Retirement Accounts
Contribution Agreement, adopted by an employer in accordance with the instructions
on the applicable form (see Rev. Proc. 2002-10, 2002-1 C.B. 401) or (ii) a prototype
SEP that has a current favorable opinion letter and that has been amended in
accordance with the procedures set forth in Rev. Proc. 2002-10. The provisions of
SCP relating to insignificant Operational Failures are available for a SIMPLE IRA Plan
only if the plan document consists of either (i) a valid Model Form 5305-SIMPLE,
Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)--for Use
with a Designated Financial Institution, or 5304-SIMPLE, Savings Incentive Match Plan
for Employees of Small Employers (SIMPLE)--Not for Use with a Designated Financial
Institution, adopted by an employer in accordance with the instructions on the
applicable form (see Rev. Proc. 2002-10) or (ii) a prototype SIMPLE IRA Plan that has
a current favorable opinion letter and that has been amended in accordance with the
procedures set forth in Rev. Proc. 2002-10.
.04 Established practices and procedures. To be eligible for SCP, the Plan
Sponsor or administrator of a plan must have established practices and procedures
(formal or informal) reasonably designed to promote and facilitate overall compliance in
form and operation with applicable Code requirements. For example, the plan
administrator of a Qualified Plan that may be top-heavy under § 416 may include in its
plan operating manual a specific annual step to determine whether the plan is topheavy and, if so, to ensure that the minimum contribution requirements of the topheavy rules are satisfied. A plan document alone does not constitute evidence of
established procedures. In order for a Plan Sponsor or administrator to use SCP,
these established procedures must have been in place and routinely followed, and an
Operational Failure or Plan Document Failure must have occurred through an oversight
or mistake in applying them. SCP also may be used in situations in which the
Operational Failure or Plan Document Failure occurred because the procedures that
were in place, while reasonable, were not sufficient to prevent the occurrence of the
failure. A plan that provides for elective deferrals and nonelective employer
contributions that are not matching contributions is not treated as failing to have
established practices and procedures to prevent the occurrence of a § 415(c) violation
in the case of a plan under which excess annual additions under § 415(c) are regularly
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corrected by return of elective deferrals to the affected employee within 9½ months
after the end of the plan’s limitation year. The correction, however, should not violate
another applicable Code requirement. In the case of a failure that relates to
Transferred Assets or to a plan assumed in connection with a corporate merger,
acquisition, or other similar employer transaction between the Plan Sponsor and the
sponsor of the transferor plan or the prior Plan Sponsor of an assumed plan, the plan is
considered to have established practices and procedures for the Transferred Assets if
such practices and procedures are in effect for the Transferred Assets by the end of
the first plan year that begins after the corporate merger, acquisition, or other similar
transaction. (See section 6.10(2) for special rules regarding established practices and
procedures for § 403(b) Plans.)
.05 Correction by plan amendment. (1) Availability of correction by plan
amendment in VCP or Audit CAP. A Plan Sponsor of a Qualified Plan or § 403(b) Plan
may use VCP or Audit CAP to correct Plan Document, Demographic, and Operational
Failures by plan amendment, including to correct an Operational Failure by plan
amendment to conform the terms of the plan to the plan’s prior operations, provided
that the amendment complies with the applicable Code requirements (including the
requirements of §§ 401(a)(4), 410(b), 411(d)(6), and 403(b)(12), as applicable). In
addition, a Plan Sponsor may adopt a plan amendment to reflect corrective action. For
example, if the plan failed to satisfy the actual deferral percentage (“ADP”) test
required under § 401(k)(3) and the Plan Sponsor must make qualified nonelective
contributions not already provided for under the plan, the plan may be amended to
provide for qualified nonelective contributions. As explained further in sections 6.05
and 10.08(2), the issuance of a compliance statement constitutes a determination that
the failure identified has been corrected, but does not constitute a determination that
the terms of the plan, including the corrective plan amendment, satisfy the qualification
requirements in form.
(2) Availability of correction by plan amendment in SCP. SCP is available for
corrections made by plan amendment, as provided in section 4.05(2)(a), (b), and (c).
In addition, a Plan Sponsor may adopt a plan amendment to reflect corrective action.
For example, if the plan failed to satisfy the ADP test required under § 401(k)(3) and
the Plan Sponsor must make qualified nonelective contributions not already provided
for under the plan, the plan may be amended to provide for qualified nonelective
contributions.
(a) Correction of Operational Failure by plan amendment for a Qualified Plan or
§ 403(b) Plan. A Plan Sponsor of a Qualified Plan or § 403(b) Plan may correct an
Operational Failure by plan amendment in order to conform the terms of the plan to the
plan’s prior operations only if the following conditions are satisfied:
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(i) The plan amendment would result in an increase of a benefit, right, or feature.
(ii) The provision of the increase in the benefit, right, or feature to participants is
permitted under the Code (including the requirements of §§ 401(a)(4), 410(b),
411(d)(6), and 403(b)(12), as applicable), and satisfies the correction principles of
section 6.02 and any other applicable rules of this revenue procedure.
(b) Operational Failure correction methods in accordance with Appendix B. In
addition to correction by plan amendment as described in section 4.05(2)(a), a Plan
Sponsor of a Qualified Plan or § 403(b) Plan may use SCP to correct Operational
Failures listed in Appendix B, section 2.07, by plan amendment to conform the terms of
the plan to the plan’s prior operations. Under SCP, these failures must be corrected in
accordance with the correction methods set forth in Appendix B, section 2.07.
(c) Plan Document Failures. A Plan Sponsor of a Qualified Plan or § 403(b)
Plan may use SCP to correct an eligible Plan Document Failure, as described in
section 4.01(1)(b), only if the following conditions are satisfied:
(i) The Qualified Plan or § 403(b) Plan has been issued a Favorable Letter, as
respectively defined in sections 5.01(4) and 5.02(5).
(ii) The Plan Sponsor satisfies the requirements in section 9 relating to
correcting a Plan Document Failure. Thus, for example, the Plan Sponsor must adopt
a corrective plan amendment by the end the correction period set forth in section 9.02.
.06 Availability of correction for Employer Eligibility Failures and Demographic
Failures. SCP is not available for a Plan Sponsor to correct Employer Eligibility
Failures or Demographic Failures.
.07 Availability of correction for a terminated plan. Correction of Qualification
Failures and § 403(b) Failures in a terminated plan may be made under VCP or Audit
CAP, whether or not the plan trust or contract is still in existence.
.08 Availability of correction for an Orphan Plan. A failure in an Orphan Plan
that is terminating may be corrected under VCP or Audit CAP if the party acting on
behalf of the plan is an Eligible Party, as defined in section 5.03(2). See, generally,
section 6.02(2)(e)(i). SCP is not available for correcting failures in Orphan Plans. In
the case of a terminating Orphan Plan, the IRS may, in its discretion, waive the user
fee. In such a case, the submission must include a request for a waiver of the user
fee. See section 11.04(14).
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.09 Availability of correction for § 457(b) plans. The IRS will accept submissions
relating to § 457(b) plans on a provisional basis outside of EPCRS through standards
that are similar to those that apply with respect to VCP filings under sections 10 and
11, as applicable, including procedures for filing a submission on the Pay.gov website.
The availability of correction is generally limited to plans that are sponsored by
governmental entities described in § 457(e)(1)(A). In the case of a § 457(b) plan that is
an unfunded deferred compensation plan established for the benefit of top hat
employees of a tax-exempt entity described in § 457(e)(1)(B), the IRS generally will not
enter into an agreement to address problems associated with such a plan. However,
the IRS may consider a submission for such a plan where, for example, the plan was
erroneously established to benefit the entity’s nonhighly compensated employees and
the plan has been operated in a manner that is similar to a Qualified Plan.
.10 Egregious failures. (1) In general. Egregious failures include: (a) a plan that
has consistently and improperly covered only highly compensated employees; (b) a
plan that provides more favorable benefits for an owner of the employer based on a
purported collective bargaining agreement where there has in fact been no good faith
bargaining between bona fide employee representatives and the employer (see Notice
2003-24, 2003-1 C.B. 853, with respect to good faith bargaining and welfare benefit
funds); or (c) a defined contribution plan where a contribution is made on behalf of a
highly compensated employee that is several times greater than the dollar limit set
forth in § 415(c).
(2) SCP. SCP is not available to correct Operational Failures or Plan Document
Failures that are egregious.
(3) VCP. VCP is available to correct egregious failures. However, the IRS
reserves the right to impose a sanction that may be larger than the user fee described
in Rev. Proc. 2021-4, 2021-1 I.R.B. 157 (and its annual successors). For this purpose,
an egregious failure would include any case in which the IRS concludes that the parties
controlling the plan recognized that the action taken would constitute a failure and the
failure either involves a substantial number of participants or beneficiaries or involves
participants who are predominantly highly compensated employees.
(4) Audit CAP. Audit CAP is available to correct egregious failures.
.11 Diversion or misuse of plan assets. SCP, VCP, and Audit CAP are not
available to correct failures relating to the diversion or misuse of plan assets.

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.12 Abusive tax avoidance transactions. (1) Effect on Programs. (a) SCP. With
respect to SCP, in the event that the plan or the Plan Sponsor has been a party to an
abusive tax avoidance transaction (as defined in section 4.12(2)), SCP is not available
to correct any Operational Failure or Plan Document Failure that is directly or indirectly
related to the abusive tax avoidance transaction.
(b) VCP. With respect to VCP, if the IRS determines that a plan or Plan
Sponsor was, or may have been, a party to an abusive tax avoidance transaction (as
defined in section 4.12(2)), then the matter will be discussed and coordinated with
appropriate IRS personnel. The IRS may determine that the plan or the Plan Sponsor
has been a party to an abusive tax avoidance transaction, and that the failures
addressed in the VCP submission are related to that transaction. In those situations,
the IRS will conclude the review of the submission without issuing a compliance
statement and will refer the case for examination. However, if the IRS determines that
the plan failures are unrelated to the abusive tax avoidance transaction or that no
abusive tax avoidance transaction occurred, then the IRS will permit the VCP
submission to address the failures identified in the VCP submission, and may issue a
compliance statement with respect to those failures. In no event may a compliance
statement be relied on for the purpose of concluding that the plan or Plan Sponsor was
not a party to an abusive tax avoidance transaction. In addition, even if it is concluded
that the failures can be addressed pursuant to a VCP submission, the IRS reserves the
right to make a referral of the abusive tax avoidance transaction matter for
examination.
(c) Audit CAP and SCP (for plans Under Examination). For plans Under
Examination, if the IRS determines that the plan or Plan Sponsor was, or may have
been, a party to an abusive tax avoidance transaction, the matter may be discussed
and coordinated with appropriate IRS personnel. With respect to plans Under
Examination, an abusive tax avoidance transaction includes a transaction described in
section 4.12(2) and any other transaction that the IRS determines was designed to
facilitate the impermissible avoidance of tax. Upon receiving a response from the
appropriate IRS personnel, (i) if the IRS determines that a failure is related to the
abusive tax avoidance transaction, the IRS reserves the right to conclude that neither
Audit CAP nor SCP is available for that failure, or (ii) if the IRS determines that
satisfactory corrective actions have not been taken with regard to the transaction, the
IRS reserves the right to conclude that neither Audit CAP nor SCP is available to the
plan.
(2) Abusive tax avoidance transaction defined. For purposes of section 4.12(1)
(except to the extent otherwise provided in section 4.12(1)(c)), an abusive tax
avoidance transaction means any listed transaction under §1.6011-4(b)(2) and any
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other transaction identified as an abusive transaction on the IRS website entitled “EP
Abusive Tax Transactions.”
PART III. DEFINITIONS, CORRECTION PRINCIPLES, AND RULES OF GENERAL
APPLICABILITY
SECTION 5. DEFINITIONS
The following definitions apply for purposes of this revenue procedure:
.01 Definitions for Qualified Plans. The definitions in this section 5.01 apply to
Qualified Plans.
(1) Qualified Plan. The term “Qualified Plan” means a plan intended to satisfy
the requirements of § 401(a) or 403(a).
(2) Qualification Failure. The term “Qualification Failure” means any failure that
adversely affects the qualification of a plan. There are four types of Qualification
Failures: (a) Plan Document Failures; (b) Operational Failures; (c) Demographic
Failures; and (d) Employer Eligibility Failures.
(a) Plan Document Failure. (i) In general. The term “Plan Document Failure”
means a plan provision (or the absence of a plan provision) that, on its face, violates
the requirements of § 401(a) or 403(a). A Plan Document Failure includes any
Qualification Failure that is a violation of the requirements of § 401(a) or 403(a) and
that is not an Operational Failure, Demographic Failure, or Employer Eligibility Failure.
This term includes a Nonamender Failure, a failure to adopt Good Faith Amendments,
and a failure to adopt Interim Amendments. A Plan Document Failure does not include
a failure to adopt a discretionary plan amendment by the plan amendment deadline set
forth in section 8.02 of Rev. Proc. 2016-37, 2016-29 I.R.B. 136, as modified by Rev.
Proc. 2017-41, 2017-29 I.R.B. 92, and Rev. Proc. 2020-40, 2020-38 I.R.B. 575 (or
section 5.05(2) of Rev. Proc. 2007-44, 2007-28 I.R.B. 54, as applicable). Pursuant to
section 4.01(1)(b), a Plan Document Failure consisting of the initial failure to adopt a
Qualified Plan may not be corrected under SCP.
(ii) Specific definitions relating to Plan Document Failures:
(A) “Good Faith Amendment” includes the EGTRRA good faith amendments
described in Notice 2001-42, 2001-2 C.B. 70, the amendment required for the plan to
comply with the final regulations under § 401(a)(9) (see Rev. Proc. 2002-29, 2002-1
C.B. 1176, as modified by Rev. Proc. 2003-10, 2003-1 C.B. 259), the amendment
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updating the mortality table to reflect the guidance in Rev. Rul. 2001-62, 2001-2
C.B. 632, and the amendment updating the definition of compensation, for purposes of
§ 415(c)(3), to include “deemed § 125 compensation” pursuant to Rev. Rul. 2002-27,
2002-1 C.B. 925. For rules relating to a failure to adopt a Good Faith Amendment, see
Rev. Proc. 2013-12.
(B) “Interim Amendment” means an amendment with respect to a disqualifying
provision that results in the failure of the plan to satisfy the qualification requirements of
the Code by reason of a change in those requirements that is effective after December
31, 2001, or that is integral to such disqualifying provision. See section 15.02 of Rev.
Proc. 2016-37, as modified, for Interim Amendment requirements for Pre-approved
Plans. For Interim Amendments required to be adopted in individually designed plans
before January 1, 2017 (or before February 1, 2017, for Cycle A plans), see section
5.04 of Rev. Proc. 2007-44.
(C) “Nonamender Failure” means a failure to adopt an amendment that corrects
a disqualifying provision described in §1.401(b)-1(b) within the applicable remedial
amendment period. In general, a disqualifying provision includes a provision in the
plan document that violates a qualification requirement of the Code or the absence of a
provision that causes the plan to fail to satisfy a qualification requirement of the Code.
A disqualifying provision also includes any provision designated by the Commissioner
as a disqualifying provision under §1.401(b)-1(b)(3). See sections 5 and 15 of Rev.
Proc. 2016-37, as modified. For an individually designed plan, a Nonamender Failure
includes the failure to timely amend for provisions that appear on the Required
Amendments List, as described in Rev. Proc. 2016-37, as modified. For purposes of
VCP, the initial failure to adopt a Qualified Plan is not considered a Nonamender
Failure.
(b) Operational Failure. The term “Operational Failure” means a Qualification
Failure (other than an Employer Eligibility Failure) that arises solely from the failure to
follow plan provisions. A failure to follow the terms of the plan providing for the
satisfaction of the requirements of § 401(k) and (m) is considered to be an Operational
Failure. A plan does not have an Operational Failure to the extent the plan is permitted
to be amended retroactively to reflect the plan's operations (for example, pursuant to
§ 401(b)). In the situation where a Plan Sponsor timely adopted an amendment and
the plan was not operated in accordance with the terms of such amendment, the plan
is considered to have an Operational Failure.
(c) Demographic Failure. The term “Demographic Failure” means a failure to
satisfy the requirements of § 401(a)(4), 401(a)(26), or 410(b) that is not an Operational
Failure or an Employer Eligibility Failure. The correction of a Demographic Failure
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generally requires a corrective amendment to the plan adding more benefits or
increasing existing benefits (see §1.401(a)(4)-11(g)).
(d) Employer Eligibility Failure. The term “Employer Eligibility Failure” means
the adoption of a plan intended to include a qualified cash or deferred arrangement
under § 401(k) by an employer that fails to satisfy the employer eligibility requirements
to establish a § 401(k) plan. An Employer Eligibility Failure is not a Plan Document,
Operational, or Demographic Failure.
(3) Excess Amount; Excess Allocations; Overpayment. (a) Excess Amount.
The term “Excess Amount” means a Qualification Failure due to a contribution,
allocation, or similar credit that is made on behalf of a participant or beneficiary to a
plan in excess of the maximum amount permitted to be contributed, allocated, or
credited on behalf of the participant or beneficiary under the terms of the plan or that
exceeds a limitation on contributions or allocations provided in the Code or regulations.
Excess Amounts include: (i) an elective deferral or after-tax employee contribution that
is in excess of the maximum contribution under the plan; (ii) an elective deferral or
after-tax employee contribution made in excess of the limitation under § 415; (iii) an
elective deferral in excess of the limitation of § 402(g); (iv) an excess contribution or
excess aggregate contribution under § 401(k) or (m); (v) an elective deferral or aftertax employee contribution that is made with respect to compensation in excess of the
limitation of § 401(a)(17); and (vi) any other employer contribution that exceeds a
limitation under § 401(m) (but only with respect to the forfeiture of nonvested matching
contributions that are excess aggregate contributions), 411(a)(3)(G), or 415, or that is
made with respect to compensation in excess of the limitation under § 401(a)(17).
However, an Excess Amount does not include a contribution, allocation, or other credit
that is made pursuant to a correction method provided under this revenue procedure
for a different Qualification Failure. Excess Amounts are limited to contributions,
allocations, or annual additions under a defined contribution plan, after-tax employee
contributions to a defined benefit plan, and contributions or allocations that are to be
made to a separate account (with actual Earnings) under a defined benefit plan. See
generally section 6.06 for the treatment and correction of certain Excess Amounts.
(b) Excess Allocation. The term “Excess Allocation” means an Excess Amount
for which the Code or regulations do not provide any corrective mechanism. Excess
Allocations include Excess Amounts as defined in section 5.01(3)(a)(i), (ii), (v), and (vi)
(except with respect to § 401(m) or 411(a)(3)(G) violations). Excess Allocations must
be corrected in accordance with section 6.06(2).
(c) Overpayment. The term “Overpayment” means a Qualification Failure due to
a payment being made to a participant or beneficiary (“Overpayment recipient”) that
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exceeds the amount payable to the Overpayment recipient under the terms of the plan
or that exceeds a limitation provided in the Code or regulations. Overpayments include
both payments from a defined benefit plan and payments from a defined contribution
plan that are either not made from the Overpayment recipient’s account under the plan
or not permitted to be paid under the Code, the regulations, or the terms of the plan.
However, an Overpayment does not include a payment that is made pursuant to a
correction method provided under this revenue procedure for a different Qualification
Failure. Overpayments must be corrected in accordance with section 6.06(3) for
defined benefit plans and section 6.06(4) for defined contribution plans.
(4) Favorable Letter. With respect to a Qualified Plan, the term “Favorable
Letter” is defined in the following manner.
(a) Favorable Letter for individually designed Qualified Plans. In the case of an
individually designed Qualified Plan, the term “Favorable Letter” means a
determination letter issued with respect to the plan.
(b) Favorable Letter for Pre-approved Plans. In the case of a Pre-approved
Plan, the term “Favorable Letter” means a favorable opinion or advisory letter issued
with respect to the most recently expired six-year remedial amendment cycle under
Rev. Proc. 2016-37, as modified. In the case of a terminated Pre-approved Plan, the
plan is treated as having a favorable opinion letter or advisory letter if the plan is
terminated prior to the expiration of the plan’s current remedial amendment cycle
determined under the provisions of Rev. Proc. 2016-37, as modified, and the plan was
amended to reflect the qualification requirements that applied as of the date of
termination.
(5) Maximum Payment Amount. The term “Maximum Payment Amount” means
a monetary amount that is approximately equal to the tax the IRS could collect upon
plan disqualification and is the sum for the open taxable years of the:
(a) tax on the trust (Form 1041, U.S. Income Tax Return for Estates and Trusts)
(and any interest or penalties applicable to the trust return);
(b) additional income tax resulting from the loss of employer deductions for plan
contributions (and any interest or penalties applicable to the Plan Sponsor's return);
(c) additional income tax resulting from income inclusion for participants in the
plan (Form 1040, U.S. Individual Income Tax Return), including the tax on plan
distributions that have been rolled over to other qualified trusts (as defined in
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§ 402(c)(8)(A)) or eligible retirement plans (as defined in § 402(c)(8)(B)) and any
interest or penalties applicable to the participants’ returns;
(d) in the case of any participant loan that did not comply with the requirements
of § 72(p)(2), the tax the IRS could collect as a result of the loan not being excluded
from gross income under § 72(p)(2); and
(e) any other tax that results from a Qualification Failure that would apply but for
correction under this revenue procedure.
(6) Plan Sponsor. The term “Plan Sponsor” means the employer that
establishes or maintains a Qualified Plan for its employees.
(7) Transferred Assets. The term “Transferred Assets” means plan assets that
were received, in connection with a corporate merger, acquisition, or other similar
employer transaction, by the plan in a transfer (including a merger or consolidation of
plan assets) under § 414(l) from a plan sponsored by an employer that was not a
member of the same controlled group as the Plan Sponsor immediately prior to the
corporate merger, acquisition, or other similar employer transaction. If a transfer of
plan assets related to the same employer transaction is accomplished through several
transfers, then the date of the transfer is the date of the first transfer.
(8) Pre-approved Plan. For purposes of this revenue procedure, the term “Preapproved Plan” means:
(a) a master plan, a prototype plan, or a volume submitter plan as described in
Rev. Proc. 2015-36, 2015-27 I.R.B. 20, sections 4.01, 4.02 and 13.01, respectively;
and
(b) a pre-approved plan described in section 4.07 of Rev. Proc. 2017-41,
2017-29 I.R.B. 92.
.02 Definitions for § 403(b) Plans. The definitions in this section 5.02 apply to
§ 403(b) Plans. For § 403(b) Plans, the definitions under Rev. Proc. 2008-50 apply to
failures that occurred in taxable years beginning before January 1, 2009.
(1) Section 403(b) Plan. The term “§ 403(b) Plan” means a plan or program
intended to satisfy the requirements of § 403(b).
(2) Section 403(b) Failure. The term “§ 403(b) Failure” means a failure that
adversely affects the exclusion from income provided by § 403(b). There are four
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types of § 403(b) Failures: (a) Plan Document Failures; (b) Operational Failures; (c)
Demographic Failures; and (d) Employer Eligibility Failures.
(a) Plan Document Failure. The term “Plan Document Failure” means a plan
provision (or the absence of a plan provision) that, on its face, violates the
requirements of § 403(b). Thus, for example, the failure of a plan to be adopted in
written form or to be amended to reflect a new requirement within the plan's applicable
remedial amendment period is a Plan Document Failure. If a plan has not been timely
or properly amended during an applicable remedial amendment period with respect to
provisions required to maintain the status of the plan under § 403(b), the plan has a
Plan Document Failure. For purposes of this revenue procedure, a Plan Document
Failure includes any § 403(b) Failure that adversely affects the status of the plan under
§ 403(b) and that is not an Operational Failure, Demographic Failure, or Employer
Eligibility Failure. Pursuant to section 4.01(1)(b), a Plan Document Failure consisting
of the failure to adopt a written § 403(b) Plan timely in accordance with
§1.403(b)-3(b)(3) and Notice 2009-3 may not be corrected under SCP.
(b) Operational Failure. The term “Operational Failure” means a § 403(b)
Failure (other than an Employer Eligibility Failure) that arises solely from the failure to
follow plan provisions. A failure to follow the terms of the plan providing for the
satisfaction of the requirements of §§ 403(b)(12)(ii) (relating to the availability of
elective deferral contributions) and 401(m) (as applied to § 403(b) Plans pursuant to
§ 403(b)(12)(A)(i)) is an Operational Failure. A plan does not have an Operational
Failure to the extent the plan is permitted to be amended retroactively to reflect the
plan's operations.
(c) Demographic Failure. The term “Demographic Failure” means a failure to
satisfy the requirements of § 401(a)(4), 401(a)(26), or 410(b) (as applied to § 403(b)
Plans pursuant to § 403(b)(12)(A)(i)) that is not an Operational Failure or an Employer
Eligibility Failure. The correction of a Demographic Failure generally requires a
corrective amendment to the plan adding more benefits or increasing existing benefits
(see §1.401(a)(4)-11(g)).
(d) Employer Eligibility Failure. The term “Employer Eligibility Failure” means
the adoption of a plan intended to satisfy the requirements of § 403(b) by a Plan
Sponsor that is not a tax-exempt organization described in § 501(c)(3) or a public
educational organization described in § 170(b)(1)(A)(ii). An Employer Eligibility Failure
is not a Plan Document, Operational, or Demographic Failure.
(3) Excess Amount. The term “Excess Amount” means a contribution or other
credit that is made on behalf of a participant or beneficiary to a plan in excess of the
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maximum amount permitted to be contributed or credited on behalf of the participant or
beneficiary under the terms of the plan or that exceeds a limitation on contributions
provided in the Code or regulations. The term “Excess Amount” includes any amount
in excess of the amount permitted under the requirements of § 402(g), 401(m), or 415.
A contribution in excess of the limitation of § 415(c) is not an Excess Amount (or a
§ 403(b) Failure) if that excess is maintained in a separate account in accordance with
the rules in the regulations under §§ 403(b) and 415. Such separate account is
considered to be a § 403(c) annuity contract (or, if applicable, an amount to which § 61,
83, or 402(b) applies). A contribution in excess of the limitation of § 415(c) that is not
maintained in a separate account in accordance with the rules set forth in regulations
under §§ 403(b) and 415 is an Excess Amount. Thus, the correction principles in
section 6.06 apply.
(4) Overpayment. The term “Overpayment” means a § 403(b) Failure due to a
payment being made to a participant or beneficiary (“Overpayment recipient”) that
exceeds the amount payable to the Overpayment recipient under the terms of the plan
or that exceeds a limitation provided in the Code or regulations. Overpayments include
payments made from the Overpayment recipient’s § 403(b) custodial account or
annuity contract under the plan that are not permitted to be paid under the Code, the
regulations, or the terms of the plan. However, an Overpayment does not include a
payment that is made pursuant to a correction method provided under this revenue
procedure for a different § 403(b) Failure. Overpayments must be corrected in
accordance with section 6.06(4).
(5) Favorable Letter. The term “Favorable Letter” means a Favorable Letter as
described in section 6.10(2).
(6) Maximum Payment Amount. The term “Maximum Payment Amount” means
a monetary amount that is approximately equal to the tax the IRS could collect as a
result of the § 403(b) Failure and is the sum for the open taxable years of the:
(a) additional income tax resulting from income inclusion for employees or other
participants (Form 1040), including the tax on distributions that have been rolled over
to other qualified trusts (as defined in § 402(c)(8)(A)) or eligible retirement plans (as
defined in § 402(c)(8)(B)) and any interest or penalties applicable to the participants’
returns; and
(b) any other tax that results from a § 403(b) Failure that would apply but for
correction under this revenue procedure.

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(7) Plan Sponsor. The term “Plan Sponsor” means the employer that offers a
§ 403(b) Plan to its employees.
(8) Section 403(b) Pre-approved Plan. The term “§ 403(b) Pre-approved Plan”
means a plan described in section 3.17 of Rev. Proc. 2013-22, 2013-18 I.R.B. 985.
.03 Definitions for Orphan Plans.
(1) Orphan Plan. With respect to VCP and Audit CAP, the term “Orphan Plan”
means any Qualified Plan, § 403(b) Plan, or other plan with respect to which an
“Eligible Party” (defined in section 5.03(2)) has determined that the Plan Sponsor (a)
no longer exists, (b) cannot be located, or (c) is unable to maintain the plan. However,
the term “Orphan Plan” does not include any plan subject to Title I of the Employee
Retirement Income Security Act of 1974 (“ERISA”) that is terminated pursuant to
29 CFR 2578.1 of the Department of Labor regulations governing the termination of
abandoned individual account plans.
(2) Eligible Party. The term “Eligible Party” means:
(a) A court appointed representative with authority to terminate the plan and
dispose of the plan’s assets;
(b) In the case of an Orphan Plan under investigation by the Department of
Labor, a person or entity determined by the Department of Labor to have accepted
responsibility for terminating the plan and distributing the plan's assets; or
(c) In the case of a Qualified Plan to which Title I of ERISA has never applied, a
surviving spouse who is the sole beneficiary of a plan that provided benefits to a
participant who was (i) the sole owner of the business that sponsored the plan and (ii)
the only participant in the plan.
.04 Earnings. The term “Earnings” refers to the adjustment of a principal
amount to reflect subsequent investment gains and losses, unless otherwise provided
in a specific section of this revenue procedure.
.05 IRA. The term “IRA” means an individual retirement account (as defined in
§ 408(a)) or an individual retirement annuity (as defined in § 408(b)).
.06 SEP. The term “SEP” means a plan intended to satisfy the requirements of
§ 408(k). For purposes of this revenue procedure, the term SEP also includes a salary
reduction SEP (“SARSEP”) described in § 408(k)(6), if applicable.
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.07 SIMPLE IRA Plan. The term “SIMPLE IRA Plan” means a plan intended to
satisfy the requirements of § 408(p).
.08 Under Examination. (1) The term “Under Examination” means: (a) a plan
that is under an Employee Plans examination (that is, an examination of a Form 5500
series or other Employee Plans examination); (b) a Plan Sponsor that is under an
Exempt Organizations examination (that is, an examination of a Form 990 series or
other Exempt Organizations examination); or (c) a plan that is under investigation by
the Criminal Investigation Division of the IRS.
(2) A plan that is under an Employee Plans examination includes any plan for
which the Plan Sponsor, or an authorized representative, has received verbal or written
notification from Employee Plans of an impending Employee Plans examination, or of
an impending referral for an Employee Plans examination, and also includes any plan
that has been under an Employee Plans examination and is in Appeals or in litigation
for issues raised in an Employee Plans examination. A plan is considered to be Under
Examination if it is aggregated for purposes of satisfying the nondiscrimination
requirements of § 401(a)(4), the minimum coverage requirements of § 410(b), or the
requirements of § 403(b)(12)(A)(i), with any plan that is Under Examination. In
addition, a plan is considered to be Under Examination with respect to a failure of a
qualification requirement (other than those described in the preceding sentence) if the
plan is aggregated with another plan for purposes of satisfying that qualification
requirement (for example, § 401(a)(30), 415, or 416) and that other plan is Under
Examination. For example, assume Plan A has a § 415 failure, Plan A is aggregated
with Plan B only for purposes of § 415, and Plan B is Under Examination. In this case,
Plan A is considered to be Under Examination with respect to the § 415 failure.
However, if Plan A has a failure relating to the spousal consent rules under § 417 or
the vesting rules of § 411, Plan A is not considered to be Under Examination with
respect to the § 417 or 411 failure. For purposes of this revenue procedure, the term
aggregation does not include consideration of benefits provided by various plans for
purposes of the average benefits test set forth in § 410(b)(2).
(3) An Employee Plans examination also includes a case in which a Plan
Sponsor has submitted any Form 5300 (Application for Determination for Employee
Benefit Plan), Form 5307 (Application for Determination for Adopters of Modified
Volume Submitter Plans), or Form 5310 (Application for Determination for Terminating
Plan) and the Employee Plans agent notifies the Plan Sponsor, or an authorized
representative, of possible failures, whether or not the Plan Sponsor is officially notified
of an “examination.” This would include a case where, for example, a Plan Sponsor
has applied for a determination letter on plan termination, and an Employee Plans
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agent notifies the Plan Sponsor that there are partial termination concerns. In addition,
if, during the review process, the agent requests additional information that indicates
the existence of a failure not previously identified by the Plan Sponsor, the plan is
considered to be under an Employee Plans examination. If, in such a case, the
determination letter request under review is subsequently withdrawn, the plan is
nevertheless considered to be under an Employee Plans examination for purposes of
eligibility under SCP and VCP with respect to those issues raised by the agent
reviewing the determination letter application. The fact that a Plan Sponsor voluntarily
submits a determination letter application does not constitute a voluntary identification
of a failure to the IRS. In order to be eligible for VCP, the Plan Sponsor (or the
authorized representative) must identify each failure, in writing, to the reviewing agent
before the agent recognizes the existence of the failure or addresses the failure in
communications with the Plan Sponsor (or the authorized representative).
(4) A Plan Sponsor that is under an Exempt Organizations examination includes
any Plan Sponsor that has received (or whose authorized representative has received)
verbal or written notification from Exempt Organizations of an impending Exempt
Organizations examination or of an impending referral for an Exempt Organizations
examination and also includes any Plan Sponsor that has been under an Exempt
Organizations examination and is now in Appeals or in litigation for issues raised in an
Exempt Organizations examination.
SECTION 6. CORRECTION PRINCIPLES AND RULES OF GENERAL
APPLICABILITY
.01 Correction principles; rules of general applicability. The general correction
principles in section 6.02 and rules of general applicability in sections 6.03 through
6.13 apply for purposes of this revenue procedure.
.02 Correction principles. Generally, a failure is not corrected unless full
correction is made with respect to all participants and beneficiaries, and for all taxable
years (whether or not the taxable year is closed). Even if correction is made for a
closed taxable year, the tax liability associated with that year will not be redetermined
because of the correction. Correction is determined taking into account the terms of
the plan at the time of the failure. Correction should be accomplished taking into
account the following principles:
(1) Restoration of benefits. The correction method should restore the plan to the
position it would have been in had the failure not occurred, including restoration of
current and former participants and beneficiaries to the benefits and rights they would
have had if the failure had not occurred.
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(2) Reasonable and appropriate correction. The correction should be
reasonable and appropriate for the failure. Depending on the nature of the failure,
there may be more than one reasonable and appropriate correction for the failure. For
Qualified Plans and § 403(b) Plans, any correction method permitted under Appendix A
or Appendix B is deemed to be a reasonable and appropriate method of correcting the
related failure. Any correction method permitted under Appendix A or Appendix B
applicable to a SEP, or a SIMPLE IRA Plan is similarly deemed to be a reasonable and
appropriate method of correcting the related failure. If a plan has a different but
analogous failure to one set forth in Appendix A or B (such as the failure to provide a
matching contribution by a governmental plan that is not subject to § 401(m)), then the
analogous correction method under Appendix A or B is generally available to correct
the failure. Whether any other particular correction method is reasonable and
appropriate is determined taking into account the applicable facts and circumstances
and the following principles:
(a) The correction method should, to the extent possible, resemble one already
provided for in the Code, regulations, or other guidance of general applicability. For
example, for Qualified Plans and § 403(b) Plans, the correction method set forth in
§1.402(g)-1(e)(2) would be the typical means of correcting a failure under § 402(g).
(b) The correction method should keep plan assets in the plan, except to the
extent the Code, regulations, or other guidance of general applicability provide for
correction by distribution to participants or beneficiaries or return of assets to the
employer. For example, if an excess allocation (not in excess of the § 415 limits) made
under a Qualified Plan was made for a participant under a plan (other than a § 401(k)
plan), the excess should be reallocated to other participants or, depending on the facts
and circumstances, used to reduce future employer contributions.
(c) The correction method for failures relating to nondiscrimination should
provide benefits for nonhighly compensated employees. For example, for Qualified
Plans, the correction method set forth in §1.401(a)(4)-11(g) (rather than methods
making use of the special testing provisions set forth in §1.401(a)(4)-8 or
§1.401(a)(4)-9) would be the typical means of correcting a failure to satisfy
nondiscrimination requirements. Similarly, the correction of a failure to satisfy the
requirements of § 401(k)(3) or 401(m)(2), or, for plan years beginning on or before
December 31, 2001, the multiple use test of § 401(m)(9) (relating to nondiscrimination),
solely by distributing excess amounts to highly compensated employees would not be
the typical means of correcting such a failure.

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(d) The correction method should not violate another applicable specific
requirement of § 401(a) or 403(b) (for example, § 401(a)(4), 411(d)(6), or 403(b)(12),
as applicable), 408(k) for SEPs, or 408(p) for SIMPLE IRA Plans, or a parallel
requirement in Part 2 of Subtitle B of Title I of ERISA (for plans that are subject to Part
2 of Subtitle B of Title I of ERISA). If an additional failure is nevertheless created as a
result of the use of a correction method in this revenue procedure, then that failure also
must be corrected in conjunction with the use of that correction method and in
accordance with the requirements of this revenue procedure.
(e) If a correction method is one that another government agency has authorized
with respect to a violation of legal requirements within its interpretive authority and that
correction relates to a violation for which there is a failure to which this revenue
procedure applies, then the IRS may take the correction method of the other
governmental agency into account for purposes of this revenue procedure. For
example:

(i) If the plan is subject to ERISA, for a failure that results from the employer
having ceased to exist, the employer no longer maintaining the plan, or similar
reasons, the permitted correction is to terminate the plan and distribute plan assets to
participants and beneficiaries in accordance with standards and procedures
substantially similar to those set forth in 29 CFR 2578.1 of the Department of Labor
regulations (relating to abandoned plans). This correction must satisfy four conditions.
First, the correction must comply with standards and procedures substantially similar to
those set forth in 29 CFR 2578.1. Second, the qualified termination administrator,
based on plan records located and updated in accordance with the Department of
Labor regulations, must have reasonably determined whether, and to what extent, the
survivor annuity requirements of §§ 401(a)(11) and 417 apply to any benefit payable
under the plan and must take reasonable steps to comply with those requirements (if
applicable). Third, each participant and beneficiary must have been provided a
nonforfeitable right to his or her accrued benefits as of the date of deemed termination
under the Department of Labor regulations, subject to Earnings between that date and
the date of distribution. Fourth, participants and beneficiaries must receive notification
of their rights under § 402(f). In addition, notwithstanding correction under this revenue
procedure, the IRS reserves the right to pursue appropriate remedies under the Code
against any party who is responsible for the plan, such as the Plan Sponsor, plan
administrator, or owner of the business, even in its capacity as a participant or
beneficiary under the plan. See also Appendix A, section .09(1), for parallel rules for
plans that are not subject to ERISA.
(ii) In the case of a violation of the fiduciary standards imposed by Part 4 of
Subtitle B of Title I of ERISA, correction under the Voluntary Fiduciary Correction
Program (VFCP) established by the Department of Labor for a fiduciary violation for
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which there is a similar failure under this revenue procedure would generally be taken
into account as correction under this revenue procedure. (See also section 7.3(b) of
the Department of Labor’s VFCP under which correction of a defaulted participant loan
that provides for repayment in accordance with § 72(p)(2) requires only submission of
the correction under VCP and inclusion of the VCP compliance statement (with proof of
any required corrective payment).)
(3) Consistency requirement. Generally, if more than one correction method is
available to correct a type of failure for a plan year (or if there are alternative ways to
apply a correction method), the correction method (or one of the alternative ways to
apply the correction method) should be applied consistently in correcting all failures of
that type for that plan year. Similarly, Earnings adjustment methods generally should
be applied consistently with respect to corrective contributions or allocations for a
particular type of failure for a plan year. In the case of a group submission, the
consistency requirement applies on a plan-by-plan basis.
(4) Principles regarding corrective allocations and corrective distributions. The
following principles apply where an appropriate correction method includes the use of
corrective allocations or corrective distributions:
(a) Corrective allocations under a defined contribution plan should be based
upon the terms of the plan and other applicable information at the time of the failure
(including the compensation that would have been used under the plan for the period
with respect to which a corrective allocation is being made) and should be adjusted for
Earnings and forfeitures that would have been allocated to the participant's account if
the failure had not occurred. However, a corrective allocation is not required to be
adjusted for losses. Accordingly, corrective allocations must include gains and may be
adjusted for losses. For additional information, see Appendix B, section 3, Earnings
Adjustment Methods and Examples.
(b) A corrective allocation to a participant's account because of a failure to make
a required allocation in a prior limitation year is not considered an annual addition with
respect to the participant for the limitation year in which the correction is made, but is
considered an annual addition for the limitation year to which the corrective allocation
relates. However, the normal rules of § 404, regarding deductions, apply.
(c) Corrective allocations should come only from employer nonelective
contributions (including forfeitures if the plan permits their use to reduce employer
contributions). For purpose of correcting a failed ADP, actual contribution percentage
(“ACP”), or multiple use test, any amounts used to fund qualified nonelective
contributions (“QNECs”) must satisfy the definition of QNEC in §1.401(k)-6.
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(d) In the case of a defined benefit plan, a corrective distribution for an individual
should be increased to take into account the delayed payment, in accordance with the
plan’s provisions for actuarial equivalence (after considering the applicable
requirements of §§ 417(e)(3) and 415(b) or any other applicable provision) that were in
effect on the date that the distribution should have been made. A corrective
distribution is not subject to the requirements of § 417(e)(3) if it is made to make up for
missed payments with respect to a benefit that is not subject to the requirements of
§ 417(e)(3).
(e)(i) In the case of a single employer defined benefit plan, a payment of
benefits that fails to satisfy the requirements of § 436(b), (c), or (e) can be corrected by
the Plan Sponsor (including another person acting on behalf of the Plan Sponsor)
making a contribution to the plan equal to the following amount (with interest up to the
date of the contribution): (A) in the case of a failure to satisfy § 436(b) with respect to
an unpredictable contingent event benefit, the amount described in § 436(b)(2) with
respect to that benefit; (B) in the case of a failure to satisfy § 436(c) with respect to an
amendment, the amount described in § 436(c)(2) with respect to that amendment; and
(C) in the case of a failure to satisfy § 436(e), the amount described in § 436(e)(2) with
respect to that failure. See also section 6.06(3) for correction of an Overpayment
(including a payment of benefits that exceeds the limitations imposed by § 436(d) or
436(b), (c), or (e)).
(ii) A corrective distribution or a corrective amendment (where a correction is
accomplished through a plan amendment) is not subject to the requirements of § 436,
but, if the plan is subject to a restriction pursuant to § 436 at the time of the correction,
generally the Plan Sponsor must make a contribution to the plan at the time of the
correction in the following amount: (A) if a corrective distribution is made in a singlesum payment or other prohibited payment (as defined in § 436(d)(5)) at a time when
the plan is subject to a restriction pursuant to § 436(d), the Plan Sponsor must
generally contribute to the plan the amount of that corrective distribution (but only half
of the corrective distribution must be contributed if the payment is made at a time when
the plan is subject to a restriction pursuant to § 436(d)(3)); and (B) if a corrective
amendment is made at a time when the plan is subject to a restriction pursuant to
§ 436(c), the Plan Sponsor must generally contribute to the plan an amount equal to
the increase in the funding target of the plan (as defined in § 430) attributable to that
amendment. No contribution is required to be made under this paragraph (e)(ii) if the
corrective distribution is made in a form that is not a prohibited payment (for example, if
the correction is made by actuarially increasing future payments that are made in a
form that is not a prohibited payment).
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(iii) Any contribution made by the Plan Sponsor pursuant to this paragraph (e) is
treated in the same manner as a “section 436 contribution” (as defined in
§1.436-1(j)(7)). Thus, the contribution is treated as separate from a minimum required
contribution under § 430 and is disregarded in determining the amount added to a
prefunding balance under § 430(f)(6). See §1.436-1(f)(2) generally for rules relating to
§ 436 contributions.
(f) In the case of a defined contribution plan, a corrective contribution or
distribution should be adjusted for Earnings from the date of the failure (determined
without regard to any Code provision which permits a corrective contribution or
distribution to be made at a later date).
(5) Special exceptions to full correction. In general, a failure must be fully
corrected. Although the mere fact that correction is inconvenient or burdensome is not
enough to relieve a Plan Sponsor of the need to make full correction, full correction
may not be required in certain situations if it is unreasonable or not feasible. Even in
these situations, the correction method adopted must be one that does not have
significant adverse effects on participants and beneficiaries or the plan, and that does
not discriminate significantly in favor of highly compensated employees. The
exceptions described below specify those situations in which full correction is not
required.
(a) Reasonable estimates. If either (i) it is possible to make a precise
calculation but the probable difference between the approximate and the precise
restoration of a participant's benefits is insignificant and the administrative cost of
determining precise restoration would significantly exceed the probable difference or
(ii) it is not possible to make a precise calculation (for example, where it is impossible
to provide plan data), reasonable estimates may be used in calculating appropriate
correction. If it is not feasible to make a reasonable estimate of what the actual
investment results would have been, a reasonable interest rate may be used. For this
purpose, the interest rate used by the Department of Labor’s VFCP Online Calculator
is deemed to be a reasonable interest rate. The calculator can be found at
https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-andcompliance/correction-programs/vfcp.
(b) Delivery of small benefits. If the total corrective distribution due a participant
or beneficiary is $75 or less, the Plan Sponsor is not required to make the corrective
distribution if the reasonable direct costs of processing and delivering the distribution to
the participant or beneficiary would exceed the amount of the distribution. This section
6.02(5)(b) does not apply to corrective contributions. Corrective contributions are
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required to be made with respect to a current or former participant, without regard to
the amount of the corrective contributions.
(c) Recovery of small Overpayments. Generally, if the total amount of an
Overpayment to an Overpayment recipient is $250 or less, the Plan Sponsor is not
required to seek the return of the Overpayment from the Overpayment recipient. Also,
the Plan Sponsor is not required to notify the Overpayment recipient that an
Overpayment of $250 or less is ineligible for favorable tax treatment accorded to
distributions from the plan (and, specifically, is ineligible for tax-free rollover).
(d) Locating lost participants. (i) Reasonable actions must be taken to find all
current and former participants and beneficiaries to whom additional benefits are due,
but who have not been located after a mailing to the last known address. In general,
such actions include, but are not limited to, a mailing to the individual’s last known
address using certified mail, and, if that is unsuccessful, an additional search method,
such as the use of a commercial locator service, a credit reporting agency, or internet
search tools. Depending on the facts and circumstances, the use of more than one of
these additional search methods may be appropriate. A Plan Sponsor will not be
considered to have failed to correct a failure due to the inability to locate an individual if
reasonable actions to locate the individual have been undertaken in accordance with
this paragraph; provided that, if the individual is later located, the additional benefits
are provided to the individual at that time.
(ii) The IRS Letter Forwarding Program was modified to provide that the IRS
would no longer forward letters from individuals, companies or organizations that
control assets that may be due taxpayers. See Rev. Proc. 2012-35, 2012-37
I.R.B. 341. Therefore, the IRS Letter Forwarding Program is not available as a means
to search for participants and beneficiaries to whom benefits under the plan are due.
(e) Small Excess Amounts. Generally, if the total amount of an Excess Amount
with respect to the benefit of a participant or beneficiary is $250 or less, the Plan
Sponsor is not required to distribute or forfeit such Excess Amount. However, if the
Excess Amount exceeds a statutory limit, the participant or beneficiary must be notified
that the Excess Amount, including any investment gains, is not eligible for favorable tax
treatment accorded to distributions from the plan (and, specifically, is not eligible for
tax-free rollover). See section 6.06(1) for such notice requirements.
(f) Orphan Plans. The IRS retains the discretion to determine under VCP and
Audit CAP whether full correction will be required with respect to a terminating Orphan
Plan.
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(6) Correction principle for plan loan failures. In the case of a plan loan failure
corrected in accordance with section 6.07(3)(b), (c), or (d), the participant is generally
responsible for paying the corrective payment. However, with respect to the failure
listed in section 6.07(3)(d), the employer should pay a portion of the correction
payment on behalf of the participant equal to the interest that accumulates as a result
of such failure, generally determined at a rate equal to the greater of the plan loan
interest rate or the rate of return under the plan.
(7) Correction for exclusion of employees with respect to elective deferrals or
after-tax employee contributions. If a Qualified Plan or § 403(b) Plan has an
Operational Failure that consists of excluding an employee that should have been
eligible to make an elective deferral or an after-tax employee contribution, the employer
should contribute to the plan on behalf of the excluded employee an amount that
makes up for the value of the lost opportunity for the employee to have a portion of his
or her compensation contributed to the plan accumulated with earnings tax deferred in
the future. This correction principle applies solely to this limited circumstance. It does
not, for example, extend to the correction of a failure to satisfy a nondiscrimination test,
such as, the ADP test pursuant to § 401(k)(3) and the ACP test pursuant to
§ 401(m)(2). Specific methods and examples to correct this failure are provided in
Appendix A, section .05, and Appendix B, section 2.02. Similarly, the methods and
examples provided for correcting this failure do not extend to other failures. Thus, the
correction methods and the examples in Appendix A, section .05 and Appendix B,
section 2.02, cannot, for example, be used to correct ADP/ACP failures.
(8) Correction by plan amendment in VCP, Audit CAP, and SCP. For the
availability of correction by plan amendment, see section 4.05.
(9) Reporting. Any corrective distributions from the plan should be properly
reported.
.03 Correction of an Employer Eligibility Failure. (1) The permitted correction of
an Employer Eligibility Failure is the cessation of all contributions (including elective
deferrals and after-tax employee contributions). For VCP submissions, the cessation
must occur no later than the date the submission under VCP is filed. The assets in
such a plan are to remain in the trust, annuity contract, or custodial account and are to
be distributed no earlier than the occurrence of one of the applicable distribution
events, for example, for § 403(b) Plans, an event described in § 403(b)(7) (to the
extent the assets are held in custodial accounts) or § 403(b)(11) (for those assets
invested in annuity contracts that would be subject to § 403(b)(11) restrictions if the
employer were eligible).
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(2) Cessation of contributions is not required if continuation of contributions
would not be an Employer Eligibility Failure (for example, with respect to a tax-exempt
employer that may maintain a § 401(k) plan after 1996). In the case of a § 403(b)
Failure that is an Employer Eligibility Failure, correction may include treating
contributions as not being excluded under § 403(b) (and thus the contributions would
be treated as having been contributed, for example, to an annuity contract to which
§ 403(c) applies).
(3) A plan that is corrected through VCP or Audit CAP is treated as subject to all
of the requirements and provisions of §§ 401(a) for a Qualified Plan, 403(b) for a
§ 403(b) Plan, 408(k) for a SEP, and 408(p) for a SIMPLE IRA Plan (including Code
provisions relating to rollovers). Therefore, the Plan Sponsor must also correct all
other failures in accordance with this revenue procedure.
(4) If correction is accomplished under VCP or Audit CAP in accordance with the
requirements of this section 6.03, then any rollovers made from the plan pursuant to a
distributable event are deemed to have been made from an eligible retirement plan (as
defined in § 402(c)(8)(B)) for the purpose of determining whether the amounts qualify
as an eligible rollover distribution under § 402(c) or 403(b)(8) (including the
determination of excess contributions that are subject to the § 4973 excise tax).
.04 Correction of a failure to obtain spousal consent. (1) In general. Failures to
obtain spousal consent described in this section 6.04 may be corrected under VCP,
SCP, or Audit CAP. Normally, the correction method for a failure to obtain spousal
consent for a distribution that is subject to the spousal consent rules under
§§ 401(a)(11) and 417 is similar to the correction method described in Appendix A,
section .07. The Plan Sponsor must notify the affected participant and spouse (the
spouse to whom the participant was married at the time of the distribution), so that the
spouse can provide spousal consent to the distribution actually made or the participant
may repay the distribution and receive a qualified joint and survivor annuity.
(2) Alternative correction methods when spousal consent is not obtained. (a) In
general. As alternatives to the correction method in section 6.04(1), correction for a
failure to obtain spousal consent may be made under either section 6.04(2)(b) or
section 6.04(2)(c).
(b) QJSA option. In the event that spousal consent to the prior distribution is not
obtained (for example, because the spouse chooses not to consent, the spouse does
not respond to the notice, or the spouse cannot be located), the spouse is entitled to a
benefit under the plan equal to the portion of the qualified joint and survivor annuity that
would have been payable to the spouse upon the death of the participant had a
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qualified joint and survivor annuity been provided to the participant under the plan at
the annuity starting date for the prior distribution. Such spousal benefit must be
provided if a claim is made by the spouse.
(c) Election between annuity and single-sum payment. In the event that spousal
consent to the prior distribution is not obtained, the plan may offer the spouse the
choice between (i) the survivor annuity benefit described in section 6.04(2)(b) or (ii) a
single-sum payment equal to the actuarial present value of that survivor annuity benefit
(calculated using the applicable interest rate and mortality table under § 417(e)(3)).
Any such single-sum payment is treated in the same manner as a distribution under
§ 402(c)(9) for purposes of rolling over the payment to an IRA or other eligible
retirement plan. In the event that the plan is subject to a restriction on the payment of
single sums pursuant to § 436(d) at the time the plan offers this choice to the spouse
and the spouse elects to receive a single-sum payment, the Plan Sponsor must
contribute to the plan the applicable amount under section 6.02(4)(e)(ii)(A).
.05 Determination letter application not permitted. (1) In general. A
determination letter application may not be submitted with a VCP submission.
(a) Issuance of compliance statement or closing agreement for Plan Document
Failures corrected through plan amendment under VCP or Audit CAP. The issuance of
a compliance statement or closing agreement for Plan Document Failures corrected
through plan amendment under VCP or Audit CAP does not constitute a determination
that the terms of the plan, including the corrective plan amendment, satisfy the
qualification requirements in form. See section 10.08(2)(a) and (b).
(b) Issuance of compliance statement or closing agreement for Operational
Failures corrected through plan amendment under VCP or Audit CAP. If a Plan
Sponsor submits a VCP filing correcting an Operational Failure through a plan
amendment or corrects such a failure under Audit CAP, and the plan amendment is
accepted as a proper correction, then the compliance statement under VCP or closing
agreement issued under Audit CAP constitutes a determination that the Operational
Failure has been corrected, but is not a determination that the terms of the plan,
including the corrective plan amendment, satisfy the qualification requirements in form.
See section 10.08(2)(c).
(2) Corrective amendments to Pre-approved Plans. (a) Effect of corrective
amendment. Generally, under VCP or Audit CAP, a Plan Sponsor that is an adopter of
a Pre-approved Plan or a § 403(b) Pre-approved Plan may amend its plan to correct a
Qualification Failure or a § 403(b) Failure (provided the requirements of EPCRS are
satisfied and the amendment satisfies the requirements of the Code). In some cases,
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the corrective amendment is not provided for among plan provision options that were
pre-approved when the opinion or advisory letter was issued with respect to the plan.
As a result, adopting such a corrective amendment would cause the Plan Sponsor to
lose reliance on the plan’s opinion or advisory letter, except in the limited
circumstances provided in section 6.05(2)(b).
(b) Exception for certain amendments. In the case of a Pre-approved Plan or a
§ 403(b) Pre-approved Plan, the adoption of a plan provision required to correct a
failure under VCP or Audit CAP that is not provided for in the adoption agreement will
not cause the Plan Sponsor to lose its reliance on the plan’s opinion or advisory letter,
provided that: (i) the corrective amendment would otherwise be permitted under the
rules for Pre-approved Plans or § 403(b) Pre-approved Plans, as applicable, and (ii) no
other modification has been made to the plan that would cause the plan to lose its
reliance on the opinion or advisory letter. If these conditions are satisfied, the Plan
Sponsor will be allowed to continue to rely on the plan’s opinion or advisory letter. In
addition, the adoption of the corrective amendment will not cause the Pre-approved
Plan to lose its eligibility to remain within the six-year remedial amendment cycle
provided for in Rev. Proc. 2016-37, as modified, on a continuing basis until the
expiration of the next six-year remedial amendment cycle described in section 16.01 of
Rev. Proc. 2016-37, as modified.
.06 Special rules relating to Excess Amounts. (1) Treatment of Excess
Amounts. A distribution of an Excess Amount is not eligible for the favorable tax
treatment accorded to distributions from Qualified Plans or § 403(b) Plans (such as
eligibility for tax-free rollover). Thus, for example, if such a distribution was contributed
to an IRA, the contribution is not a valid rollover contribution for purposes of
determining the amount of excess contributions (within the meaning of § 4973) to the
individual's IRA. A distribution of an Excess Amount is generally treated in the manner
described in section 3 of Rev. Proc. 92-93, 1992-2 C.B. 505 (relating to the corrective
disbursement of elective deferrals). The distribution must be reported on Form
1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans,
IRAs, Insurance Contracts, etc., for the year of distribution with respect to each
participant or beneficiary receiving such a distribution. Except as otherwise provided in
section 6.02(5)(c) with respect to recovery of small Overpayments, where an Excess
Amount has been or is being distributed, the Plan Sponsor must notify the recipient
that (a) an Excess Amount has been or will be distributed and (b) an Excess Amount is
not eligible for favorable tax treatment accorded to distributions from an eligible
retirement plan, as defined in § 402(c)(8)(B) (and, specifically, is not eligible for
rollover).

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(2) Correction of Excess Allocations. In general, an Excess Allocation is
corrected in accordance with the Reduction of Account Balance Correction Method set
forth in this paragraph. Under this method, the account balance of an employee who
received an Excess Allocation is reduced by the Excess Allocation (adjusted for
Earnings). If the Excess Allocation would have been allocated to other employees in
the year of the failure had the failure not occurred, then that amount (adjusted for
Earnings) is reallocated to those employees in accordance with the plan's allocation
formula. If the improperly allocated amount would not have been allocated to other
employees absent the failure, that amount (adjusted for Earnings) is placed in a
separate account that is not allocated on behalf of any participant or beneficiary (an
unallocated account) established for the purpose of holding Excess Allocations,
adjusted for Earnings, to be used to reduce employer contributions (other than elective
deferrals) in the current year or succeeding year. While such amounts remain in the
unallocated account, the employer is not permitted to make contributions to the plan
other than elective deferrals. Excess Allocations that are attributable to elective
deferrals or after-tax employee contributions (adjusted for Earnings) must be
distributed to the participant. For qualification purposes, an Excess Allocation that is
corrected pursuant to this paragraph is disregarded for purposes of §§ 402(g) and 415,
the ADP test of § 401(k)(3), and the ACP test of § 401(m)(2). If an Excess Allocation
resulting from a violation of § 415 consists of annual additions attributable to both
employer contributions and elective deferrals or after-tax employee contributions, then
the correction of the Excess Allocation is completed by first distributing the unmatched
employee’s after-tax contributions (adjusted for Earnings) and then the unmatched
employee’s elective deferrals (adjusted for Earnings). If any excess remains, and is
attributable to either elective deferrals or after-tax employee contributions that are
matched, the excess is apportioned first to after-tax employee contributions with the
associated matching employer contributions and then to elective deferrals with the
associated matching employer contributions. Any matching contribution or nonelective
employer contribution (adjusted for Earnings) which constitutes an Excess Allocation is
then forfeited and placed in an unallocated account established for the purpose of
holding Excess Allocations to be used to reduce employer contributions in the current
year and succeeding year. Such unallocated account is adjusted for Earnings. While
such amounts remain in the unallocated account, the employer is not permitted to
make contributions (other than elective deferrals) to the plan.
(3) Correction of Overpayments (defined benefit plans). An Overpayment from
a defined benefit plan is corrected in accordance with the rules set forth in this section
6.06(3) and Appendix B, section 2.05.
(a) In general, subject to the conditions set forth in section 4.05 (which permits
correction by plan amendment under VCP, Audit CAP, and, under limited
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circumstances, SCP), a Plan Sponsor may correct an Overpayment by adopting a
retroactive amendment to conform to the plan’s operation.
(b) If the Overpayment is not corrected by plan amendment, the Plan Sponsor
may correct the Overpayment in accordance with the correction methods set forth in
section 6.06(3)(c) and (d) and Appendix B, section 2.05. In those cases, the following
rules apply:
(i) With regard to Overpayments involving periodic payments, future payments
must be reduced as soon as practicable either to reflect the correct amount payable to
the Overpayment recipient under the terms of the plan, or to satisfy a limitation
provided in the Code or regulations;
(ii) Except as provided in section 6.02(5)(c) with respect to the recovery of small
Overpayments, the Plan Sponsor must notify the Overpayment recipient in writing that
the Overpayment is not eligible for favorable tax treatment accorded to distributions
from an eligible retirement plan, as defined in § 402(c)(8)(B) (and, specifically, is not
eligible for tax-free rollover); and
(iii) Except as provided in section 6.02(5)(c) with respect to the recovery of small
Overpayments, and except as otherwise provided in this section 6.06(3) and Appendix
B, section 2.05, to the extent the amount of an Overpayment adjusted for Earnings at
the plan’s earnings rate is not repaid to the plan, the Plan Sponsor or another person
must contribute the difference to the plan.
(c) An Overpayment may be corrected in accordance with the return of
Overpayment correction method (including repayment through an installment
agreement) or the adjustment of future payments correction method, as described in
Appendix B, section 2.05(2). Plan Sponsors may permit an Overpayment recipient to
choose the method of repayment that will apply to the correction of the Overpayment.
(d) If the applicable requirements are satisfied, an Overpayment may be
corrected in accordance with the funding exception correction method described in
Appendix B, section 2.05(3), or the contribution credit correction method described in
Appendix B, section 2.05(4).
(i) In general, under the funding exception correction method, in the case of a
plan subject to § 436, no corrective payments are necessary with regard to an
Overpayment, provided that the certified or presumed AFTAP determined under § 436
that is applicable to the plan at the date of correction is equal to at least 100 percent
(or, in the case of a multiemployer plan, the plan’s most recent annual funding
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certification indicates that the plan is not in critical, critical and declining, or endangered
status, as defined in § 432, determined at the date of correction). As provided in
section 6.06(3)(b)(i), future benefit payments to an Overpayment recipient must be
reduced to the correct benefit payment amount. For purposes of EPCRS, no further
corrective payments from any party are required, no further reductions to future benefit
payments to an Overpayment recipient, or any spouse or beneficiary of an
Overpayment recipient, are permitted, and no further corrective payments from an
Overpayment recipient, or any spouse or beneficiary of an Overpayment recipient, are
permitted. See Appendix B, section 2.05(3), for additional details and eligibility
requirements regarding the funding exception correction method.
(ii) Under the contribution credit correction method, in general, the amount of
Overpayments required to be repaid to the plan is the amount of the Overpayments
reduced (but not below zero) by: (A) the cumulative increase in the plan’s minimum
funding requirements attributable to the Overpayments (including the increase
attributable to the overstatement of liabilities, whether funded through cash
contributions or through the use of a funding standard carryover balance, prefunding
balance, or funding standard account credit balance) beginning with (1) the plan year
for which the Overpayments are taken into account for funding purposes, through (2)
the end of the plan year preceding the plan year for which the corrected benefit
payment amount is taken into account for funding purposes; and (B) certain additional
contributions in excess of minimum funding requirements paid to the plan after the first
of the Overpayments was made. This reduction is referred to as a “contribution credit.”
As provided in section 6.06(3)(b)(i), future benefit payments to an Overpayment
recipient must be reduced to the correct benefit payment amount. For purposes of
EPCRS, if the amount of the Overpayments is reduced to zero after the contribution
credit is applied, no further corrective payments from any party are required, no further
reductions to future benefit payments to an Overpayment recipient, or any spouse or
beneficiary of an Overpayment recipient, are permitted, and no further corrective
payments from an Overpayment recipient, or any spouse or beneficiary of an
Overpayment recipient, are permitted. However, if a net Overpayment remains after
the application of the contribution credit, the Plan Sponsor or another party must take
further action to reimburse the plan for the remainder of the Overpayment. See
Appendix B, section 2.05(4), for additional details and eligibility requirements regarding
the contribution credit correction method.
(e) Depending on the nature of the Overpayment, other appropriate correction
methods may be used. An appropriate correction method may include using rules
similar to the correction methods described in Appendix B, section 2.05, but having the
Plan Sponsor or another person contribute the amount of the Overpayment (with
appropriate interest) to the plan instead of seeking recoupment from an Overpayment
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recipient. Any other correction method used must satisfy the correction principles of
section 6.02 and any other applicable rules in this revenue procedure.
(4) Correction of Overpayments (defined contribution plans and § 403(b) Plans).
An Overpayment from a defined contribution plan or § 403(b) Plan is corrected in
accordance with the rules set forth in this section 6.06(4) and Appendix B, section 2.04.
(a) Correction by plan amendment. In general, subject to the conditions set
forth in section 4.05 (which permits correction by plan amendment under VCP, Audit
CAP, and, under limited circumstances, SCP), a Plan Sponsor may correct an
Overpayment by amending the plan to conform to the plan’s operation.
(b) Rules relating to Overpayment correction methods. If the Overpayment is
not corrected by plan amendment, the Plan Sponsor may correct the Overpayment in
accordance with the correction methods set forth in sections 6.06(4)(c), (d), and (e),
and Appendix B, section 2.04. In those cases, the following rules apply:
(i) With regard to Overpayments involving periodic payments, future payments
must be reduced as soon as practicable either to reflect the correct amount payable to
the Overpayment recipient under the terms of the plan, or to satisfy a limitation
provided in the Code or regulations;
(ii) Except as provided in section 6.02(5)(c) with respect to the recovery of small
Overpayments, the Plan Sponsor must notify the Overpayment recipient in writing that
the Overpayment was not eligible for favorable tax treatment accorded to distributions
from an eligible retirement plan, as defined in § 402(c)(8)(B), (and, specifically, was not
eligible for tax-free rollover); and
(iii) Except as provided in section 6.02(5)(c) with respect to the recovery of small
Overpayments, to the extent the amount of an Overpayment adjusted for Earnings at
the plan’s earnings rate from the date of distribution to the date of the correction is not
repaid to the plan, the Plan Sponsor or another person must contribute the difference
to the plan. The preceding sentence does not apply when the failure arose solely
because a payment was made from the plan to an Overpayment recipient in the
absence of a distributable event (but was otherwise determined in accordance with the
terms of the plan (for example, an impermissible in-service distribution)).
(c) Return of Overpayment correction method. An Overpayment may be
corrected in accordance with the return of Overpayment correction method (including
repayment through an installment agreement). Under this method, the employer takes
reasonable steps to have the Overpayment repaid to the plan by the Overpayment
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recipient, adjusted for Earnings at the plan’s earnings rate from the date of the
distribution to the date of the correction of the Overpayment. Plan Sponsors may
permit an Overpayment recipient to choose the method of repayment that will apply to
the correction of the Overpayment.
(d) Unallocated account. Except as provided in section 6.06(4)(e), a corrected
Overpayment, adjusted for Earnings at the plan's earnings rate to the date of the
repayment, is to be placed in an unallocated account, as described in section 6.06(2),
to be used to reduce employer contributions (other than elective deferrals) in the
current year and succeeding year(s) (or, if the amount would have been allocated to
other eligible employees who were in the plan for the year of the failure if the failure
had not occurred, then that amount is reallocated to the other eligible employees in
accordance with the plan's allocation formula).
(e) Repayment by the Overpayment recipient. To the extent an Overpayment
results solely from a distribution of an Overpayment recipient’s benefit under the plan in
the absence of a distributable event but the Overpayment was otherwise determined in
accordance with the terms of the plan, any amount returned to the plan by the
Overpayment recipient is to be allocated to his or her account.
(f) Other appropriate correction methods. Depending on the nature of the
Overpayment, other appropriate correction methods may be used. An appropriate
correction method may include using rules similar to the correction method in section
6.06(4)(b) but having the employer or another person contribute the amount of the
Overpayment (with appropriate interest) to the plan instead of seeking recoupment
from an Overpayment recipient. Any other correction method used must satisfy the
correction principles of section 6.02 and any other applicable rules of this revenue
procedure.
.07 Correction of plan loan failures. (1) In general. Plan loan failures may be
corrected under VCP, SCP, or Audit CAP, unless otherwise specified in this section
6.07.
(2) Plan loan failures treated as deemed distributions under § 72(p). Unless
correction is made in accordance with section 6.07(3) (to the extent applicable), a
deemed distribution under § 72(p)(1) in connection with a failure relating to a plan loan
to a participant must be reported on Form 1099-R, Distributions From Pensions,
Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., with
respect to the affected participant, and any applicable income tax withholding amount
that was required to be paid in connection with the failure (see §1.72(p)-1, Q&A-15)
must be paid by the employer. In this case, the deemed distribution may be reported
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on Form 1099-R with respect to the affected participant for the year of correction
(instead of the year of the failure).
(3) Correction methods for certain § 72(p) plan loan failures. (a) In general. The
correction methods set forth in section 6.07(3)(b), (c), and (d) apply to plan loans that
do not comply with one or more requirements of § 72(p)(2); however, these correction
methods are not available if the maximum period for repayment of the loan pursuant to
§ 72(p)(2)(B) has expired. Further, the IRS reserves the right to limit the use of these
correction methods to situations that it considers appropriate, for example, if the loan
failure is caused by employer action. A deemed distribution corrected under section
6.07(3)(b), (c), or (d) is not required to be reported on Form 1099-R, and corrective
payments under section 6.07(3) do not result in the affected participant having
additional basis in the plan for purposes of determining the tax treatment of subsequent
distributions from the plan to the affected participant.
(b) Loans in excess of § 72(p)(2)(A). A failure of plan loan terms to satisfy
§ 72(p)(2)(A) may be corrected only under VCP or Audit CAP. The failure may be
corrected by a corrective payment to the plan based on the excess of the loan amount
over the maximum loan amount under § 72(p)(2)(A). In the event that loan repayments
were made in accordance with the amortization schedule for the loan before correction,
such prior repayments may be applied (i) solely to reduce the portion of the loan that
did not exceed the maximum loan amount under § 72(p)(2)(A) (so that the corrective
payment would equal the original loan excess plus interest thereon), (ii) to reduce the
loan excess to the extent of the interest thereon, with the remainder of the repayments
applied to reduce the portion of the loan that did not exceed the maximum loan amount
under § 72(p)(2)(A) (so that the corrective payment would equal the original loan
excess), or (iii) pro rata against the loan excess and the maximum loan amount under
§ 72(p)(2)(A) (so that the corrective payment would equal the outstanding balance
remaining on the original loan excess on the date that the corrective payment is made).
After the corrective payment is made, the loan may be reformed to amortize the
remaining principal balance as of the date of the corrective payment over the remaining
period of the original loan. This is permissible as long as the recalculated repayments
over the remaining loan period would not cause the loan to violate the maximum
repayment term requirement under § 72(p)(2)(B). The maximum repayment term is
determined from the date the original loan was made. In addition, the amortized
repayments determined for the remaining loan period must comply with the level
amortization requirement of § 72(p)(2)(C).
(c) Plan loan terms that do not satisfy § 72(p)(2)(B) or (C). A failure of plan loan
terms to satisfy the maximum repayment term requirement of § 72(p)(2)(B) or the level
amortization requirement of § 72(p)(2)(C) may be corrected only under VCP or Audit
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CAP. The failure may be corrected by a reamortization of the loan balance in
accordance with § 72(p)(2)(C) over the remainder of the maximum period that complies
with § 72(p)(2)(B), as measured from the original date of the loan.
(d) Defaulted loans. A failure to repay a loan in accordance with loan terms that
satisfy § 72(p)(2) may be corrected by (i) a single-sum corrective payment equal to the
amount that the affected participant would have paid to the plan if there had been no
failure to repay the plan, plus interest accrued on the missed payments, (ii)
reamortizing the outstanding balance of the loan, including accrued interest, over the
remaining payment schedule of the original term of the loan or the period remaining
had the loan been amortized over the maximum period that complies with
§ 72(p)(2)(B), as measured from the original date of the loan, or (iii) any combination of
(i) or (ii).
(e) No requirement for plan provisions. This section 6.07 applies even if the
plan does not require loans to satisfy the requirements of § 72(p)(2). However, under
the Department of Labor’s VFCP, to correct the ERISA fiduciary violations associated
with the failures described in section 6.07(3)(b), (c), and (d), the plan must include plan
provisions requiring that loans comply with § 72(p)(2)(A), (B), and (C).
(4) Failure to obtain spousal consent for a plan loan. (a) Spousal consent
obtained. The correction method for the failure to obtain spousal consent for a plan
loan is that the Plan Sponsor must notify the affected participant and spouse (the
spouse to whom the participant was married at the time of the plan loan), so that the
spouse can provide spousal consent to the plan loan.
(b) No spousal consent obtained. If spousal consent is not obtained, as
described in section 6.07(4)(a), the failure to obtain spousal consent for a plan loan
must be corrected under either VCP or Audit CAP.
(5) Number of loans exceeds a loan limitation established by plan. An
Operational Failure that results from a participant obtaining a number of loans that
exceeds the number of loans permitted under the terms of the plan may be corrected
by adopting a plan amendment in accordance with the correction method set forth in
Appendix B, section 2.07(3).
.08 Correction under statute or regulations. Generally, none of the correction
programs is available to correct failures that can be corrected under the Code and
related regulations. For example, as a general rule, a Plan Document Failure that is a
disqualifying provision for which the remedial amendment period under § 401(b) has
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not expired can be corrected under provisions of the Code through retroactive remedial
amendment.
.09 Matters subject to excise or other taxes. (1) General rule. Except as
provided in this revenue procedure, the correction programs are not available for
events for which the Code provides tax consequences other than plan disqualification
(such as the imposition of an excise tax or additional income tax). For example,
funding deficiencies (failures to make the required contributions to a plan subject to
§ 412), prohibited transactions, and failures to file the Form 5500 series cannot be
corrected under this revenue procedure.
(2) Section 4974. As part of VCP and Audit CAP, if a failure involves the failure
to satisfy the minimum required distribution requirements of § 401(a)(9), in appropriate
cases, the IRS will waive the excise tax under § 4974 applicable to plan participants or
beneficiaries. The waiver will be included in the compliance statement or in the closing
agreement in the case of Audit CAP. Under VCP, the Plan Sponsor, as part of the
submission, must request the waiver and, in cases where the participant subject to the
excise tax is either an owner-employee as defined in § 401(c)(3) or a 10 percent owner
of a corporation, the Plan Sponsor must also provide an explanation supporting the
request. Under Audit CAP, the Plan Sponsor must make a specific request for waiver
of the excise tax under § 4974. The Plan Sponsor should also provide an explanation
supporting the request for a waiver. Upon reviewing the request, the reasons for the
failure, and other facts or circumstances of the case under examination, the IRS will
determine whether it is appropriate to approve the waiver of the excise tax as part of
the closing agreement negotiated under Audit CAP.
(3) Section 4972. As part of VCP, if the failure involves a correction that
requires the Plan Sponsor to make a plan contribution that is not deductible, in
appropriate cases, the IRS will not pursue the excise tax under § 4972 on such
nondeductible contributions. The Plan Sponsor, as part of the submission must
request the relief and provide an explanation supporting the request.
(4) Section 4979. As part of VCP, if a failure results in excess contributions as
defined in § 4979(c) or excess aggregate contributions as defined in § 4979(d) under a
plan, in appropriate cases, the IRS will not pursue the excise tax under § 4979, for
example, where correction is made for any case in which the ADP test was timely
performed but, due to reliance on inaccurate data, resulted in an insufficient amount of
excess elective deferrals having been distributed to HCEs. The Plan Sponsor, as part
of the submission, must request the relief and provide an explanation supporting the
request.
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(5) Section 4973. Subject to section 6.03(4), as part of VCP, in appropriate
cases, the IRS will not pursue the excise tax under § 4973 relating to excess
contributions made to a § 403(b) Plan or IRA under any of the following circumstances:
(a) As part of the proposed correction for Overpayments, the Overpayment
recipient removes the Overpayment (adjusted for Earnings) from the Overpayment
recipient’s § 403(b) Plan or IRA and returns that amount to the plan.
(b) As part of the proposed correction for Excess Amounts, the recipient
removes the Excess Amount (adjusted for Earnings) from the recipient’s § 403(b) Plan
or IRA and reports that amount (reduced by any applicable after-tax employee
contribution) as a taxable distribution for the year in which the Excess Amount
(adjusted for Earnings) is removed from the recipient’s § 403(b) Plan or IRA. The
amount removed is generally taxed in a manner that is similar to the manner in which
the corrective disbursement of elective deferrals is taxed, as described in section 3 of
Rev. Proc. 92-93.
(c) The Plan Sponsor, as part of the submission, must request relief from the
§ 4973 excise tax and provide an explanation supporting the request.
(6) Section 72(t). As part of VCP, in appropriate cases, the IRS will not pursue
the 10 percent additional income tax under § 72(t) (or will pursue only a portion thereof)
if, as part of the proposed correction of an Overpayment that occurred solely because
an employee received a distribution from his or her vested account balance that was
not a distributable event, the participant or beneficiary (“recipient”) returns the
improperly distributed amount, adjusted for Earnings, to the plan. If the improperly
distributed amount was rolled over to the recipient’s IRA, then correction will include
removing the amount improperly distributed and rolled over (adjusted for Earnings)
from the recipient’s IRA and returning that amount to the plan. In appropriate cases, as
a condition for not pursuing all or a portion of the additional tax, the IRS may require
the Plan Sponsor to pay a sanction not in excess of the 10 percent additional income
tax under § 72(t). The Plan Sponsor, as part of the submission, must request the relief
and provide an explanation supporting the request.
.10 Correction for § 403(b) Plans. (1) Correction for § 403(b) Plans generally.
Except as provided in sections 6.03(2) and 6.10(2), the correction for a § 403(b) Plan is
expected to be the same as the correction required for a Qualified Plan with the same
Failure (that is, a Plan Document Failure, Operational Failure, Demographic Failure, or
Employer Eligibility Failure).

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(2) Special correction principles. In general, a § 403(b) Failure can be corrected
by treating a contract as a § 403(c) annuity contract (or, if applicable, as an amount to
which § 61, 83, or 402(b) applies), such as for purposes of correcting an Employer
Eligibility Failure, a failure to provide for full vesting (including a failure to maintain a
separate account), or an exchange made to a vendor which is not part of the plan (and
for which there is no information sharing agreement). In addition, for purposes of this
revenue procedure, a § 403(b) Plan will be treated as having a Favorable Letter if
either (a) the employer is an eligible employer and, on or before December 31, 2009
(or the date a § 403(b) Plan is established, if later), the employer has adopted a written
§ 403(b) Plan that is intended to satisfy § 403(b) (including the regulations thereunder)
effective as of January 1, 2009 (or the first day of the plan year in which a § 403(b)
Plan is established, if later), or (b) the employer has failed to adopt a written § 403(b)
Plan timely and corrects the failure in accordance with section 6.10(3) below. In
addition, for purposes of section 4.04 (requiring that the Plan Sponsor or administrator
of the plan have established practices and procedures reasonably designed to promote
and facilitate overall compliance with applicable Code requirements in order to be
eligible for SCP to be available to correct Operational Failures and Plan Document
Failures), the requirement to have established practices and procedures only applies
for failures during periods after December 31, 2009.
(3) Correction for failure to adopt a written § 403(b) Plan timely. A failure to
adopt a written § 403(b) Plan timely in accordance with the final regulations under
§ 403(b) and Notice 2009-3 may be corrected under VCP or Audit CAP. The issuance
of a compliance statement or closing agreement for the failure to adopt a written
§ 403(b) Plan timely will result in the written § 403(b) Plan being treated as if it had
been adopted timely for the purpose of making available the extended remedial
amendment period set forth in Rev. Proc. 2017-18, 2017-5 I.R.B. 743, as modified by
Notice 2020-35, 2020-25 I.R.B. 948. However, the issuance of a compliance
statement or closing agreement does not constitute a determination as to whether the
written plan, as drafted, complies with the applicable requirements of § 403(b) of the
Code and the final § 403(b) regulations.
.11 Correction for SEPs and SIMPLE IRA Plans. (1) Correction for SEPs and
SIMPLE IRA Plans generally. Generally, the correction for a SEP or a SIMPLE IRA
Plan is expected to be similar to the correction required for a Qualified Plan with a
similar Qualification Failure (that is, a Plan Document Failure, Operational Failure,
Demographic Failure, or Employer Eligibility Failure).
(2) Special correction for SEPs and SIMPLE IRA Plans. In any case in which
correction under section 6.11(1) is not feasible for a SEP or SIMPLE IRA Plan or in any
other case determined by the IRS in its discretion (including failures relating to
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§ 402(g), 415, or 401(a)(17), failures relating to deferral percentages, discontinuance of
contributions to a SARSEP or SIMPLE IRA Plan, and retention of Excess Amounts for
cases in which there has been no violation of a statutory limitation with respect to a
SEP or SIMPLE IRA Plan), the IRS may provide for a different correction.
(3) Correction of failure to satisfy deferral percentage test. If the failure involves
a violation of the deferral percentage test under § 408(k)(6)(A)(iii) applicable to a
SARSEP, the failure may be corrected in either of the following ways:
(a) The Plan Sponsor may make contributions that are 100 percent vested to all
eligible nonhighly compensated employees (to the extent permitted by § 415)
necessary to raise the deferral percentage to an amount sufficient to pass the test.
This amount may be calculated as the same percentage of compensation (regardless
of the terms of the SEP); or
(b) The Plan Sponsor may effect distribution of excess contributions, adjusted
for Earnings through the date of correction, to highly compensated employees to
correct the failure. The Plan Sponsor must also contribute to the SEP an amount equal
to the total amount distributed. This amount must be allocated to (i) current employees
who were nonhighly compensated employees in the year of the failure, (ii) current
nonhighly compensated employees who were nonhighly compensated employees in
the year of the failure, or (iii) employees (both current and former) who were nonhighly
compensated employees in the year of the failure.
(4) Treatment of undercontributions to a SEP or a SIMPLE IRA Plan. (a) Makeup contributions; Earnings. The Plan Sponsor should correct undercontributions to a
SEP or a SIMPLE IRA Plan by contributing make-up amounts that are fully vested,
adjusted for Earnings from the date of the failure to the date of correction.
(b) Earnings adjustment methods. Insofar as SEP and SIMPLE IRA Plan assets
are held in IRAs, there is no earnings rate under the SEP or SIMPLE IRA Plan as a
whole. If it is not feasible to make a reasonable estimate of what the actual investment
results would have been, a reasonable interest rate may be used.
(5) Treatment of Excess Amounts under a SEP or a SIMPLE IRA Plan. (a)
Distribution of Excess Amounts. For purposes of this section 6.11, an Excess Amount
is an amount contributed on behalf of an employee that is in excess of an employee’s
benefit under the plan, or an elective deferral in excess of the limitations of § 402(g) or
408(k)(6)(A)(iii). If an Excess Amount is attributable to elective deferrals, the Plan
Sponsor may effect distribution of the Excess Amount, adjusted for Earnings through
the date of correction, to the affected participant. The amount distributed to the
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affected participant is includible in gross income in the year of distribution. The
distribution is reported on Form 1099-R, Distributions From Pensions, Annuities,
Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. for the year of
distribution with respect to each participant receiving the distribution. In addition, the
Plan Sponsor must inform affected participants that the distribution of an Excess
Amount is not eligible for favorable tax treatment accorded to distributions from a SEP
or a SIMPLE IRA Plan (and, specifically, is not eligible for tax-free rollover). If the
Excess Amount is attributable to employer contributions, the Plan Sponsor may effect
distribution of the employer Excess Amount, adjusted for Earnings through the date of
correction, to the Plan Sponsor. The amount distributed to the Plan Sponsor is not
includible in the gross income of the affected participant. The Plan Sponsor is not
entitled to a deduction for such employer Excess Amount. The distribution is reported
on Form 1099-R issued to the participant indicating the taxable amount as zero.
(b) Retention of Excess Amounts. If the failure involves an Excess Amount
under a SEP or a SIMPLE IRA Plan and the Plan Sponsor retains the Excess Amount
in the SEP or SIMPLE IRA Plan, a sanction applies, in addition to the SEP or SIMPLE
IRA Plan user fee described in Appendix A of Rev. Proc. 2021-4 (and its annual
successors). A sanction equal to at least 10 percent of the Excess Amount with no
adjustment for Earnings is imposed. In addition, the Plan Sponsor is not entitled to a
deduction for an Excess Amount retained in the SEP or SIMPLE IRA Plan. In the case
of an Excess Amount retained in a SEP that is attributable to a § 415 failure, the
Excess Amount, adjusted for Earnings through the date of correction, must reduce an
affected participant’s applicable § 415 limit for the year following the year of correction
(or for the year of correction if the Plan Sponsor so chooses), and subsequent years,
until the excess is eliminated.
(c) De minimis Excess Amounts. If the total Excess Amount in a SEP or
SIMPLE IRA Plan, whether attributable to elective deferrals or employer contributions,
is $250 or less, the Plan Sponsor is not required to distribute the Excess Amount and
the sanction described in section 6.11(5)(b) does not apply.
.12 Confidentiality and disclosure. Because each correction program relates
directly to the enforcement of Code requirements, the information received or
generated by the IRS under the program is subject to the confidentiality requirements
of § 6103 and is not a written determination within the meaning of § 6110.
.13 No effect on other law. Correction under these programs has no effect on
the rights or obligations of any party under any other law, including the rights of any
persons and the obligations of fiduciaries or employers under Title I of ERISA. The
Department of Labor maintains the VFCP, under which certain ERISA fiduciary
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violations may be corrected. The Department of Labor also maintains a Delinquent
Filer Voluntary Compliance Program under which certain failures to comply with the
annual reporting requirements (Form 5500 series) under ERISA may be corrected.
PART IV. SELF-CORRECTION (SCP)
SECTION 7. AVAILABILITY OF SCP FOR CERTAIN OPERATIONAL FAILURES
AND PLAN DOCUMENT FAILURES
.01 In general. (1) Operational Failures. The requirements of this section 7 are
satisfied with respect to an Operational Failure if the Plan Sponsor of a Qualified Plan,
a § 403(b) Plan, a SEP, or a SIMPLE IRA Plan satisfies the requirements of section
7.02, and either section 8 (relating to insignificant Operational Failures), or, in the case
of a Qualified Plan or a § 403(b) Plan, section 9 (relating to significant Operational
Failures).
(2) Plan Document Failures. The requirements of this section 7 are satisfied
with respect to an eligible Plan Document Failure if the Plan Sponsor of a Qualified
Plan or a § 403(b) Plan satisfies the requirements of section 7.03 and section 9.
.02 Operational Failures. (1) In general. Operational Failures may be corrected
under SCP in accordance with the correction principles and rules of general
applicability set forth in section 6.
(2) Corrective amendments for Operational Failures. Operational Failures may
be corrected under SCP by adoption of a plan amendment that conforms the terms of
the plan to the plan’s prior operations, provided the requirements of section 4.05(2) are
satisfied.
(3) Plan loan failures. The following plan loan failures may be corrected under
SCP: defaulted loans (described in section 6.07(3)(d)); the failure to obtain spousal
consent (described in section 6.07(4)(a)); and the failure to abide by a limitation on the
number of plan loans permitted per participant as set forth under the terms of the plan
(described in section 6.07(5)).
.03 Plan Document Failures. An eligible Plan Document Failure, as described in
section 4.01(1)(b), may be corrected under SCP provided that the requirements
described in section 4.05(2)(c)(i) (Favorable Letter requirement) and 4.05(2)(c)(ii)
(treating Plan Document Failures under SCP as significant failures) are satisfied.

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SECTION 8. SELF-CORRECTION OF INSIGNIFICANT OPERATIONAL FAILURES
.01 Requirements. The requirements of this section 8 are satisfied with respect
to an Operational Failure if the Plan Sponsor of a Qualified Plan, a § 403(b) Plan, a
SEP, or a SIMPLE IRA Plan corrects the Operational Failure and, given all the facts
and circumstances, the Operational Failure is insignificant. This section 8 is available
for correcting an insignificant Operational Failure even if the plan or Plan Sponsor is
Under Examination and even if the Operational Failure is discovered on examination.
.02 Factors. The factors to be considered in determining whether an
Operational Failure under a plan is insignificant include, but are not limited to: (1)
whether other failures occurred during the period being examined (for this purpose, a
failure is not considered to have occurred more than once merely because more than
one participant is affected by the failure); (2) the percentage of plan assets and
contributions involved in the failure; (3) the number of years the failure occurred; (4) the
number of participants affected relative to the total number of participants in the plan;
(5) the number of participants affected as a result of the failure relative to the number
of participants who could have been affected by the failure; (6) whether correction was
made within a reasonable time after discovery of the failure; and (7) the reason for the
failure (for example, data errors such as errors in the transcription of data, the
transposition of numbers, or minor arithmetic errors). No single factor is determinative.
Additionally, factors (2), (4), and (5) should not be interpreted to exclude small
businesses.
.03 Multiple failures. In the case of a plan with more than one Operational
Failure in a single year, or Operational Failures that occur in more than one year, the
Operational Failures are eligible for correction under this section 8 only if all of the
Operational Failures are insignificant in the aggregate. Operational Failures that have
been corrected under SCP in section 9 and VCP in sections 10 and 11 are not taken
into account for purposes of determining if Operational Failures are insignificant in the
aggregate.
.04 Examples. (1) In general. The following examples illustrate the application
of this section 8. The IRS plans to provide additional examples illustrating whether an
Operational Failure is insignificant. The additional examples will be provided on the
IRS.gov website. It is expected that a link to these examples will appear on the
“Correcting Plan Errors” webpage on the IRS.gov website.
(2) Assumptions for examples in section 4.04. It is assumed, in each example,
that the eligibility requirements of section 4 relating to SCP (for example, the
requirements of section 4.04 relating to established practices and procedures) have
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been satisfied and that no Operational Failures occurred other than the Operational
Failures identified below.
Example 1: In 1991, Employer X established Plan A, a profit-sharing plan that satisfies the
requirements of § 401(a) in form. In 2005, the benefits of 50 of the 250 participants in Plan A were
limited by § 415(c). However, when the IRS examined Plan A in 2008, it discovered that, during the
2005 limitation year, the annual additions allocated to the accounts of 3 of these employees exceeded
the maximum limitations under § 415(c). Employer X contributed $3,500,000 to the plan for the plan
year. The amount of the excesses totaled $4,550. Under these facts, because the number of
participants affected by the failure relative to the total number of participants who could have been
affected by the failure, and the monetary amount of the failure relative to the total employer contribution
to the plan for the 2005 plan year, are insignificant, the § 415(c) failure in Plan A that occurred in 2005
would be eligible for correction under this section 8.
Example 2: The facts are the same as in Example 1, except that the failure to satisfy § 415
occurred during each of the 2005 and 2007 limitation years. In addition, the three participants affected
by the § 415 failure were not identical each year. The fact that the § 415 failures occurred during more
than one limitation year does not cause the failures to be significant; accordingly, the failures are still
eligible for correction under this section 8.
Example 3: The facts are the same as in Example 1, except that the annual additions of 18 of
the 50 employees whose benefits were limited by § 415(c) nevertheless exceeded the maximum
limitations under § 415(c) during the 2005 limitation year, and the amount of the excesses ranged from
$1,000 to $9,000, and totaled $150,000. Under these facts, taking into account the number of
participants affected by the failure relative to the total number of participants who could have been
affected by the failure for the 2005 limitation year (and the monetary amount of the failure relative to the
total employer contribution), the failure is significant. Accordingly, the § 415(c) failure in Plan A that
occurred in 2005 is ineligible for correction under this section 8 as an insignificant failure.
Example 4: Employer J maintains Plan C, a money purchase pension plan established in 1992.
The plan document satisfies the requirements of § 401(a). The formula under the plan provides for an
employer contribution equal to 10% of compensation, as defined in the plan. During its examination of
the plan for the 2005 plan year, the IRS discovered that the employee responsible for entering data into
the employer's computer made minor arithmetic errors in transcribing the compensation data with
respect to 6 of the plan's 40 participants, resulting in excess allocations to those 6 participants' accounts.
Under these facts, the number of participants affected by the failure relative to the number of participants
that could have been affected is insignificant, and the failure is due to minor data errors. Thus, the
failure occurring in 2005 is insignificant and therefore eligible for correction under this section 8.
Example 5: Public School maintains for its 200 employees a salary reduction § 403(b) Plan
(“Plan B”) that is intended to satisfy the requirements of § 403(b). The business manager has primary
responsibility for administering Plan B, in addition to other administrative functions within Public School.
During the 2005 plan year, a former employee should have received an additional minimum required
distribution of $278 under § 403(b)(10). Another participant received an impermissible hardship
withdrawal of $2,500. Another participant made elective deferrals of which $1,000 was in excess of the
§ 402(g) limit. Under these facts, even though multiple failures occurred in a single plan year, the
failures are eligible for correction under this section 8 because in the aggregate the failures are
insignificant.

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SECTION 9. SELF-CORRECTION OF CERTAIN SIGNIFICANT OPERATIONAL
FAILURES AND PLAN DOCUMENT FAILURES
.01 Requirements. The requirements of this section 9 are satisfied with respect
to a significant Operational Failure or a Plan Document Failure if the Plan Sponsor of a
Qualified Plan or § 403(b) Plan corrects the failure, and the correction is either
completed or, in the case of an Operational Failure, is substantially completed (in
accordance with section 9.03) by the last day of the correction period described in
section 9.02.
.02 Correction period. (1) End of correction period. The last day of the
correction period is the last day of the third plan year following the plan year for which
the failure occurred. However, in the case of a failure to satisfy the requirements of
§ 401(k)(3) or 401(m)(2), the correction period does not end until the last day of the
third plan year following the plan year that includes the last day of the additional period
for correction permitted under § 401(k)(8) or 401(m)(6). If a § 403(b) Plan does not
have a designated plan year, the plan year is deemed to be the calendar year for
purposes of this section 9.02.
(2) Extension of correction period for Transferred Assets. In the case of an
Operational Failure or Plan Document Failure that relates only to Transferred Assets,
or to a plan assumed in connection with a corporate merger, acquisition, or other
similar employer transaction, the correction period will not end before the last day of
the first plan year that begins after the corporate merger, acquisition, or other similar
employer transaction between the Plan Sponsor and the sponsor of the transferor plan
or the prior sponsor of an assumed plan.
(3) Effect of examination. The correction period for an Operational Failure or
Plan Document Failure that occurs for any plan year ends, in any event, on the first
date the plan or Plan Sponsor is Under Examination for that plan year (determined
without regard to the second sentence of section 9.02). (But see section 9.03 for
special rules permitting completion of correction of an Operational Failure after the end
of the correction period.)
.03 Substantial completion of correction. Correction of an Operational Failure is
substantially completed by the last day of the correction period only if the requirements
of either paragraph (1) or (2) of this section 9.03 are satisfied.
(1) The requirements of this paragraph (1) are satisfied if:

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(a) during the correction period, the Plan Sponsor is reasonably prompt in
identifying the Operational Failure, formulating a correction method, and initiating
correction in a manner that demonstrates a commitment to completing correction of the
failure as expeditiously as practicable; and
(b) within 120 days after the last day of the correction period, the Plan Sponsor
completes correction of the failure.
(2) The requirements of this paragraph (2) are satisfied if:
(a) during the correction period, correction is completed with respect to 65
percent of all participants affected by the Operational Failure; and
(b) thereafter, the Plan Sponsor completes correction of the Operational Failure
with respect to the remaining affected participants in a diligent manner.
.04 Examples. The following examples illustrate the application of this section 9.
It is assumed, in each example, that the eligibility requirements of section 4 relating to
SCP have been met.
Example 1: Employer Z established a qualified defined contribution plan in 2017 and received a
favorable determination letter. During 2021, while doing a self-audit of the operation of the plan for the
2020 plan year, the plan administrator discovered that, despite the practices and procedures established
by Employer Z with respect to the plan, several employees eligible to participate in the plan were
excluded from participation. The administrator also found that for 2020 Operational Failures occurred
because the elective deferrals of additional employees exceeded the § 402(g) limit and Employer Z
failed to make the required top-heavy minimum contribution. In addition, during the review of the
administration for the 2020 year, it was found that the plan administrator intended to implement
correction for the failure to satisfy the ADP test (as described in § 401(k)(3)) for the 2019 plan year.
During the 2023 plan year, the Plan Sponsor made QNECs on behalf of the excluded employees,
distributed the excess deferrals to the affected participants, and made a top-heavy minimum contribution
to all participants entitled to that contribution for the 2020 plan year. Each corrective contribution and
distribution was credited with Earnings at a rate appropriate for the plan from the date the corrective
contribution or distribution should have been made to the date of correction. The failed ADP test for
2019 was corrected by making corrective contributions, adjusted for Earnings, on behalf of nonhighly
compensated employees using the method described in Appendix A, section .03. Under these facts, the
Plan Sponsor has corrected the ADP test failure for the 2019 plan year and the Operational Failures for
the 2020 plan year within the correction period and thus satisfied the requirements of this section 9.
Example 2: Employer A established a qualified defined contribution plan, Plan A, in 2007 and
has received a favorable determination letter for the applicable law changes. In April 2021, Employer A
purchased all of the stock of Employer B, a wholly-owned subsidiary of Employer C. Employees of
Employer B participated in Plan C, a qualified defined contribution plan sponsored by Employer C.
Following Employer A’s review of Plan C, Employer A and Employer C agreed that Plan A would accept
a transfer of plan assets from Plan C attributable to the account balances of the employees of Employer
B who had participated in Plan C. As part of this agreement, Employer C represented to Employer A

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that Plan C was tax qualified. Employers A and C also agreed that such transfer would be in
accordance with § 414(l) and §1.414(l)-1 and addressed issues related to costs associated with the
transfer. Following the transaction, the employees of Employer B began participation in Plan A.
Effective July 1, 2021, Plan A accepted the transfer of plan assets from Plan C. After the transfer,
Employer A determined that all the participants in one division of Employer B had been incorrectly
excluded from allocation of the profit-sharing contributions for the 2016 and 2017 plan years. During
2022, Employer A made corrective contributions on behalf of the affected participants. The corrective
contributions were credited with Earnings at a rate appropriate for the plan from the date the corrective
contributions should have been made to the date of correction and Employer A otherwise complied with
the requirements of SCP. Under these facts, Employer A has, within the correction period, corrected the
Operational Failures for the 2016 and 2017 plan years with respect to the assets transferred to Plan A,
and thus satisfied the requirements of this section 9.

PART V. VOLUNTARY CORRECTION PROGRAM WITH IRS APPROVAL (VCP)
SECTION 10. VCP PROCEDURES
.01 VCP pre-submission conference. (1) Effective January 1, 2022, prior to
submitting a VCP application, a representative of a Plan Sponsor may request an
anonymous VCP pre-submission conference regarding corrective actions with respect
to any failure that is eligible to be submitted under VCP. A VCP pre-submission
conference may be requested only (1) for matters on which a compliance statement
may be issued under this revenue procedure, (2) with respect to requested correction
methods that are not described as safe harbor correction methods in Appendix A or B,
and (3) if the Plan Sponsor is eligible and intends to submit an application under VCP.
VCP pre-submission conferences are held only at the discretion of the IRS, and as
time permits.
(2) The Plan Sponsor’s representative must submit the VCP pre-submission
conference request via the Pay.gov website by submitting a Form 8950, Application for
Voluntary Correction Program (VCP) Submission Under the Employee Plans
Compliance Resolution System. The request should also include (1) a description of
the failure(s), including how and why the failure(s) occurred; (2) a description of the
proposed method(s) of correction; (3) a description of all relevant facts, including the
type of affected participants (for example, highly compensated employees or nonhighly
compensated employees); (4) plan provisions and amendments that are relevant to the
request; and (5) any other information the IRS would need to evaluate the request. It is
anticipated that the published IRS instructions associated with the Form 8950 will be
modified in order to provide specificity on the information that needs to be included with
the VCP pre-submission conference request.
(3) At the conference, the IRS will provide the representative of the Plan
Sponsor with oral feedback regarding the failure(s) and proposed correction method(s)
described in the request. Any discussion of substantive issues at the conference,
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however, is advisory only, is not binding on the IRS, and cannot be relied upon as a
basis for obtaining relief under EPCRS or retroactive relief under the provisions of
§ 7805(b). After the conference, the IRS will provide a written confirmation that the
conference took place, and the matter will be closed. If the Plan Sponsor subsequently
files a VCP submission regarding the issues discussed, the Plan Sponsor must follow
the procedures set forth in this section 10 and section 11 (which require submission of
a new Form 8950 and payment of an applicable user fee).
.02 VCP requirements. The requirements of VCP are satisfied with respect to a
failure if, on the Pay.gov website, the Plan Sponsor files a VCP submission and pays
the applicable user fee set forth in Appendix A of Rev. Proc. 2021-4 (and its annual
successors), in accordance with the requirements of this section 10 and section 11,
and implements the corrective actions and satisfies any other conditions set forth in the
compliance statement described in section 10.08. As provided in section 11.09, a Plan
Sponsor may designate an authorized representative to file a VCP submission with the
IRS on its behalf, if specific requirements are satisfied.
.03 Identification of failures. VCP is not based upon an examination of the plan
by the IRS. Only the failures raised by the Plan Sponsor or failures identified by the
IRS in processing the submission are addressed under VCP, and only those failures
are covered by a VCP compliance statement. The IRS will not make any investigation
or finding under VCP concerning whether there are other failures.
.04 Effect of VCP submission on examination. Because VCP does not arise out
of an examination, consideration under VCP does not preclude or impede (under
§ 7605(b) or any administrative provisions adopted by the IRS) a subsequent
examination of the Plan Sponsor or the plan by the IRS with respect to the taxable year
(or years) involved with respect to matters that are outside the compliance statement.
However, a Plan Sponsor's statements describing failures are made only for purposes
of VCP and will not be regarded by the IRS as an admission of a failure for purposes of
any subsequent examination. See section 5.08 for the definition of Under Examination.
.05 No concurrent examination activity. Except in unusual circumstances, a
plan that has been properly submitted under VCP will not be examined while the
submission is pending. However, a plan that is included in a group submission under
section 10.11 may be examined while the group submission is pending with respect to
issues not identified in the group submission at the time such plan comes Under
Examination. Also, if it is determined that either the plan or the Plan Sponsor was, or
may have been, a party to an abusive tax avoidance transaction (as defined in section
4.12(2)), the IRS may authorize the examination of the plan, even if a submission
pursuant to VCP is pending. In addition, this practice regarding concurrent
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examinations does not extend to other plans of the Plan Sponsor. Thus, any plan of
the Plan Sponsor that is not pending under VCP could be subject to examination.
.06 Determination letter applications not related to a VCP submission. (1) The
IRS may process a determination letter application (including an application requested
on Form 5310) submitted under the determination letter program (as set forth in Rev.
Proc. 2021-4 (and its annual successors) and Rev. Proc. 2016-37, as modified, and
any subsequent guidance issued in the Internal Revenue Bulletin) while separately
processing a VCP submission for the same plan. Generally, issuance of the
determination letter in response to an application made on a Form 5310 will be
suspended pending the closure of the VCP submission.
(2) A submission of a plan under the determination letter program does not
constitute a submission under VCP. If the Plan Sponsor discovers a failure, the failure
may not be corrected as part of the determination letter process. The Plan Sponsor
may use SCP and VCP instead, as applicable. If the IRS, in connection with a
determination letter application, discovers failures, the IRS may issue a closing
agreement with respect to the failures identified or, if appropriate, refer the case to
Employee Plans Examinations. In such a case, the VCP user fee does not apply.
Instead, except as provided in section 10.06(3), the sanction in section 14.01 relating
to Audit CAP applies. See section 5.08 for a description of when a plan submitted for a
determination letter is considered to be Under Examination for purposes of EPCRS.
(3) If the IRS in connection with a determination letter application discovers the
plan has not been amended timely for tax legislation changes, the fee structure in
section 14.04 applies.
.07 Processing of submission.
(1) Screening of submission. Upon receipt of a VCP submission, the IRS will
review the submission to determine whether the eligibility requirements of section 4
and the submission requirements of section 11 are satisfied.
(2) Eligibility of submission. If, at any stage of the review process, the IRS
determines that a VCP submission is seriously deficient or that issuing a compliance
statement with respect to the VCP submission would be inappropriate or impracticable,
the IRS reserves the right to not issue a compliance statement. If no substantive
processing of the case has occurred, the IRS will refund the user fee submitted with
the request. Otherwise, the user fee will not be refunded.

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(3) Review of submission. Once the IRS determines that the submission is
complete under VCP, the IRS may contact the Plan Sponsor or the Plan Sponsor's
authorized representative to discuss the proposed corrections and the plan's
administrative procedures. However, if the IRS determines that the submission is
complete and sets forth an acceptable correction method, the IRS may issue a
compliance statement without contacting the Plan Sponsor or the Plan Sponsor’s
authorized representative.
(4) Additional information required. If additional information is required, an IRS
representative generally will contact the Plan Sponsor or the Plan Sponsor's authorized
representative and explain what is needed to complete the submission. The Plan
Sponsor will have 21 calendar days from the date of this contact to provide the
requested information. If the information is not received within 21 days, the matter will
be closed, the user fee will not be returned, and the case may be referred to Employee
Plans Examinations. Any request for an extension of the 21-day period must be made
in writing within the 21-day period and must be approved by the IRS (by the applicable
group manager).
(5) Additional failures discovered after initial submission. (a) A Plan Sponsor
that discovers additional unrelated failures after its initial submission may request that
such failures be added to its submission. However, the IRS retains the discretion to
reject the inclusion of such failures if the request is not timely (for example, if the Plan
Sponsor makes its request when processing of the submission is substantially
complete) or the application of VCP would be inappropriate or impracticable.
(b) If the IRS discovers an unrelated failure while the request is pending, the
failure generally will be added to the failures under consideration. However, the IRS
retains the discretion to determine that a failure is outside the scope of the voluntary
request for consideration because the Plan Sponsor did not voluntarily bring this failure
forward. In this case, if the additional failure is significant, all aspects of the plan may
be examined, and the rules pertaining to Audit CAP will apply.
(6) Conference right. If the IRS initially determines that it cannot issue a
compliance statement because the parties cannot agree upon correction or a change
in administrative procedures, the Plan Sponsor (generally through the Plan Sponsor's
authorized representative) will be contacted by the IRS representative and offered a
conference with the IRS. The conference can be held either in person or by telephone
and must be held within 21 calendar days of the date of contact. The Plan Sponsor will
have 21 calendar days after the date of the conference to submit additional information
in support of the submission. Any request for an extension of the 21-day period must
be made in writing within the 21-day period and must be approved by the IRS (by the
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applicable group manager). Additional conferences may be held at the discretion of
the IRS.
(7) Failure to reach resolution. If the IRS and the Plan Sponsor cannot reach
agreement with respect to the submission, the matter will be closed, the user fee will
not be returned, and the case may be referred to Employee Plans Examinations.
(8) Issuance of compliance statement. (a) In general. If agreement has been
reached and all applicable user fees have been paid, the IRS will send to the Plan
Sponsor a compliance statement signed by the IRS specifying the corrective action
required. However, the IRS reserves the right to require the Plan Sponsor to sign the
compliance statement. In such a case, the IRS will send to the Plan Sponsor an
unsigned compliance statement. Within 30 calendar days of the date the compliance
statement is sent, the Plan Sponsor must sign and return the compliance statement
and pay any outstanding user fee that may be required (see sections 4.08 and 11.06).
The IRS will then issue a signed copy of the compliance statement to the Plan
Sponsor. If the Plan Sponsor does not return the compliance statement (and pay any
outstanding user fee) within 30 calendar days, the VCP submission will be closed, and
no further action will be taken with respect to the submission. In appropriate
circumstances, the plan may be referred to Employee Plans Examinations.
(b) Model VCP Compliance Statement. If the Plan Sponsor included a
completed Form 14568, Model VCP Compliance Statement with its VCP submission,
then the IRS will sign and send to the Plan Sponsor the compliance statement
specifying the corrective action required. The format and content of the Form 14568 as
set forth by the IRS may not be modified or changed in any way. In appropriate
circumstances, the IRS reserves the right to issue an individually drafted compliance
statement in lieu of the Form 14568. See section 11.02.
(c) Modifications to VCP Submission. If a Plan Sponsor materially modifies a
VCP submission that was previously filed with the IRS, the Plan Sponsor should
include the penalty of perjury statement set forth in section 11.04(16) with respect to
such subsequent modifications. If the Plan Sponsor does not submit a penalty of
perjury statement, the Plan Sponsor will be required to sign and return the compliance
statement under the general procedures described in section 10.07(8)(a). See section
11.03(8) for information concerning submission of any such modification prior to the
assignment of the case to an IRS representative.
(9) Timing of correction. (a) In general. The Plan Sponsor must implement the
specific corrections and administrative changes set forth in the compliance statement
within 150 days of the date of the compliance statement. Any request for an extension
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of this correction period must be made in writing prior to the expiration of the correction
period and must be approved by the IRS.
(b) Interim Amendments and Nonamender Failures. Correction of the failure to
timely adopt Interim Amendments or other required amendments, as described in
section 5.01(2)(a)(ii)(B) and (C), must be made by the date of the submission. Thus,
the submission must include the executed amendments that would correct this failure.
(c) Other plan amendments. If a corrective plan amendment is required as part
of a VCP submission, the corrective plan amendment must be adopted no later than
150 days after the date of the compliance statement. However, for a governmental
plan (within the meaning of § 414(d)), the corrective amendment must be adopted by
the later of 150 days after the date of the compliance statement or the close of the first
regular legislative session of the legislative body with the authority to amend the plan
that begins on or after 91 days after the date of the compliance statement.
(10) Modification of compliance statement. Once the compliance statement has
been issued (based on the information provided), the Plan Sponsor cannot request a
modification of the compliance terms except by a new request for a compliance
statement, accompanied by a new user fee, submitted in accordance with the
submission procedures set forth in section 11.
(11) Verification. Once the compliance statement has been issued, the IRS may
require verification that the plan has complied with the correction methods and that any
plan administrative procedures required by the compliance statement have been
implemented. This verification does not constitute an examination of the books and
records of the employer or the plan (within the meaning of § 7605(b)). If the IRS
determines that the Plan Sponsor did not implement the corrections and procedures
within the stated time period, the plan may be referred to Employee Plans
Examinations.
.08 Compliance statement. (1) General description of compliance statement.
The compliance statement issued for a VCP submission only addresses the failures
identified in the submission, the terms of correction (including any revision of
administrative procedures), and the time period within which proposed corrections
must be implemented (including any changes in administrative procedures). The
compliance statement also provides that the IRS will not treat the plan as failing to
satisfy the applicable requirements of the Code on account of the failures described in
the compliance statement if the conditions of the compliance statement are satisfied.
The reliance provided by a compliance statement is limited to the specific failures and
years specified and does not provide reliance for any other failure or year.
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(2) Correction through plan amendment. (a) Interim Amendment Failures. With
respect to a failure to amend a plan timely for Interim Amendments, as described in
section 5.01(2)(a)(ii)(B), the issuance of a compliance statement will result in the
corrective amendments being treated as if they had been adopted timely for the
purpose of determining the availability of the remedial amendment period in Rev. Proc.
2007-44 and Rev. Proc. 2016-37, as modified. However, the issuance of such a
compliance statement does not constitute a determination as to whether the Interim
Amendment, as drafted, complies with the change in qualification requirement, or
whether the terms of the plan, including the corrective plan amendment, satisfy the
qualification requirements in form.
(b) Nonamender Failures. With respect to a failure to amend a plan timely for
disqualifying provisions or a failure to timely adopt applicable required amendments
provided on the Required Amendments List, as described in section 5.01(2)(a)(ii)(C)
(the definition of Nonamender Failure), the issuance of a compliance statement will
result in the corrective amendments being treated as if they had been timely adopted
during the applicable remedial amendment period. However, the issuance of such a
compliance statement does not constitute a determination as to whether the corrective
plan amendment as drafted complies with the change in qualification requirement,
whether the corrective plan amendment conforms the terms of the plan to the plan’s
prior operations, or whether the terms of the plan, including the corrective plan
amendment, satisfy the qualification requirements in form.
(c) Operational Failures. If a Plan Sponsor submits a VCP filing correcting an
Operational Failure through a plan amendment and the plan amendment is accepted
as a proper correction of the Operational Failure, then the compliance statement
issued under VCP constitutes a determination that the Operational Failure has been
corrected, but is not a determination that the terms of the plan, including the corrective
plan amendment, satisfy the qualification requirements in form.
(d) Failure to adopt § 403(b) Plan timely. A failure to adopt a § 403(b) Plan
timely in accordance with the final regulations under § 403(b) and Notice 2009-3 may
be corrected under VCP. The issuance of a compliance statement will result in the
§ 403(b) Plan being treated as if it had been adopted timely for the purpose of making
available the extended remedial amendment period set forth in Rev. Proc. 2017-18.
However, the issuance of a compliance statement does not constitute a determination
as to whether the written plan, as drafted, complies with the applicable requirements of
§ 403(b) and the final § 403(b) regulations.

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(3) Administrative procedures required. Where current procedures are
inadequate for operating the plan in conformance with the applicable requirements of
the Code, the compliance statement will be conditioned upon the implementation of
stated administrative procedures. The IRS may prescribe appropriate administrative
procedures in the compliance statement.
(4) Compliance statement conditioned upon timely correction. The compliance
statement is conditioned on (i) there being no misstatement or omission of material
facts in connection with the submission, and (ii) the implementation of the specific
corrections and satisfaction of any other conditions in the compliance statement.
(5) Authority delegated. Compliance statements (including relief from any
excise tax or other penalty as provided under section 6.09) are authorized to be signed
by managers within Employee Plans Rulings and Agreements, under the Tax Exempt
and Government Entities Operating Division of the IRS.
.09 Effect of compliance statement on examination. The compliance statement
is binding upon both the IRS and the Plan Sponsor or Eligible Organization (as defined
in section 10.11(1)) with respect to the specific tax matters identified therein for the
periods specified, but does not preclude or impede an examination of the plan by the
IRS relating to matters outside the compliance statement, even with respect to the
same taxable year or years to which the compliance statement relates.
.10 Anonymous submissions not permitted. Effective January 1, 2022, VCP
submissions may not be submitted on an anonymous basis. On or after that date,
identifying information for the Plan Sponsor and plan along with other applicable
information must be disclosed on the application form submitted, as well as any other
forms, documents or exhibits included with the submission. Before January 1, 2022,
an applicant may submit an anonymous VCP submission to the IRS, and the
requirements of Rev. Proc. 2019-19, including sections 10, 11, and 12, will apply.
However, the IRS will not process anonymous submissions made on or after January
1, 2022.
.11 Special rules relating to group submissions. (1) Eligible Organizations. For
purposes of a group submission, the term “Eligible Organization” means either (a) a
sponsor (as that term is defined in section 4.07 of Rev. Proc. 2015-36) of a master or
prototype plan, (b) a volume submitter practitioner (as that term is defined in section
13.05 of Rev. Proc. 2015-36), (c) a mass submitter (as that term is defined in sections
4.08 and 13.06 of Rev. Proc. 2015-36 and section 4.04 of Rev. Proc. 2017-41), (d) a
provider (as that term is defined in section 4.08 of Rev. Proc. 2017-41), (e) an
insurance company or other entity that has issued annuity contracts or provides
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services with respect to assets for § 403(b) Plans, or (f) an entity that provides its
clients with administrative services with respect to Qualified Plans, § 403(b) Plans,
SEPs, or SIMPLE IRA Plans. An Eligible Organization is not eligible to make a group
submission unless the failures in the submission result from a systemic error involving
the Eligible Organization that affects at least 20 plans and results in at least 20 plans
implementing correction. If, at any time before the IRS issues the compliance
statement, the number of plans falls below 20, the Eligible Organization must notify the
IRS that it is no longer eligible to make a group submission. Under these
circumstances, the user fee may be retained by the IRS.
(2) General rules. An Eligible Organization may submit a VCP request for a
Qualified Plan, a § 403(b) Plan, a SEP, or a SIMPLE IRA Plan under a group
submission for Plan Document, Operational, and Employer Eligibility Failures. A
separate user fee must be submitted for each plan submitted. For this purpose, in the
case of a plan that consists of a basic plan document and adoption agreements, the
number of plans submitted is determined by reference to the number of basic plan
documents submitted.
(3) Special group submission procedures. (a) In general, a group submission is
subject to the same procedures as any VCP submission in accordance with sections
10 and 11, except that the Eligible Organization is responsible for performing the
procedural obligations imposed on the Plan Sponsor under sections 10 and 11. See
section 11.04(13) for a special submission requirement with respect to group
submissions.
(b) The Eligible Organization must provide notice to all Plan Sponsors of the
plans included in the group submission. The notice must be provided at least 90 days
before the Eligible Organization provides the IRS with the information required in
section 10.11(3)(c). The purpose of the notice is to provide each Plan Sponsor with
information relating to the group submission request. The notice should explain the
reason for the group submission and inform the Plan Sponsor that the Plan Sponsor’s
plan will be included in the group submission unless the Plan Sponsor responds within
the 90-day period requesting that the Plan Sponsor’s plan be excluded from the group
submission.
(c) When an Eligible Organization receives an unsigned compliance statement
on the proposed correction and agrees to the terms of the compliance statement, the
Eligible Organization must return the signed compliance statement and any additional
user fee required under Appendix A of Rev. Proc. 2021-4 (and its annual successors)
to the IRS within 120 calendar days, in accordance with section 11.06. In addition, the
Eligible Organization must submit a list containing (i) the employer tax identification
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numbers for the Plan Sponsors of the plans that have consented to be included in the
group submission and to which the compliance statement may be applicable, (ii) the
plans by name, plan number, type of plan, and number of plan participants, (iii) a
certification that each Plan Sponsor received notice of the group submission, and (iv) a
certification that each Plan Sponsor timely filed the Form 5500 series return for the
most recent plan year for which the Form 5500 series return was required to have been
filed. This list can be submitted at any stage of the submission process provided that
the requirements of section 10.11(3)(b) have been satisfied. If the Eligible
Organization submits this list with the initial submission, the list must be included in the
Portable Document Format (“PDF”) file described in section 11.03(2). If the list is not
submitted with the initial submission, then once the submission has been assigned to
an IRS representative, the Eligible Organization must submit the list on a USB drive in
Microsoft Word or Excel to the IRS representative. Only those plans for which
correction is actually made within 240 calendar days of the date of the signed
compliance statement (or within such longer period as may be agreed to by the IRS at
the request of the Eligible Organization) will be covered by the compliance statement.
(d) Notwithstanding section 4.02, if a Plan Sponsor of a plan that is eligible to be
included in the group submission and has not requested to be excluded from the group
submission pursuant to section 10.11(3)(b) is notified of an impending Employee Plans
examination after the Eligible Organization filed the group submission with the IRS, the
Plan Sponsor’s plan will be included in the group submission. However, with respect to
such plan, the group submission will not preclude or impede an examination of the plan
with respect to any failures not identified in the group submission at the time the plan
comes Under Examination.
.12 Multiemployer and multiple employer plans. In the case of a multiemployer
or multiple employer plan, the plan administrator (rather than any contributing or
adopting employer) must file a submission under VCP with respect to any plan failures
and is responsible for performing the procedural obligations imposed on the Plan
Sponsor under sections 10 and 11. The plan administrator may designate an
authorized representative to file a VCP submission with the IRS using the Pay.gov
website as described in section 11.08. The request must be with respect to the plan,
rather than a portion of the plan affecting any particular employer.
SECTION 11. SUBMISSION PROCEDURES FOR VCP
.01 General rules. (1) A VCP submission must satisfy the requirements of this
section 11.

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(2) All VCP submissions must be filed using the Pay.gov website, as described
in this section 11. On the Pay.gov website, applicants (generally, either a Plan
Sponsor or a representative authorized pursuant to a valid Form 2848 as provided in
section 11.08) will file a VCP submission and pay applicable user fees online. Paper
VCP submissions postmarked after March 31, 2019, will be returned to the applicant.
(3) A VCP submission must include a description of the failures, a description of
the proposed methods of correction, and other procedural items set forth in this section
11.
.02 Submission of model forms. (1) Applicants may submit Form 14568 (Model
VCP Compliance Statement) and attach separate narrative documents that describe
the qualification failures, correction methods, and other items described in section
11.04.
(2) Schedules 1 through 9 to Form 14568 (Forms 14568-A through 14568-I)
provide descriptions of common qualification failures and standardized correction
methods that may be submitted in lieu of the separate narrative documents described
in section 11.02(1). Even if an applicant does not submit the Form 14568, the
applicant may include Schedules 1-9, as applicable, as part of the VCP submission to
satisfy the requirements of this revenue procedure relating to the description and
correction of identified failures and related changes in administrative procedures.
(3) Applicants who submit the Form 14568 series should complete the forms
electronically and combine all submission documents into a single PDF file that
includes the completed forms. See sections 11.03(2) and 11.04.
(4) Multiple schedules may be included in a single VCP submission.
(5) A schedule may be submitted only if its content applies, without modification,
to the applicant’s situation.
(6) If an applicant submits the Form 14568 or any of its applicable schedules,
the applicant must submit the current versions of Form 14568 and Forms 14568-A
through 14568-I, as applicable, which are available on the IRS website
(https://www.irs.gov/retirement-plans/correcting-plan-errors-fill-in-vcp-submissiondocuments). The IRS reserves the right to modify the Form 14568 series to improve
usability, reflect changes in law, or create additional schedules by adding new forms to
the Form 14568 series.

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.03 Mandatory Submission Process using the Pay.gov website. Pursuant to
section 11.01, for filings submitted on or after April 1, 2019, applicants must use the
Pay.gov website to file a VCP submission with the IRS and pay the applicable user fee.
The submission process requires the following actions:
(1) Read the instructions to Form 8950. Prior to using the Pay.gov website, the
applicant should read the instructions to Form 8950, Application for Voluntary
Correction Program (VCP) Submission Under the Employee Plans Compliance
Resolution System. The instructions are located at https://www.irs.gov/pub/irspdf/i8950.pdf.
(2) Combine required items into PDF file. The applicant must convert all
applicable items required in section 11.04 into PDF documents and combine them into
a single PDF file that follows the suggested ordering of documents in section 11.11. If
the combined PDF file exceeds 15 MB, the applicant must remove some documents
(or parts of documents) so that the PDF file does not exceed 15 MB. Applicable
documents that cannot be included in the PDF file because of the size limitation must
be faxed to the IRS as described in section 11.03(7).
(3) Create a Pay.gov account. The applicant must create a Pay.gov account on
the Pay.gov website. Using the Pay.gov account, the applicant must complete and
sign Form 8950, Application for Voluntary Correction Program (VCP) Submission
Under the Employee Plans Compliance Resolution System.
(4) Upload and attach PDF. After completing and signing the Form 8950 on the
Pay.gov website, the applicant must upload the single PDF that contains copies of all
submission documents required by this section 11. See section 11.03(7) for
instructions for faxing VCP submission documents that are not included in the PDF file
due to the 15 MB limitation.
(5) Pay the applicable user fee. Submit the applicable user fee using the
payment methods available on the Pay.gov website.
(6) Payment confirmation. The Pay.gov website will generate a payment
confirmation notice after the VCP submission has been filed. The Pay.gov Tracking ID
on this receipt will serve as the IRS control number for the VCP submission. The
confirmation may be emailed to the Pay.gov account holder, with copies to other email
addresses that the account holder chooses to provide. The applicant should retain a
copy of the payment confirmation notice. If a payment confirmation is not generated by
the Pay.gov website, then the VCP submission process has not been successful and
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the applicant should contact IRS customer account services at (877) 829-5500 (a tollfree number).
(7) Required documents not part of uploaded PDF due to size limitation. If there
are required VCP submission documents that cannot be part of the submitted PDF file
due to the Pay.gov attachment file size limitation, the applicant must fax these
documents to the IRS using fax number (855) 203-6996. Include the EIN, applicant
name, plan name, and Pay.gov Tracking ID (the IRS control number) on the fax
coversheet. This fax number is to be used only to supplement VCP submissions filed
with the IRS on the Pay.gov website. A fax used to submit documents that cannot be
part of the submitted PDF file due to the Pay.gov 15 MB limitation must include the IRS
control number in order for the documents to be associated with the appropriate
submission in a timely manner and to avoid significant delays in case processing.
(8) Subsequent changes or revisions. If an applicant needs to revise or amend
a filed VCP submission (or any of its attachments), before it is assigned to an IRS
representative, the applicant should not file a new submission. Instead, the applicant
should call the VCP Status Inquiry Line at (626) 927-2011 (not a toll-free number). The
IRS will assist the applicant to determine how the revised documents should be
submitted.
.04 PDF file submission contents. The single PDF file described in section
11.03(2) and this section 11.04 that is uploaded to the Pay.gov website must include
the following information:
(1) Identification of failures. A complete description of the failures, the years in
which the failures occurred, including closed years (that is, years for which the
statutory period has expired), and the number of employees affected by each failure.
(2) Explanation. An explanation of how and why the failures arose, including a
description of the administrative procedures applicable to the failures in effect at the
time the failures occurred.
(3) Proposed method of correction. A detailed description of the method for
correcting the failures that the Plan Sponsor has implemented or proposes to
implement. Each step of the correction method must be described in narrative form.
The description must include specific information needed to support the proposed
correction method. This information includes, for example, the number of employees
affected and the expected cost of correction (both of which may be approximated if the
exact number cannot be determined at the time of the request), the years involved, and
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calculations or assumptions the Plan Sponsor used to determine the amounts needed
for correction.
(4) Earnings or actuarial adjustments. A description of the methodology that will
be used to calculate Earnings or actuarial adjustments on any corrective contributions
or distributions (indicating the computation periods and the basis for determining
Earnings or actuarial adjustments, in accordance with section 6.02(4)).
(5) Computations. Specific calculations for each affected employee or a
representative sample of affected employees. The sample calculations must be
sufficient to demonstrate each aspect of the correction method proposed. For
example, if a Plan Sponsor requests a compliance statement with respect to a failure to
satisfy the contribution limits of § 415(c) and proposes a correction method that
involves elective deferrals (whether matched or unmatched) and matching
contributions, the Plan Sponsor must submit calculations illustrating the correction
method proposed with respect to each type of contribution. As another example, with
respect to a failure to satisfy the ADP test in § 401(k)(3), the Plan Sponsor must submit
the ADP test results both before the correction and after the correction.
(6) Former employees or beneficiaries. The method(s) that will be used to
locate and notify former employees and beneficiaries, or an affirmative statement that
no former employees or beneficiaries were affected by the failures or will be affected
by the correction.
(7) Change in administrative procedures. A description of the measures that
have been or will be implemented to ensure that the same failures will not recur.
(8) Plan document. A copy of the entire plan document or the relevant portions
of the plan document. For example, in a case involving an improper exclusion of
eligible employees from a profit-sharing plan with a cash or deferred arrangement,
relevant portions of the plan document include the eligibility, allocation, and cash or
deferred arrangement provisions of the plan document (including an adoption
agreement, if applicable), along with applicable definitions in the plan. In the case of a
SEP or a SIMPLE IRA Plan, the entire plan document should be included in the PDF
document. For submissions limited to Plan Document Failures defined in section 5.01
and 5.02 for which an applicant has adopted a Pre-approved Plan that uses an
adoption agreement format, as provided in Rev. Proc. 2015-36, section 4.04 and Rev.
Proc. 2017-41, section 4.07(3), a completed copy of the signed and dated adoption
agreement is all that is necessary to be included in the PDF document; it is not
necessary to include a copy of the entire plan document.
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(9) Request for excise tax relief (§ 4972, 4973, 4974, or 4979) or additional tax
relief under § 72(t). If excise tax or additional tax relief is sought, a specific request for
that relief should be included in the submission, along with explanations, where
applicable, supporting such request.
(10) Loan failures and income tax reporting relief. A specific request for relief
must be made if the applicant wants relief from reporting a corrected participant loan as
a deemed distribution or wants to report the loan as a deemed distribution in the year
of correction instead of the year in which the deemed distribution occurred.
(11) Transferred Assets. If a submission includes a failure that relates to
Transferred Assets and the failure occurred prior to the transfer, a description of the
transaction (including the dates of the employer change and the plan transfer).
(12) Section 403(b) Plans. In the case of a § 403(b) Plan submission, a
statement that the Plan Sponsor has contacted all other entities involved with the plan
and has been assured of cooperation in implementing the applicable correction, to the
extent necessary. For example, if the plan’s failure is the failure to satisfy the
requirements of § 403(b)(1)(E) regarding elective deferrals, the Plan Sponsor must,
prior to making the VCP submission, contact the insurance company or custodian with
control over the plan’s assets to assure cooperation in effecting a distribution of the
excess deferrals adjusted for Earnings thereon. The VCP submission must also
contain a statement as to the type of employer (for example, a tax-exempt organization
described in § 501(c)(3)) that is making the VCP submission.
(13) Group Submissions. For a group submission, a copy of the relevant
portions of the plan document(s).
(14) Orphan Plans. If the plan is an Orphan Plan, information that establishes
that the applicant is an Eligible Party, as defined in section 5.03(2). In addition, the
applicant should indicate whether relief from full correction or from the user fee is being
requested and the support for such relief. See sections 4.08 and 6.02(5)(f).
(15) Plan Sponsor Authorization. If the Plan Sponsor is authorizing an individual
to represent it before the IRS, sign and file a VCP submission on its behalf, or inspect
and receive confidential information, a Form 2848, or Form 8821, Tax Information
Authorization, as applicable. See section 11.08.
(16) Penalty of Perjury. If the Plan Sponsor is authorizing an individual to sign
and file the VCP submission (including any subsequent material modifications of such
submission), on its behalf, the following declaration: “Under penalties of perjury, I
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declare that I have examined this submission, including accompanying
documents, and, to the best of my knowledge and belief, the facts presented in
support of this submission are true, correct, and complete.” The declaration must
be signed by the Plan Sponsor, not the Plan Sponsor's representative.
.05 User fee due at the time of VCP submission using the Pay.gov website.
Except as provided in sections 4.08 and 11.06, the user fee set forth in Appendix A of
Rev. Proc. 2021-4 (and its annual successors) must be paid on the Pay.gov website as
part of the VCP submission process. If the appropriate user fee is not paid, the VCP
submission will not be processed.
.06 Additional user fee due for group submissions. In the case of a group
submission, the initial user fee (described in Rev. Proc. 2021-4 (and its annual
successors)) must be paid when the submission is first made to the IRS on the
Pay.gov website. Any additional user fee amount (also described in Appendix A of
Rev. Proc. 2021-4 (and its annual successors)) is due at the time the compliance
statement is signed by the Plan Sponsor and returned to the IRS, or when agreement
has been reached between the IRS and the Plan Sponsor regarding correction of the
failure(s). The payment of this additional user fee must be made using the Pay.gov
website and the Pay.gov version of Form 8951, Additional User Fee Payment for Open
Application for Voluntary Correction Program (VCP) Under the Employee Plans
Compliance Resolution System (EPCRS).
.07 Additional amounts due for certain submissions. In the case of a SEP or a
SIMPLE IRA Plan, a sanction may be imposed pursuant to a closing agreement over
and above the specified user fee in limited circumstances. See section 6.11(5)(b) for
details. Also, in any case involving § 72(t), a sanction may be imposed pursuant to a
closing agreement. See section 6.09(6).
.08 Power of attorney requirements. (1) To appear before the IRS in connection
with a submission, the Plan Sponsor's authorized representative must comply with the
requirements of section 6.02(11) and (12) of Rev. Proc. 2021-4 (and its annual
successors) and include a Form 2848. A Form 2848 that designates a representative
who is not qualified to sign Part II of the Form 2848 (for example, an unenrolled return
preparer) will not be accepted. However, a Plan Sponsor may authorize an individual,
such as an unenrolled return preparer, to inspect or receive confidential information
using Form 8821 (see Form 8821 and Instructions). The Form 2848 and Form 8821,
as applicable, must be included in the PDF file uploaded to the Pay.gov website. See
sections 11.03(2) and 11.04.

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(2) A Plan Sponsor may designate an authorized representative to file a VCP
submission with the IRS using the Pay.gov website as described in this section 11. If
the Plan Sponsor is authorizing an individual to sign and submit a VCP submission on
its behalf, the Plan Sponsor must specifically indicate the scope of such authorization
on the Form 2848. In order to properly authorize such individual, the Plan Sponsor
should check the box in line 5a for “Other acts authorized” on Form 2848 and include
as a description “signing and filing of the Form 8950 and accompanying documents as
part of a VCP submission.” This option is not available for individuals listed on a Form
8821. See section 11.04(16) requiring a penalty of perjury declaration signed by the
Plan Sponsor to be included in the application.
.09 Acknowledgement of filing. For submissions filed on the Pay.gov website,
the IRS will not mail an acknowledgement letter to an applicant or its authorized
representative that has filed a VCP submission (or non-VCP submission for a § 457(b)
plan, as permitted by section 4.09). However, when a VCP submission is filed through
the Pay.gov website, a “Payment Confirmation–Application for Voluntary Correction
Program” is generated when the VCP submission is successfully filed. The Pay.gov
Tracking ID on this receipt serves as the IRS control number for the filed VCP
submission and should be considered an official acknowledgement. See section
11.03(6).
.10 Maintenance of copies of submissions. Plan Sponsors and their authorized
representatives should maintain copies of all correspondence submitted to the IRS with
respect to their VCP submissions.
.11 Assembling the submission. The IRS will be able to process a VCP
submission more quickly if the documents in the PDF uploaded on the Pay.gov
website, as described in section 11.03(2) and 11.04, are presented in the following
order:
(1) Plan Sponsor’s Penalty of Perjury Statement.
8821).

(2) Power of Attorney (Form 2848) or Tax Information Authorization (Form
(3) Applicable cover letter.
(4) The following narrative information:
•

Description of the failures (if the failures relate to Transferred Assets, include
a description of the related employer transaction).
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•

An explanation of how and why the failures occurred. This information may
be provided using an applicable schedule in the Form 14568-A through
14568-I series.

•

Description of the method for correcting failures, including Earnings
methodology (if applicable) and supporting computations (if applicable). This
information may be provided using an applicable schedule in the
Form 14568-A through 14568-I series, including required enclosures.

•

Description of the method(s) used to locate or notify former employees or
beneficiaries affected by the failures or corrections. If no former employees
or beneficiaries are affected by the failures or corrections, then affirmatively
state that fact when addressing this issue. This description may be provided
using an applicable schedule in the Form 14568-A through 14568-I series.

•

Description of the administrative procedures that have been or will be
implemented to ensure that the failures do not recur. This description may
be provided using an applicable schedule in the Form 14568-A through
14568-I series.

•

Whether a request is being made in order for participant loans corrected
under this revenue procedure to not be treated as deemed distributions
under § 72(p) and the supporting rationale for such request. Alternatively,
whether a request is being made for participant loans corrected under this
revenue procedure to be treated as deemed distributions under § 72(p) in
the year of correction. In either case, this request may be provided using an
applicable schedule in the Form 14568-A through 14568-I series, including
required enclosures.

•

Whether relief is being requested from imposition of the excise taxes under
§ 4972, 4973, 4974, or 4979, or the 10 percent additional income tax under
§ 72(t), and the supporting rationale for such relief. This request for relief
may be provided using an applicable schedule in the Form 14568-A through
14568-I series, including required enclosures.

•

If the plan is an Orphan Plan, the supporting rationale relating to a request
for relief from the user fee.

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(5) If the VCP submission includes either Form 14568, Model Compliance
Statement and/or any schedule (Forms 14568-A through 14568-I), any required
information and enclosures, and any related schedules.
(6) Supporting computations relating to correction, including computations for
Earnings (if applicable).
(7) Relevant plan document language, or plan document (if applicable).
(8) Copy of opinion, advisory, or determination letter (if applicable).
(9) Any other items that may be relevant to the VCP submission.
SECTION 12. VCP USER FEES
.01 User fees. The user fees for all submissions under VCP are set forth in
Appendix A of Rev. Proc. 2021-4 (and its annual successors). Plan Sponsors should
refer to the annual Employee Plans revenue procedure in effect at the time they file
their VCP submission with the IRS to determine the applicable user fee. All user fees
must be paid upon filing the VCP submission (except as provided in sections 4.08 and
11.06).
PART VI. CORRECTION ON AUDIT (AUDIT CAP)
SECTION 13. DESCRIPTION OF AUDIT CAP
.01 Audit CAP requirements. If the IRS identifies a Qualification or § 403(b)
Failure (other than a failure that has been corrected in accordance with SCP or VCP)
upon an Employee Plans or Exempt Organizations examination of a Qualified Plan,
§ 403(b) Plan, SEP, or SIMPLE IRA Plan, the requirements of this section 13 are
satisfied with respect to the failure if the Plan Sponsor corrects the failure, pays a
sanction in accordance with section 14, satisfies any additional requirements of section
13.03, and enters into a closing agreement with the IRS. This section 13 also applies if
the IRS identifies a participant loan that did not comply with the requirements of
§ 72(p)(2) (other than a loan failure that is corrected in accordance with SCP or VCP)
upon an Employee Plans or Exempt Organizations examination of a Qualified Plan or
§ 403(b) Plan.
.02 Payment of sanction. Payment of the sanction under section 14 generally is
required at the time the closing agreement is signed. Beginning January 1, 2022, the
Plan Sponsor must pay the sanction under Audit CAP using the payment methods
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Rev. Proc. 2021-30
available on the Pay.gov website, unless the Plan Sponsor does not have the
capability to use the methods on the Pay.gov website. In that case, the Plan Sponsor
may pay the Audit CAP sanction by submitting a certified check or cashier’s check
made payable to the United States Treasury. Prior to January 1, 2022, Plan Sponsors
should follow the procedures set forth in section 13.02 of Rev. Proc. 2019-19.
.03 Additional requirements. Depending on the nature of the failure, the IRS will
discuss the appropriateness of the plan's existing administrative procedures with the
Plan Sponsor. If existing administrative procedures are inadequate for operating the
plan in conformance with the applicable requirements of the Code, the closing
agreement may be conditioned upon the implementation of stated procedures.
.04 Failure to reach resolution. If the IRS and the Plan Sponsor cannot reach an
agreement with respect to the correction of the failure(s) or the amount of the sanction
then the plan will be disqualified, the plan or contract will be treated as if it did not
comply with § 403(b), the SEP will be treated as if it did not comply with § 408(k), or
the SIMPLE IRA Plan will be treated as if it did not comply with § 408(p), as applicable.
.05 Effect of closing agreement. A closing agreement constitutes an agreement
between the IRS and the Plan Sponsor that is binding with respect to the tax matters
identified in the agreement for the periods specified.
.06 Other procedural rules. The procedural rules for Audit CAP are set forth in
IRM 4.71.3.3.1, EPCRS Closing Agreements, and IRM 7.11.8, EP Determinations
Closing Agreement Program.
SECTION 14. AUDIT CAP SANCTION
.01 Determination of sanction. The sanction under Audit CAP is a negotiated
amount that is determined based on the facts and circumstances, including the
relevant factors described in section 14.02. Sanctions will not be excessive and will
bear a reasonable relationship to the nature, extent, and severity of the failures, based
on the factors below. The sanction generally will not be less than the VCP user fee
applicable to the plan. See section 14.04 for special rules relating to the sanction for
Nonamender Failures discovered during the determination letter application process.
.02 Factors considered. Factors include:
(1) For all plans (as appropriate):
(a) the steps taken by the Plan Sponsor to ensure that the plan had no failures;
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Rev. Proc. 2021-30
(b) the steps taken by the Plan Sponsor to identify failures that may have
occurred;
(c) the extent to which correction had progressed before the examination was
initiated, including full correction;
(d) the number and type of employees affected by the failure;
(e) the number of nonhighly compensated employees who would be adversely
affected if the plan were not treated as qualified or as satisfying the requirements of
§ 403(b), 408(k), or 408(p);
(f) whether the failure is a failure to satisfy the requirements of § 401(a)(4),
401(a)(26), or 410(b), either directly or through § 403(b)(12);
(g) whether the failure is solely an Employer Eligibility Failure;
(h) the period over which the failure occurred (for example, the time that has
elapsed since the end of the applicable remedial amendment period under § 401(b) for
a Plan Document Failure);
(i) the reason for the failure (for example, data errors such as errors in
transcription of data, the transposition of numbers, or minor arithmetic errors), and
(j) the Maximum Payment Amount.
(2) Additional factors for Nonamender Failures in Qualified Plans. The factors
considered for Nonamender Failures in Qualified Plans also include:
(a) whether the plan is the subject of a Favorable Letter;
(b) the internal controls implemented by the Plan Sponsor to ensure the timely
adoption of required amendments;
(c) the extent to which the Plan Sponsor had adopted a timely plan amendment
which later is found not to satisfy the qualification requirements of the Code;
(d) the extent to which the Plan Sponsor had otherwise adopted applicable
amendments identified on the Required Amendments List described in section 9 of
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Rev. Proc. 2021-30
Rev. Proc. 2016-37, as modified, and published annually in the Internal Revenue
Bulletin; and
(e) the extent to which the Plan Sponsor had reasonably determined that a
provision on the Required Amendments List described in section 9 of Rev. Proc.
2016-37, as modified, was not applicable to the Plan Sponsor’s plan.
(3) Participant loan failure. An additional factor taken into account with respect
to a participant loan that did not comply with the requirements of § 72(p)(2) is the
extent to which the failure is a result solely of action (or inaction) of the employer or its
agents (or the extent to which the failure is a result of the employee’s or beneficiary’s
actions or inaction).
.03 Transferred Assets. If the examination involves a plan with Transferred
Assets and the IRS determines that no new incidents of the failures that relate to the
Transferred Assets occurred after the end of the second plan year that begins after the
corporate merger, acquisition, or other similar employer transaction, the sanction under
Audit CAP will not exceed the sanction that would apply if the Transferred Assets were
maintained as a separate plan.
.04 Sanction for Nonamender Failures discovered during the determination letter
application process. (1) Except as provided in section 14.04(2) and (3), if the only
failure identified by the IRS during the determination letter application process is a
Nonamender Failure that was not voluntarily identified by the Plan Sponsor:
(a) The sanction for an individually designed plan is determined as follows:
(i) 150 percent of the applicable VCP user fee described in Appendix A of Rev.
Proc. 2021-4 (and its annual successors) if the Nonamender Failure arose in
connection with an amendment that was required to be adopted after the end of the
plan’s last remedial amendment cycle to which Rev. Proc. 2007-44 applied, and
(ii) 250 percent of the applicable VCP user fee described Appendix A of Rev.
Proc. 2021-4 (and its annual successors) if the Nonamender Failure arose in
connection with an amendment that was required to be adopted at any time before the
end of the plan’s last remedial amendment cycle to which Rev. Proc. 2007-44 applied.
(b) The sanction for a Pre-approved Plan is determined as follows:
(i) 150 percent of the applicable VCP user fee described in Appendix A of Rev.
Proc. 2021-4 (and its annual successors) if the Nonamender Failure arose in
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Rev. Proc. 2021-30
connection with an amendment that was required to be adopted after the end of the
plan’s second six-year remedial amendment cycle, and
(ii) 250 percent of the applicable VCP user fee described in Appendix A of Rev.
Proc. 2021-4 (and its annual successors) if the Nonamender Failure arose in
connection with an amendment that was required to be adopted at any time before the
end of the plan’s second six-year remedial amendment cycle.
(2) The sanction prescribed in section 14.04(1) may be reduced or increased in
the following circumstances:
(a) If a plan amendment was timely adopted in order to maintain the plan’s
qualified status but is found not to satisfy the qualification requirements of the Code,
the applicable sanction described in section 14.04(1) may be reduced based on the
facts and circumstances, including the factors described in section 14.02(2)(a), (b) and
(c). However, the sanction generally will not be less than the VCP user fee applicable
to the plan.
(b) If a Nonamender Failure is egregious, the sanction will be determined under
section 14.01. Whether a Nonamender Failure is egregious will be determined based
on the facts and circumstances, including:
(i) the number of plan amendments that were not timely adopted;
(ii) the number of years that had elapsed from the end of the remedial
amendment period until amendments were adopted (if at all); and
(iii) the extent to which the plan lacked internal controls to facilitate the timely
adoption of amendments.
PART VII. EFFECT ON OTHER DOCUMENTS; EFFECTIVE DATE; PAPERWORK
REDUCTION ACT
SECTION 15. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2019-19 is modified and superseded by this revenue procedure.
SECTION 16. EFFECTIVE DATE
This revenue procedure is generally effective July 16, 2021; however, the
extension of the sunset of the safe harbor correction method (from December 31,
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Rev. Proc. 2021-30
2020, to December 31, 2023) is effective January 1, 2021. Also, effective January 1,
2022, (1) VCP submissions may not be submitted on an anonymous basis, (2)
anonymous pre-submission conference requests may be submitted under VCP, and
(3) except as otherwise provided in section 13.02, Audit CAP sanctions must be paid
using the Pay.gov website.
SECTION 17. PUBLIC COMMENTS
The Treasury Department and the IRS invite comments on this revenue
procedure. Comments should be submitted in writing by October 14, 2021, and should
include a reference to Revenue Procedure 2021-30. Comments may be submitted in
one of two ways:
(1) Electronically via the Federal eRulemaking Portal at Regulations.gov (type
IRS Revenue Procedure 2021-30 in the search field on the Regulations.gov homepage
to find this revenue procedure and submit comments).
(2) Alternatively, by mail to: Internal Revenue Service, Attn: CC:PA:LPD:PR
(Revenue Procedure 2021-30), Room 5203, P.O. Box 7604, Ben Franklin Station,
Washington, D.C. 20044.
All commenters are strongly encouraged to submit public comments
electronically. The IRS expects to have limited personnel available to process public
comments that are submitted on paper through mail. Until further notice, any
comments submitted on paper will be considered to the extent practicable. The
Treasury Department and the IRS will publish for public availability any comment
submitted electronically and, to the extent practicable, on paper to its public docket.
SECTION 18. PAPERWORK REDUCTION ACT
The collection of information contained in this revenue procedure has been
reviewed and approved by the Office of Management and Budget in accordance with
the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-1673.
An agency may not conduct or sponsor, and a person is not required to respond
to, a collection of information unless the collection of information displays a valid OMB
control number.
The collection of information in this revenue procedure is in sections 4.05,
6.02(5)(d), 6.09(5), 6.09(6), 10, 11, 13.01, Appendix A, sections .05(8)(c) and .05(9)(c),
and Appendix B, sections 2.01-2.07. This information is required to enable the
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Rev. Proc. 2021-30
Commissioner, Tax Exempt and Government Entities Division of the IRS to consider
the issuance of various types of closing agreements and compliance statements. This
information will be used to issue closing agreements and compliance statements to
allow individual plans to continue to maintain their tax favored status. As a result,
favorable tax treatment of the benefits of the eligible employees is retained. The likely
respondents are individuals, state or local governments, businesses or other for-profit
institutions, nonprofit institutions, and small businesses or organizations.
The estimated total annual reporting or recordkeeping burden is 91,791 hours.
The estimated annual burden per respondent/recordkeeper varies from .5 to
45.5 hours, depending on individual circumstances, with an estimated average of 25.28
hours. The estimated number of respondents or recordkeepers is 5,375.
The estimated frequency of responses is occasional.
Books or records relating to a collection of information must be retained as long
as their contents may become material in the administration of any internal revenue
law. Generally, tax returns and tax return information are confidential, as required by
26 U.S.C. § 6103.
DRAFTING INFORMATION
The principal author of this revenue procedure is Matthew Mulling of the Office
of the Associate Chief Counsel (Employee Benefits, Exempt Organizations, and
Employment Taxes). For further information regarding this revenue procedure, please
contact the Employee Plans’ taxpayer assistance telephone service at (877) 829-5500
(a toll-free number) between the hours of 8:30 a.m. and 4:30 p.m. Eastern Time,
Monday through Friday.

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APPENDIX A
OPERATIONAL FAILURES AND CORRECTION METHODS
.01 General rule. (1) In general. This Appendix A sets forth Operational Failures
and Correction Methods relating to Qualified Plans. In each case, the method
described corrects the Operational Failure identified in the headings below. Corrective
allocations and distributions should reflect Earnings and actuarial adjustments in
accordance with section 6.02(4) of this revenue procedure. The correction methods in
this Appendix A are acceptable to correct Qualification Failures under VCP, and to
correct Qualification Failures under SCP that occurred notwithstanding that the plan has
established practices and procedures reasonably designed to promote and facilitate
overall compliance with the Code, as provided in section 4.04 of this revenue
procedure. To the extent a failure listed in this Appendix A could occur under a § 403(b)
Plan, a SEP, or a SIMPLE IRA Plan, the correction method listed for such failure, such
as the correction method for an Employee Elective Deferral failure in section .05(9),
may similarly be used to correct the failure. Unless otherwise specified, section
references in this Appendix A refer to sections in this appendix.
(2) Correction methods permitted in Appendix A and Appendix B are safe
harbors. Correction methods permitted in Appendix A and Appendix B are deemed to
be reasonable and appropriate methods of correcting a failure. Both Appendices set
forth various correction methods that may be used to correct a failure, depending on the
facts and circumstances. A Plan Sponsor may choose any correction method by which
the plan can satisfy the eligibility requirements. For example, a § 401(k) plan that
improperly excluded an employee may use the general correction method under
section.05(2). However, if the § 401(k) plan has an automatic contribution feature, the
plan may use the correction method under section .05(8), assuming the plan satisfies
the eligibility requirements in section .05(8)(a). If the § 401(k) plan doesn’t have an
automatic contribution feature but corrects the failure within a specified time period, the
plan may use the correction method under section .05(9)(a) or (b), assuming the plan
satisfies the eligibility requirements in section .05(9)(a) or (b).
(3) Other reasonable correction methods permitted. As provided in section
6.02(2) of this revenue procedure, there may be more than one reasonable and
appropriate correction of a failure. Any correction method used that is not described in
Appendix A or Appendix B would need to satisfy the correction principles of section 6.02
of this revenue procedure. For example, the sponsor of a § 403(b) Plan that failed to
satisfy the universal availability requirement of § 403(b)(12)(A)(ii) might propose to
determine the missed deferral for an excluded employee using a percentage based on
the average deferrals for all employees in the plan instead of using the rule for
calculating missed deferrals set out in section .05(6)(b). In doing so, the proposed
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correction method would fall outside Appendix A, and the Plan Sponsor would need to
satisfy the general correction principles of section 6.02 and other applicable rules in this
revenue procedure.
.02 Failure to properly provide the minimum top-heavy benefit under § 416 to
non-key employees. In a defined contribution plan, the permitted correction method is
to properly contribute and allocate the required top-heavy minimums to the plan in the
manner provided for in the plan on behalf of the non-key employees (and any other
employees required to receive top-heavy allocations under the plan). In a defined
benefit plan, the minimum required benefit must be accrued in the manner provided in
the plan.
.03 Failure to satisfy the ADP test set forth in § 401(k)(3), the ACP test set forth
in § 401(m)(2), or, for plan years beginning on or before December 31, 2001, the
multiple use test of § 401(m)(9). The permitted correction method is to make QNECs
(as defined in §1.401(k)-6) on behalf of the nonhighly compensated employees to the
extent necessary to raise the actual deferral percentage or actual contribution
percentage of the nonhighly compensated employees to the percentage needed to pass
the test or tests. For purposes of correcting a failed ADP, ACP, or multiple use test, any
amounts used to fund QNECs must satisfy the definition of QNEC in §1.401(k)-6). The
contributions must be made on behalf of all eligible nonhighly compensated employees
(to the extent permitted under § 415) and must be the same percentage of
compensation. QNECs contributed to satisfy the ADP test need not be taken into
account for determining additional contributions (for example, a matching contribution),
if any. For purposes of this section .03, employees who would have received a
matching contribution had they made elective deferrals must be counted as eligible
employees for the ACP test, and the plan must satisfy the ACP test. Under this
correction method, a plan may not be treated as two separate plans, one covering
otherwise excludable employees and the other covering all other employees (as
permitted in §1.410(b)-6(b)(3)), in order to reduce the number of employees eligible to
receive QNECs. Likewise, under this correction method, the plan may not be
restructured into component plans in order to reduce the number of employees eligible
to receive QNECs.
.04 Failure to distribute elective deferrals in excess of the § 402(g) limit (in
contravention of § 401(a)(30)). The permitted correction method is to distribute the
excess deferral to the employee and to report the amount as taxable in the year of
deferral and in the year distributed. The inclusion of the deferral and the distribution in
gross income applies whether or not any portion of the excess deferral is attributable to
a designated Roth contribution (see § 402A(d)(3)). In accordance with
§1.402(g)-1(e)(1)(ii), a distribution to a highly compensated employee is included in the
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ADP test and a distribution to a nonhighly compensated employee is not included in the
ADP test.
.05 Exclusion of an eligible employee from all contributions or accruals under the
plan for one or more plan years. (1) Improperly excluded employees: employer
provided contributions or benefits. For plans with employer provided contributions or
benefits (which are neither elective deferrals under a qualified cash or deferred
arrangement under § 401(k) nor matching or after-tax employee contributions that are
subject to § 401(m)), the permitted correction method is to make a contribution to the
plan on behalf of the employees excluded from a defined contribution plan or to provide
benefit accruals for the employees excluded from a defined benefit plan.
(2) Improperly excluded employees: contributions subject to § 401(k) or 401(m).
(a) For plans providing benefits subject to § 401(k) or 401(m), the corrective contribution
for an improperly excluded employee is described in the following paragraphs of this
section .05(2). (See Appendix B, Examples 3 through 12.)
(b) If the employee was not provided the opportunity to elect and make elective
deferrals (other than designated Roth contributions) to a § 401(k) plan that does not
satisfy § 401(k)(3) by applying the safe harbor contribution requirements of § 401(k)(12)
or 401(k)(13), the employer must make a QNEC to the plan on behalf of the employee
that replaces the “missed deferral opportunity.” The missed deferral opportunity is
equal to 50 percent of the employee’s “missed deferral.” The missed deferral is
determined by multiplying the actual deferral percentage for the year of exclusion
(whether or not the plan is using current or prior year testing) for the employee's group
in the plan (either highly compensated or nonhighly compensated) by the employee’s
compensation for that year. The employee’s missed deferral amount is reduced further
to the extent necessary to ensure that the missed deferral does not exceed applicable
plan limits, including the annual deferral limit under § 402(g) for the calendar year in
which the failure occurred. Under this correction method, a plan may not be treated as
two separate plans, one covering otherwise excludable employees and the other
covering all other employees (as permitted in §1.410(b)-6(b)(3)) in order to reduce the
applicable ADP, the corresponding missed deferral, and the required QNEC. Likewise,
restructuring the plan into component plans is not permitted in order to reduce the
applicable ADP, the corresponding missed deferral, and the required QNEC. The
QNEC required for the employee for the missed deferral opportunity for the year of
exclusion is adjusted for Earnings to the date the corrective QNEC is made on behalf of
the affected employee.
(c) If the employee should have been eligible for but did not receive an allocation
of employer matching contributions under a non-safe harbor plan because he or she
was not given the opportunity to make elective deferrals, the employer must make a
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corrective employer nonelective contribution on behalf of the affected employee. The
corrective employer nonelective contribution is equal to the matching contribution the
employee would have received had the employee made a deferral equal to the missed
deferral determined under section .05(2)(b). The corrective employer nonelective
contribution must be adjusted for Earnings to the date the corrective contribution is
made on behalf of the affected employee.
(d)(i) If the employee was not provided the opportunity to elect and make elective
deferrals (other than designated Roth contributions) to a safe harbor § 401(k) plan that
uses a rate of matching contributions to satisfy the safe harbor requirements of
§ 401(k)(12), then the missed deferral is deemed equal to the greater of 3 percent of
compensation or the maximum deferral percentage for which the employer provides a
matching contribution rate that is at least as favorable as 100 percent of the elective
deferral made by the employee. If the employee was not provided the opportunity to
elect and make elective deferrals (other than Roth contributions) to a safe harbor
§ 401(k) plan that uses nonelective contributions to satisfy the safe harbor requirements
of § 401(k)(12), then the missed deferral is deemed equal to 3 percent of compensation.
In either event, this estimate of the missed deferral replaces the estimate based on the
ADP test in a traditional § 401(k) plan. The required QNEC on behalf of the excluded
employee is equal to (i) 50 percent of the missed deferral, plus (ii) either (A) an amount
equal to the contribution that would have been required as a matching contribution
based on the missed deferral in the case of a safe harbor § 401(k) plan that uses a rate
of matching contributions to satisfy the safe harbor requirements of § 401(k)(12) or (B)
the nonelective contribution that would have been made on behalf of the employee in
the case of a safe harbor § 401(k) plan that uses nonelective contributions to satisfy the
safe harbor requirements of § 401(k)(12). The QNEC required to replace the
employee’s missed deferral opportunity and the corresponding matching or nonelective
contribution is adjusted for Earnings to the date the corrective QNEC is made on behalf
of the employee.
(ii) If the employee was not provided the opportunity to make an affirmative
election with respect to elective deferrals (other than designated Roth contributions) to a
safe harbor § 401(k) plan that uses an automatic contribution arrangement to satisfy the
safe harbor requirements of § 401(k)(13) and the failure occurs for a period that does
not extend past the last day of the first plan year which begins after the date on which
the first deferral would have been made (but for the failure), then the missed deferral is
deemed to equal 3 percent of the employee’s compensation under the plan. If the
failure occurs for a plan year or plan years subsequent to the period described in the
prior sentence, then the missed deferral for each subsequent plan year is equal to the
qualified percentage specified in the plan document to comply with § 401(k)(13)(C)(iii).
The missed deferral determined in accordance with this section .05(2)(d)(ii) replaces the
estimate based on the ADP test in a traditional § 401(k) plan. The required corrective
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employer contribution on behalf of the excluded employee is equal to (i) the missed
deferral opportunity, which is an amount equal to 50 percent of the missed deferral, plus
(ii) an amount equal to either the matching contribution that would apply under
§ 401(k)(13) based on the missed deferral or the nonelective contribution that would
have been made on behalf of the employee under § 401(k)(13), whichever applies
under the plan. The employer contribution for the missed deferral opportunity must be a
QNEC. The corrective employer contribution consisting of the QNEC required to
replace the employee’s missed deferral opportunity and the corresponding matching or
nonelective contribution is adjusted for Earnings to the date the corrective employer
contribution is made on behalf of the employee.
(iii) In the case of a failure to make the required nonelective contribution for a
plan year under a safe harbor § 401(k) plan that uses the nonelective contribution under
§ 401(k)(12)(C) to satisfy the safe harbor requirements of § 401(k)(12) or that uses the
nonelective contribution under § 401(k)(13)(D)(i)(I) to satisfy the safe harbor
requirements of § 401(k)(13), the nonelective contribution (which must be a QNEC in
the case of a plan that uses § 401(k)(12) to satisfy ADP) required to be made on behalf
of the employee is equal to 3 percent of the employee’s compensation during the period
of the failure. For this purpose, the period of the failure for any plan year ends at the
end of the plan year or, if earlier, the later of June 18, 2009 or the date 30 days after
notice was provided to employees as required under applicable Treasury Regulations
(see §1.401(k)-3(g)(ii) of the proposed regulations, at 74 FR 23134).
(e) If the employee should have been eligible to elect and make after-tax
employee contributions (other than designated Roth contributions), the employer must
make a QNEC to the plan on behalf of the employee that is equal to the “missed
opportunity for making after-tax employee contributions.” The missed opportunity for
making after-tax employee contributions is equal to 40 percent of the employee’s
“missed after-tax contributions.” The employee’s missed after-tax contributions are
equal to the ACP for the employee’s group (either highly compensated or nonhighly
compensated) times the employee’s compensation, but with the resulting amount not to
exceed applicable plan limits. If the ACP consists of both matching and after-tax
employee contributions, then, in lieu of basing the employee’s missed after-tax
employee contributions on the ACP for the employee’s group, the employer is permitted
to determine separately the portion of the ACP that is attributable to after-tax employee
contributions for the employee’s group (either highly compensated or nonhighly
compensated), multiplied by the employee’s compensation for the year of exclusion.
The QNEC must be adjusted for Earnings to the date the corrective QNEC is made on
behalf of the affected employee.
(f) If the employee was improperly excluded from an allocation of employer
matching contributions because he or she was not given the opportunity to make afterPage 85 of 140

tax employee contributions (other than designated Roth contributions), the employer
must make a corrective employer nonelective contribution on behalf of the affected
employee. The corrective employer nonelective contribution is equal to the matching
contribution the employee would have received had the employee made an after-tax
employee contribution equal to the missed after-tax employee contribution determined
under section .05(2)(e). The corrective employer nonelective contribution must be
adjusted for Earnings to the date the corrective contribution is made on behalf of the
affected employee.
(g) The methods for correcting the failures described in this section .05(2) do not
apply until after the correction of other qualification failures. Thus, for example, if, in
addition to the failure of excluding an eligible employee, the plan also failed the ADP or
ACP test, the correction methods described in section .05(2)(b) through (f) cannot be
used until after correction of the ADP or ACP test failures. For purposes of this section
.05(2), in order to determine whether the plan passed the ADP or ACP test, the plan
may rely on a test performed with respect to those eligible employees who were
provided with the opportunity to make elective deferrals or after-tax employee
contributions and receive an allocation of employer matching contributions, in
accordance with the terms of the plan, and may disregard the employees who were
improperly excluded.
(3) Improperly excluded employees: designated Roth contributions. For
employees who were improperly excluded from plans that (i) are subject to § 401(k) (as
described in section .05(2)) and (ii) provide for the optional treatment of elective
deferrals as designated Roth contributions, the correction is the same as described
under section .05(2). Thus, for example, the corrective employer contribution required
to replace the missed deferral opportunity is made in accordance with the method
described in section .05(2)(b) in the case of a § 401(k) plan that is not a safe harbor
§ 401(k) plan or section .05(2)(d) in the case of a safe harbor § 401(k) plan. However,
none of the corrective contributions made by the employer may be treated as
designated Roth contributions (and may not be included in an employee’s gross
income) and thus may not be contributed or allocated to a Roth account (as described
in § 402A(b)(2)). The corrective employer contribution must be allocated to an account
established for receiving a QNEC or any other employer contribution in which the
employee is fully vested and subject to the withdrawal restrictions that apply to elective
deferrals.
(4) Improperly excluded employees: catch-up contributions only. (a) Correction
for missed catch-up contributions. If an eligible employee was not provided the
opportunity to elect and make catch-up contributions to a § 401(k) plan, the employer
must make a QNEC to the plan on behalf of the employee that replaces the “missed
deferral opportunity” attributable to the failure to permit an eligible employee to make a
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catch-up contribution pursuant to § 414(v). The missed deferral opportunity for catch-up
contributions is equal to 50 percent of the employee’s missed deferral attributable to
catch-up contributions. For this purpose, the missed deferral attributable to catch-up
contributions is one half of the applicable catch-up contribution limit for the year in which
the employee was improperly excluded. Thus, for example if an eligible employee was
improperly precluded from electing and making catch-up contributions in 2006, the
missed deferral attributable to catch-up contributions is $2,500, which is one half of
$5,000, the 2006 catch-up contribution limit for a § 401(k) plan. The eligible employee’s
missed deferral opportunity is $1,250 (that is, 50 percent of the missed deferral
attributable to catch-up contributions of $2,500). The QNEC required to replace the
missed deferral opportunity for the year of exclusion is adjusted for Earnings to the date
the corrective QNEC is made on behalf of the affected employee. For purposes of this
correction, an eligible employee, pursuant to § 414(v)(5), refers to any participant who
(i) would have attained age 50 by the end of the plan’s taxable year and (ii) in the
absence of the plan’s catch-up provision, could not make additional elective deferrals on
account of the plan or statutory limitations described in § 414(v)(3) and
§1.414(v)-1(b)(1).
(b) Correction for missed matching contributions on catch-up contributions. If an
employee was precluded from making catch-up contributions under this section .05(4),
the Plan Sponsor should ascertain whether the affected employee would have been
entitled to an additional matching contribution on account of the missed deferral. If the
employee would have been entitled to an additional matching contribution, then the
employer must make a corrective employer nonelective contribution for the matching
contribution on behalf of the affected employee. The corrective employer nonelective
contribution is equal to the additional matching contribution the employee would have
received had the employee made a deferral equal to the missed deferral determined
under paragraph (a) of this section .05(4). The corrective employer nonelective
contribution must be adjusted for Earnings to the date the corrective contribution is
made on behalf of the affected employee. If in addition to the failure to provide
matching contributions under this section .05(4)(b), the plan also failed the ACP test, the
correction methods described in this section cannot be used until after correction of the
ACP test failure. For purposes of this section, in order to determine whether the plan
passed the ACP test the plan may rely on a test performed with respect to those eligible
employees who were provided with the opportunity to make elective deferrals or aftertax employee contributions and receive an allocation of employer matching
contributions, in accordance with the terms of the plan, and may disregard any
employer matching contribution that was not made on account of the plan’s failure to
provide an eligible employee with the opportunity to make a catch-up contribution.
(5) Failure to implement an employee election. (a) Missed opportunity for
elective deferrals. For eligible employees who filed elections to make elective deferrals
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under the Plan which the Plan Sponsor failed to implement on a timely basis, the Plan
Sponsor must make a QNEC to the plan on behalf of the employee to replace the
“missed deferral opportunity.” The missed deferral opportunity is equal to 50 percent of
the employee’s “missed deferral.” The missed deferral is determined by multiplying the
employee’s elected deferral percentage by the employee’s compensation. If the
employee elected a dollar amount for an elective deferral, the missed deferral would be
the specified dollar amount. The employee’s missed deferral amount is reduced further
to the extent necessary to ensure that the missed deferral does not exceed applicable
plan limits, including the annual deferral limit under § 402(g) for the calendar year in
which the failure occurred. The QNEC must be adjusted for Earnings to the date the
corrective QNEC is made on behalf of the affected employee.
(b) Missed opportunity for after-tax employee contributions. For eligible
employees who filed elections to make after-tax employee contributions under the Plan
which the Plan Sponsor failed to implement on a timely basis, the Plan Sponsor must
make a QNEC to the plan on behalf of the employee to replace the employee’s missed
opportunity for after-tax employee contributions. The missed opportunity for making
after-tax employee contributions is equal to 40 percent of the employee’s “missed aftertax contributions.” The missed after-tax employee contribution is determined by
multiplying the employee’s elected after-tax employee contribution percentage by the
employee’s compensation. The QNEC must be adjusted for Earnings to the date the
corrective QNEC is made on behalf of the affected employee.
(c) Missed opportunity affecting matching contributions. In the event of failure
described in paragraph (a) or (b) of this section .05(5), if the employee would have been
entitled to an additional matching contribution had either the missed deferral or after-tax
employee contribution been made, then the Plan Sponsor must make a corrective
employer nonelective contribution for the matching contribution on behalf of the affected
employee, or a corrective QNEC in the case of a safe harbor plan under § 401(k)(12).
The corrective employer nonelective contribution or QNEC is equal to the matching
contribution the employee would have received had the employee made a deferral
equal to the missed deferral determined under this paragraph. The corrective employer
nonelective contribution or QNEC must be adjusted for Earnings to the date the
corrective contribution or QNEC is made on behalf of the affected employee.
(d) Coordination with correction of other Qualification Failures. The method for
correcting the failures described in this section .05(5) does not apply until after the
correction of other qualification failures. Thus, for example, if in addition to the failure to
implement an employee’s election, the plan also failed the ADP test or ACP test, the
correction methods described in section .05(5)(a), (b), or (c) cannot be used until after
correction of the ADP or ACP test failures. For purposes of this section .05(5), in order
to determine whether the plan passed the ADP or ACP test the plan may rely on a test
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performed with respect to those eligible employees who were not impacted by the Plan
Sponsor’s failure to implement employee elections and received allocations of employer
matching contributions, in accordance with the terms of the plan, and may disregard
employees whose elections were not properly implemented.
(6) Failure of a § 403(b) Plan to satisfy the universal availability requirement of
§ 403(b)(12)(A)(ii). (a) Subject to the specific rules in this section .05(6), the correction
methods set forth in this section .05 (and Appendix B, section 2.02) for a Qualified Plan
also apply to a § 403(b) Plan that has a similar failure.
(b) If the employee was not provided the opportunity to elect and make elective
deferrals to a § 403(b) Plan, then, in lieu of determining the missed deferral based on
the actual deferral percentage as described in section .05(2)(b), the missed deferral is
deemed equal to the greater of 3 percent of compensation or the maximum deferral
percentage for which the Plan Sponsor provides a matching contribution rate that is at
least as favorable as 100 percent of the elective deferral made by the employee.
(7) Improper exclusion of an eligible employee from a SIMPLE IRA plan subject
to the requirements of § 408(p). (a) Subject to the specific rules in this section .05(7),
the correction methods set forth in this section .05 for a Qualified Plan also apply to a
SIMPLE IRA plan that has a similar failure.
(b) If the employee was not provided the opportunity to elect and make elective
deferrals to a SIMPLE IRA plan, then, in lieu of determining the missed deferral based
on the actual deferral percentage as described in section .05(2)(b), the missed deferral
is deemed to be 3 percent of compensation.
(8) Special safe harbor correction method for failures related to automatic
contribution features in a § 401(k) plan or a § 403(b) Plan. (a) Eligibility to use safe
harbor correction method. This safe harbor correction method is available for certain
Employee Elective Deferral Failures (as defined in section .05(10) associated with
missed elective deferrals for eligible employees who are subject to an automatic
contribution feature in a § 401(k) plan or § 403(b) Plan (including employees who made
affirmative elections in lieu of automatic contributions but whose elections were not
implemented correctly). If the failure to implement an automatic contribution feature for
an affected eligible employee or the failure to implement an affirmative election of an
eligible employee who is otherwise subject to an automatic contribution feature does not
extend beyond the end of the 9½-month period after the end of the plan year of the
failure (which is generally the filing deadline of the Form 5500 series return, including
automatic extensions), no QNEC for the missed elective deferrals is required, provided
that the following conditions are satisfied:
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(i) Correct deferrals begin no later than the earlier of the first payment of
compensation made on or after the last day of the 9½-month period after the end of the
plan year in which the failure first occurred for the affected eligible employee or, if the
Plan Sponsor was notified of the failure by the affected eligible employee, the first
payment of compensation made on or after the end of the month after the month of
notification;
(ii) Notice of the failure that satisfies the content requirements of section .05(8)(c)
is given to the affected eligible employee not later than 45 days after the date on which
correct deferrals begin; and
(iii) If the eligible employee would have been entitled to additional matching
contributions had the missed deferrals been made, the Plan Sponsor makes a
corrective allocation (adjusted for Earnings) on behalf of the employee equal to the
matching contributions that would have been required under the terms of the plan as if
the missed deferrals had been contributed to the plan in accordance with timing
requirements under SCP for significant operational failures (described in section 9.02 of
this revenue procedure).
(b) Calculation of Earnings for certain failures to implement automatic
contribution features. This correction method provides an alternative safe harbor
method for calculating Earnings for Employee Elective Deferral Failures under § 401(k)
plans or § 403(b) Plans that have automatic contribution features and that are corrected
in accordance with the procedures in this section .05(8). If an affected eligible
employee has not affirmatively designated an investment alternative, missed Earnings
may be calculated based on the plan’s default investment alternative, provided that, with
respect to a correction made in accordance with the procedures in this section .05(8),
any cumulative losses reflected in the Earnings calculation will not result in a reduction
in the required corrective contributions relating to any matching contributions. The Plan
Sponsor may also use the Earnings adjustment methods set forth in Appendix B,
section 3.
(c) Content of notice requirement. The notice required under section .05(8)(a)(ii)
must include the following information:
(i) General information relating to the failure, such as the percentage of eligible
compensation that should have been deferred and the approximate date that the
compensation should have begun to be deferred. The general information need not
include a statement of the dollar amounts that should have been deferred.

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(ii) A statement that appropriate amounts have begun to be deducted from
compensation and contributed to the plan (or that appropriate deductions and
contributions will begin shortly).
(iii) A statement that corrective allocations relating to missed matching
contributions have been made (or that corrective allocations will be made). Information
relating to the date and the amount of corrective allocations need not be provided.
(iv) An explanation that the affected participant may increase his or her deferral
percentage in order to make up for the missed deferral opportunity, subject to applicable
limits under § 402(g).
(v) The name of the plan and plan contact information (including name, street
address, email address, and telephone number of a plan contact).
(d) Sunset of safe harbor correction method. The safe harbor correction method
described in section .05(8) is available for plans only with respect to failures that begin
on or before December 31, 2023.
(9) Safe harbor correction methods for Employee Elective Deferral Failures in
§ 401(k) plans or § 403(b) Plans. (a) Safe harbor correction method for Employee
Elective Deferral Failures that do not exceed three months. Under this safe harbor
correction method, an Employee Elective Deferral Failure (as defined in section .05(10))
can be corrected without a QNEC for missed elective deferrals if the following
conditions are satisfied:
(i) Correct deferrals begin no later than the earlier of the first payment of
compensation made on or after the last day of the three-month period that begins when
the failure first occurred for the affected eligible employee or, if the Plan Sponsor was
notified of the failure by the affected eligible employee, the first payment of
compensation made on or after the end of the month after the month of notification;
(ii) Notice of the failure that satisfies the content requirements of section .05(9)(c)
is given to the affected eligible employee not later than 45 days after the date on which
correct deferrals begin; and
(iii) If the eligible employee would have been entitled to additional matching
contributions had the missed deferrals been made, the Plan Sponsor makes a
corrective allocation (adjusted for Earnings, which may be calculated as described in
section .05(8)(b)) on behalf of the employee equal to the matching contributions that
would have been required under the terms of the plan as if the missed deferrals had
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been contributed to the plan in accordance with the timing requirements under SCP for
significant operational failures (described in section 9.02 of this revenue procedure).
(b) Safe harbor correction method for Employee Elective Deferral Failures that
extend beyond three months but do not extend beyond the SCP correction period for
significant failures. This safe harbor correction is for failures that exceed three months
(or the conditions for the safe harbor correction method described in section .05(8) or
.05(9)(a) are not met by the Plan Sponsor). Under this safe harbor correction, the
required corrective employer contribution is equal to 25 percent of the missed deferrals
(25 percent QNEC) in lieu of the higher QNEC required in sections .05(2)(b) and
.05(5)(a). In order to use this safe harbor correction method, the Plan Sponsor must
satisfy the following conditions:
(i) Correct deferrals begin no later than the earlier of the first payment of
compensation made on or after the last day of the third plan year following the plan year
in which the failure occurred or, if the Plan Sponsor was notified of the failure by the
affected eligible employee, the first payment of compensation made on or after the end
of the month after the month of notification;
(ii) Notice of the failure that satisfies the content requirements of section .05(9)(c)
is given to an affected participant not later than 45 days after the date on which correct
deferrals begin; and
(iii) Corrective allocations, as described in section 6.02(4) of this revenue
procedure (including the 25 percent QNEC and employer contributions to make up for
any missed matching contributions), are made in accordance with timing requirements
under SCP for significant operational failures (described in section 9.02 of this revenue
procedure), including adjustments for Earnings, which may be calculated as described
in section .05(8)(b).
(c) Content of notice requirement. The notice required under sections
.05(9)(a)(ii) and .05(9)(b)(ii) must include the following information:
(i) General information relating to the failure, such as the percentage of eligible
compensation that should have been deferred and the approximate date that the
compensation should have begun to be deferred. The general information need not
include a statement of the dollar amounts that should have been deferred.
(ii) A statement that appropriate amounts have begun to be deducted from
compensation and contributed to the plan (or that appropriate deductions and
contributions will begin shortly).
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(iii) A statement that corrective allocations have been made (or that corrective
allocations will be made). Information relating to the date and the amount of corrective
allocations need not be provided.
(iv) An explanation that the affected participant may increase his or her deferral
percentage in order to make up for the missed deferral opportunity, subject to applicable
limits under § 402(g).
(v) The name of the plan and plan contact information (including name, street
address, email address, and telephone number of a plan contact).
(10) Employee Elective Deferral Failure. For purposes of sections .05(8) and
.05(9), an “Employee Elective Deferral Failure” is a failure to implement elective
deferrals correctly in a § 401(k) plan or § 403(b) Plan, including elective deferrals
pursuant to an affirmative election or pursuant to an automatic contribution feature
under a § 401(k) plan or § 403(b) Plan, and a failure to afford an employee the
opportunity to make an affirmative election because the employee was improperly
excluded from the plan. Automatic contribution features include automatic enrollment
and automatic escalation features (including automatic escalation features that were
affirmatively elected).
.06 Failure to timely pay the minimum distribution required under § 401(a)(9). In
a defined contribution plan, the permitted correction method is to distribute the required
minimum distributions (with Earnings from the date of the failure to the date of the
distribution). The amount required to be distributed for each year in which the initial
failure occurred should be determined by dividing the adjusted account balance on the
applicable valuation date by the applicable distribution period. For this purpose,
adjusted account balance means the actual account balance, determined in accordance
with §1.401(a)(9)-5, Q&A-3, reduced by the amount of the total missed minimum
distributions for prior years. In a defined benefit plan, the permitted correction method is
to distribute the required minimum distributions, plus an interest payment based on the
plan’s actuarial equivalence factors in effect on the date that the distribution should
have been made. See section 6.02(4)(d) of this revenue procedure. If this correction is
made at the time the plan is subject to a restriction on single-sum payments pursuant to
§ 436(d), the Plan Sponsor must contribute to the plan the applicable amount under
section 6.02(4)(e)(ii)(A) of this revenue procedure as part of the correction.
.07 Failure to obtain participant or spousal consent for a distribution subject to
the participant and spousal consent rules under §§ 401(a)(11), 411(a)(11), and 417. (1)
The permitted correction method is to give each affected participant a choice between
providing informed consent for the distribution actually made or receiving a qualified
joint and survivor annuity. In the event that participant or spousal consent is required
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but cannot be obtained, the participant must receive a qualified joint and survivor
annuity based on the monthly amount that would have been provided under the plan at
his or her retirement date. This annuity may be actuarially reduced to take into account
distributions already received by the participant. However, the portion of the qualified
joint and survivor annuity payable to the spouse upon the death of the participant may
not be actuarially reduced to take into account prior distributions to the participant.
Thus, for example, if, in accordance with the automatic qualified joint and survivor
annuity option under a plan, a married participant who retired would have received a
qualified joint and survivor annuity of $600 per month payable for life with $300 per
month payable to the spouse for the spouse’s life beginning upon the participant’s
death, but instead received a single-sum distribution equal to the actuarial present value
of the participant’s accrued benefit under the plan, then the $600 monthly annuity
payable during the participant’s lifetime may be actuarially reduced to take the singlesum distribution into account. However, the spouse must be entitled to receive an
annuity of $300 per month payable for life beginning at the participant’s death.
(2) An alternative permitted correction method is to give each affected participant
a choice between (i) providing informed consent for the distribution actually made, (ii)
receiving a qualified joint and survivor annuity (both (i) and (ii) of this section .07(2) are
described in section .07(1)), or (iii) a single-sum payment to the participant’s spouse
equal to the actuarial present value of that survivor annuity benefit (calculated using the
applicable interest rate and mortality table under § 417(e)(3)). For example, assuming
the actuarial present value of a $300 per month annuity payable to the spouse for the
spouse’s life beginning upon the participant’s death was $7,837 (calculated using the
applicable interest rate and applicable mortality table under § 417(e)(3)), the single-sum
payment to the spouse under clause (iii) of this section .07(2) is equal to $7,837. If the
single-sum payment is made to the spouse, then the payment is treated in the same
manner as a distribution under § 402(c)(9) for purposes of rolling over the payment to
an IRA or other eligible retirement plan. If correction is made at the time the plan is
subject to a restriction on single-sum payments pursuant to § 436(d), then the
alternative permitted correction in this section .07(2) is available only if the Plan
Sponsor (or other person) contributes to the plan the applicable amount under section
6.02(4)(e)(ii)(A) of this revenue procedure as part of the correction.
.08 Failure to satisfy the § 415 limits in a defined contribution plan. For limitation
years beginning before January 1, 2009, the permitted correction for failure to limit
annual additions (other than elective deferrals and after-tax employee contributions)
allocated to participants in a defined contribution plan as required in § 415 (even if the
excess did not result from the allocation of forfeitures or from a reasonable error in
estimating compensation) is to place the excess annual additions into an unallocated
account, similar to the suspense account described in §1.415-6(b)(6)(iii) (as it appeared
in the April 1, 2007 edition of 26 CFR part 1) prior to amendments made by the final
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regulations under § 415, to be used as an employer contribution, other than elective
deferrals, in the succeeding year(s). While such amounts remain in the unallocated
account, the Plan Sponsor is not permitted to make additional contributions to the plan.
The permitted correction for failure to limit annual additions that are elective deferrals or
after-tax employee contributions (even if the excess did not result from a reasonable
error in determining compensation, the amount of elective deferrals or after-tax
employee contributions that could be made with respect to an individual under the § 415
limits) is to distribute the elective deferrals or after-tax employee contributions using a
method similar to that described under §1.415-6(b)(6)(iv) (as it appeared in the April 1,
2007 edition of 26 CFR part 1) prior to amendments made by the final regulations under
§ 415. Elective deferrals and after-tax employee contributions that are matched may be
returned to the employee, provided that the matching contributions relating to such
contributions are forfeited (which will also reduce excess annual additions for the
affected individuals). The forfeited matching contributions are to be placed into an
unallocated account to be used as an employer contribution, other than elective
deferrals, in succeeding periods. For limitation years beginning on or after January 1,
2009, the failure to limit annual additions allocated to participants in a defined
contribution plan as required in § 415 is corrected in accordance with sections 6.06(2)
and (4) of this revenue procedure.
.09 Orphan Plans; orphan contracts and other assets. (1) Orphan Plans. If (a) a
plan has one or more failures (whether a Qualification Failure or a § 403(b) Failure) that
result from the Plan Sponsor having ceased to exist, the Plan Sponsor no longer
maintaining the plan, or similar reasons and (b) the plan is an Orphan Plan, the
permitted correction is to terminate the plan and distribute plan assets to participants
and beneficiaries. This correction must satisfy four conditions. First, the correction
must comply with conditions, standards, and procedures substantially similar to those
set forth in section 2578.1 of the Department of Labor regulations (relating to
abandoned plans). Second, the Eligible Party must have reasonably determined
whether, and to what extent, the survivor annuity requirements of §§ 401(a)(11) and 417
apply to any benefit payable under the plan and take reasonable steps to comply with
those requirements (if applicable). Third, each participant and beneficiary must have
been provided a nonforfeitable right to his or her accrued benefits as of the date of
deemed termination under the Department of Labor regulations, subject to income,
expenses, gains, and losses between that date and the date of distribution. Fourth,
participants and beneficiaries must receive notification of their rights under § 402(f). In
addition, notwithstanding correction under this revenue procedure, the IRS reserves the
right to pursue appropriate remedies under the Code against any party who is
responsible for the plan, such as the Plan Sponsor, plan administrator, or owner of the
business, even in its capacity as a participant or beneficiary under the plan. However,
with respect to the first through third conditions above, notice need not be furnished to
the Department of Labor, and notices furnished to the Plan Sponsor, participants, or
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beneficiaries need not indicate that the procedures followed or notices furnished
actually comply with, or are required under, Department of Labor regulations.
(2) Section 403(b) Failures for orphan contracts or other assets. (a) Former
employees or beneficiaries. In any case in which a § 403(b) Failure results from the
Plan Sponsor having ceased involvement with respect to specific assets (including an
insurance annuity contract) held under a defined contribution plan on behalf of a
participant who is a former employee or on behalf of a beneficiary, a permitted
correction is to distribute those plan assets to the participant or beneficiary. Compliance
with the distribution rules of section 2578.1(d)(2)(vii) of the Department of Labor
regulations satisfies this paragraph .09(2).
(b) Failures Relating to Information Sharing Agreements. In any case in which a
§ 403(b) Failure results from a contract issued in an exchange not being part of a
§ 403(b) Plan due to the failure to have an information sharing agreement pursuant to
§1.403(b)-10(b)(2)(i)(C), a permitted correction is for the assets held under the contract
to be transferred to another vendor to which contributions are being made under the
plan in order to become a contract which is held under the plan without regard to the
special rules in §1.403(b)-10(b).

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APPENDIX B
CORRECTION METHODS AND EXAMPLES; EARNINGS ADJUSTMENT METHODS
AND EXAMPLES
SECTION 1. PURPOSE, ASSUMPTIONS FOR EXAMPLES AND SECTION
REFERENCES
.01 Purpose. (1) This Appendix B sets forth correction methods relating to
Operational Failures under Qualified Plans. This Appendix B also sets forth Earnings
adjustment methods. In each case, the method described corrects the Operational
Failure identified in the headings below. Corrective allocations and distributions should
reflect Earnings and actuarial adjustments in accordance with section 6.02(4) of this
revenue procedure. The correction methods in this Appendix B are acceptable to
correct Qualification Failures under VCP, and to correct Qualification Failures under
SCP that occurred notwithstanding that the plan has established practices and
procedures reasonably designed to promote and facilitate overall compliance with the
Code, as provided in section 4.04 of this revenue procedure.
(2) To the extent a failure listed in this Appendix B could occur under a § 403(b)
Plan, SEP, or SIMPLE IRA Plan, the correction method listed for such failure may
similarly be used to correct the failure.
.02 Assumptions for Examples. Unless otherwise specified, for ease of
presentation, the examples assume that:
(1) the plan year and the § 415 limitation year are the calendar year;
(2) the Plan Sponsor maintains a single plan intended to satisfy § 401(a) and has
never maintained any other plan;
(3) in a defined contribution plan, the plan provides that forfeitures are used to
reduce future employer contributions;
(4) the Qualification Failures are Operational Failures and the eligibility and other
requirements for SCP, VCP, or Audit CAP, whichever applies, are satisfied; and
(5) there are no Qualification Failures other than the described Operational
Failures, and if a corrective action would result in any additional Qualification Failure,
appropriate corrective action is taken for that additional Qualification Failure in
accordance with EPCRS.
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.03 Designated Roth contributions. The examples in this Appendix B generally
do not identify whether the plan offers designated Roth contributions. The results in the
examples, including corrective contributions, would be the same whether or not the plan
offered designated Roth contributions.
.04 Section references. References in Appendix B to section 2 and section 3 are
references to section 2 and 3 in this Appendix B.
SECTION 2. CORRECTION METHODS AND EXAMPLES
.01 ADP/ACP Failures. (1) Correction Methods. (a) Appendix A Correction
Method. Appendix A, section .03, sets forth a correction method for a failure to satisfy
the ADP, ACP, or, for plan years beginning on or before December 31, 2001, multiple
use test set forth in §§ 401(k)(3), 401(m)(2), and 401(m)(9), respectively.
(b) One-to-One Correction Method. (i) General. In addition to the correction
method in Appendix A, a failure to satisfy the ADP test or ACP test may be corrected by
using the one-to-one correction method set forth in this section 2.01(1)(b). Under the
one-to-one correction method, an excess contribution amount is determined and
assigned to highly compensated employees as provided in paragraph (1)(b)(ii) below.
That excess contribution amount (adjusted for Earnings) is either distributed to the
highly compensated employees or forfeited from the highly compensated employees'
accounts as provided in paragraph (1)(b)(iii) below. That same dollar amount (that is,
the excess contribution amount, adjusted for Earnings) is contributed to the plan and
allocated to nonhighly compensated employees as provided in paragraph (1)(b)(iv)
below. Under this correction method, a plan may not be treated as two separate plans,
one covering otherwise excludable employees and the other covering all other
employees (as permitted in §1.410(b)- 6(b)(3)). Likewise, restructuring the plan into
component plans is not permitted. This correction method may also be used to correct
a failure to satisfy the multiple use test for plan years beginning on or before December
31, 2001.
(ii) Determination of the Excess Contribution Amount. The excess contribution
amount for the year is equal to the excess of (A) the sum of the excess contributions (as
defined in § 401(k)(8)(B)), the excess aggregate contributions (as defined in
§ 401(m)(6)(B)), and for plan years beginning on or before December 31, 2001 the
amount treated as excess contributions or excess aggregate contributions under the
multiple use test for the year, as assigned to each highly compensated employee in
accordance with §§ 401(k)(8)(C) and 401(m)(6)(C), over (B) previous corrections that
complied with §§ 401(k)(8) and 401(m)(6), and, for plan years beginning on or before
December 31, 2001, the multiple use test.
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(iii) Distributions and Forfeitures of the Excess Contribution Amount. (A) The
portion of the excess contribution amount assigned to a particular highly compensated
employee under paragraph (1)(b)(ii) is adjusted for Earnings from the end of the plan
year of the year of the failure through the date of correction. The amount assigned to a
particular highly compensated employee, as adjusted, is distributed or, to the extent the
amount was forfeitable as of the close of the plan year of the failure, is forfeited. If the
amount is forfeited, it is used in accordance with the plan provisions relating to
forfeitures that were in effect for the year of the failure. If the amount so assigned to a
particular highly compensated employee has been previously distributed, the amount is
an Excess Amount within the meaning of section 5.01(3) of this revenue procedure.
Thus, pursuant to section 6.06 of this revenue procedure, the Plan Sponsor must notify
the employee that the Excess Amount is not eligible for favorable tax treatment
accorded to distributions from qualified plans (and, specifically, is not eligible for tax-free
rollover).
(B) If any matching contributions (adjusted for Earnings) are forfeited in
accordance with § 411(a)(3)(G), the forfeited amount is used in accordance with the
plan provisions relating to forfeitures that were in effect for the year of the failure.
(C) If a payment was made to an employee and that payment is a forfeitable
match described in either paragraph (1)(b)(iii)(A) or (B), then it is an Overpayment
defined in section 5.01(3)(c) of this revenue procedure that must be corrected (see
sections 2.04 and 2.05 below).
(iv) Contribution and Allocation of Equivalent Amount. (A) The Plan Sponsor
makes a contribution to the plan that is equal to the aggregate amounts distributed and
forfeited under paragraph (1)(b)(iii)(A) (that is, the excess contribution amount adjusted
for Earnings, as provided in paragraph (1)(b)(iii)(A), which does not include any
matching contributions forfeited in accordance with § 411(a)(3)(G) as provided in
paragraph (1)(b)(iii)(B)). The contribution must be a QNEC as defined in §1.401(k)-6.
(B)(1) This paragraph (1)(b)(iv)(B)(1) applies to a plan that uses the current year
testing method described in §§1.401(k)-2(a)(2), 1.401(m)-2(a)(2), and, for periods prior
to the effective date of those regulations, Notice 98-1, 1998-1 C.B. 327. The
contribution made under paragraph (1)(b)(iv)(A) is allocated to the account balances of
those individuals who were either (I) the eligible employees for the year of the failure
who were nonhighly compensated employees for that year or (II) the eligible employees
for the year of the failure who were nonhighly compensated employees for that year and
who also are nonhighly compensated employees for the year of correction.
Alternatively, the contribution is allocated to account balances of eligible employees
described in (I) or (II) of the preceding sentence, except that the allocation is made only
to the account balances of those employees who are employees on a date during the
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year of the correction that is no later than the date of correction. Regardless of which of
these four options (described in the two preceding sentences) the Plan Sponsor selects,
eligible employees must receive a uniform allocation (as a percentage of compensation)
of the contribution. (See Examples 1 and 2.) Under the one-to-one correction method,
the amount allocated to the account balance of an employee (that is, the employee's
share of the total amount contributed under paragraph (1)(b)(iv)(A)) is not further
adjusted for Earnings and is treated as an annual addition under § 415 for the year of
the failure for the employee for whom it is allocated.
(2) This paragraph (1)(b)(iv)(B)(2) applies to a plan that uses the prior year
testing method described in §§1.401(k)-2(a)(2) and 1.401(m)-2(a)(2) and, for periods
prior to the effective date of those regulations, Notice 98-1. Paragraph (1)(b)(iv)(B)(1) is
applied by substituting “the year prior to the year of the failure” for “the year of the
failure.”
(2) Examples.
Example 1:
Employer A maintains a profit-sharing plan with a cash or deferred arrangement that is intended
to satisfy § 401(k) using the current year testing method. The plan does not provide for matching
contributions or after-tax employee contributions. In 2007, it was discovered that the ADP test for 2005
was not performed correctly. When the ADP test was performed correctly, the test was not satisfied for
2005. For 2005, the ADP for highly compensated employees was 9% and the ADP for nonhighly
compensated employees was 4%. Accordingly, the ADP for highly compensated employees exceeded
the ADP for nonhighly compensated employees by more than two percentage points (in violation of
§ 401(k)(3)). There were two highly compensated employees eligible under the § 401(k) plan during
2005, Employee P and Employee Q. Employee P made elective deferrals of $10,000, which is equal to
10% of Employee P's compensation of $100,000 for 2005. Employee Q made elective deferrals of
$9,500, which is equal to 8% of Employee Q's compensation of $118,750 for 2005.
Correction:
On June 30, 2007, Employer A uses the one-to-one correction method to correct the failure to
satisfy the ADP test for 2005. Accordingly, Employer A calculates the dollar amount of the excess
contributions for the two highly compensated employees in the manner described in § 401(k)(8)(B). The
amount of the excess contribution for Employee P is $4,000 (4% of $100,000) and the amount of the
excess contribution for Employee Q is $2,375 (2% of $118,750), or a total of $6,375. In accordance with
§ 401(k)(8)(C), $6,375, the excess contribution amount, is assigned $3,437.50 to Employee P and
$2,937.50 to Employee Q. It is determined that the Earnings on the assigned amounts through June 30,
2007 are $687 and $587 for Employees P and Q, respectively. The assigned amounts and the Earnings
are distributed to Employees P and Q. Therefore, Employee P receives $4,124.50 ($3,437.50 + $687)
and Employee Q receives $3,524.50 ($2,937.50 + $587). In addition, on the same date, Employer A
makes a corrective contribution to the § 401(k) plan equal to $7,649 (the sum of the $4,124.50 distributed
to Employee P and the $3,524.50 distributed to Employee Q). The corrective contribution is allocated to
the account balances of eligible nonhighly compensated employees for 2005, pro rata based on their
compensation for 2005 (subject to § 415 for 2005).

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Example 2:
The facts are the same as in Example 1, except that for 2005 the plan also provides for (1) aftertax employee contributions and (2) matching contributions equal to 50% of the sum of an employee's
elective deferrals and after-tax employee contributions that do not exceed 10% of the employee's
compensation. The plan provides that matching contributions are subject to the plan's 20% per year of
service vesting schedule and that matching contributions are forfeited and used to reduce employer
contributions if associated elective deferrals or after-tax employee contributions are distributed to correct
an ADP or ACP test failure. For 2005, nonhighly compensated employees made after-tax employee
contributions and no highly compensated employee made any after-tax employee contributions.
Employee P received a matching contribution of $5,000 (50% of $10,000) and Employee Q received a
matching contribution of $4,750 (50% of $9,500). Employees P and Q were 100% vested in 2005. It was
determined that the plan satisfied the requirements of the ACP test for 2005.
Correction:
The same corrective actions are taken as in Example 1. In addition, in accordance with the plan's
terms, corrective action is taken to forfeit Employee P's and Employee Q's matching contributions
associated with their distributed excess contributions. Employee P's distributed excess contributions and
associated matching contributions are $3,437.50 and $1,718.75, respectively. Employee Q's distributed
excess contributions and associated matching contributions are $2,937.50 and $1,468.75, respectively.
Thus, $1,718.75 is forfeited from Employee P's account and $1,468.75 is forfeited from Employee Q's
account. In addition, the Earnings on the forfeited amounts are also forfeited. It is determined that the
respective Earnings on the forfeited amount for Employee P is $250 and for Employee Q is $220. The
total amount of the forfeitures of $3,657.50 (Employee P's $1,718.75 + $250 and Employee Q's $1,468.75
+ $220) is used to reduce contributions for 2007 and subsequent years.

.02 Exclusion of Otherwise Eligible Employees. (1) Exclusion of Eligible
Employees in a § 401(k) or (m) Plan. (a) Correction Method. (i) Appendix A Correction
Method for Full Year Exclusion. Appendix A, section .05(2), sets forth the correction
method for the exclusion of an eligible employee from electing and making elective
deferrals (other than designated Roth contributions) and after-tax employee
contributions to a plan that provides benefits that are subject to the requirements of
§ 401(k) or 401(m) for one or more full plan years. (See Example 3.) Appendix A,
section .05(2), also specifies the method for determining missed elective deferrals and
the corrective contributions for employees who were improperly excluded from electing
and making elective deferrals to a safe harbor § 401(k) plan for one or more full plan
years. (See Examples 8, 9, and 10.) Appendix A, section .05(3), sets forth the
correction method for the exclusion of an eligible employee from electing and making
elective deferrals in a plan that (i) is subject to § 401(k) and (ii) provides employees with
the opportunity to make designated Roth contributions. Appendix A, section .05(4), sets
forth the correction method for the situation where an eligible employee was permitted
to make an elective deferral, but was not provided with the opportunity to make catch-up
contributions under the terms of the plan and § 414(v), and correction is being made by
making a QNEC on behalf of the excluded employee. (See Example 11.) Appendix A,
section .05(5), sets forth the correction method for the failure by a plan to implement an
employee’s election with respect to elective deferrals (including designated Roth
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contributions) or after-tax employee contributions. (See Example 12.) In section
2.02(1)(a)(ii) below, the correction methods for (I) the exclusion of an eligible employee
from all contributions (including designated Roth contributions) under a § 401(k) or (m)
plan for a full year, as described in Appendix A, sections .05(2) and .05(3), (II) the
exclusion of an eligible employee who was permitted to make elective deferrals, but was
not permitted to make catch-up contributions for a full plan year as described in
Appendix A, section .05(4), and (III) the exclusion of an eligible employee on account of
the failure to implement an employee’s election to make elective deferrals or after-tax
employee contributions to the plan as described in Appendix A, section .05(5), are
expanded to include correction for the exclusion from these contributions (including
designated Roth contributions) under a § 401(k) or (m) plan for a partial plan year. This
correction for a partial year exclusion may be used in conjunction with the correction for
a full year exclusion.
(ii) Expansion of Correction Method to Partial Year Exclusion. (A) In General.
The correction method in Appendix A, section .05, is expanded to cover an employee
who was improperly excluded from electing and making elective deferrals (including
designated Roth contributions) or after-tax employee contributions for a portion of a plan
year or from receiving matching contributions (on either elective deferrals or after-tax
employee contributions) for a portion of a plan year. In such a case, a permitted
correction method for the failure is for the Plan Sponsor to satisfy this section
2.02(1)(a)(ii). The Plan Sponsor makes a QNEC on behalf of the excluded employee.
The method and examples described to correct the failure to include otherwise eligible
employees do not apply until after correction of other qualification failures. Thus, for
example, in the case of a § 401(k) plan that does not apply the safe harbor contribution
requirements of § 401(k)(12) or 401(k)(13), the correction for improperly excluding an
employee from making elective deferrals, as described in the narrative and the
examples in this section cannot be used until after correction of the ADP test failure.
(See Appendix A, section .05(2)(g).)
(B) Elective Deferral Failures. (1) The appropriate QNEC for the failure to allow
an employee to elect and make elective deferrals (including designated Roth
contributions) for a portion of the plan year is equal to the missed deferral opportunity,
which is an amount equal to 50 percent of the employee’s missed deferral. The
employee’s missed deferral is determined by multiplying the ADP of the employee's
group (either highly or nonhighly compensated), determined prior to correction under
this section 2.02(1)(a)(ii), by the employee's plan compensation for the portion of the
year during which the employee was improperly excluded. In a safe harbor § 401(k)
plan, the employee’s missed deferral is determined by multiplying 3 percent (or, if
greater, whatever percentage of the participant’s compensation which, if contributed as
an elective deferral, would have been matched at a rate of 100 percent or more) by the
employee’s plan compensation for the portion of the year during which the employee
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was improperly excluded. The missed deferral for the portion of the plan year during
which the employee was improperly excluded from being eligible to make elective
deferrals is reduced to the extent that (i) the sum of the missed deferral (as determined
in the preceding two sentences of this paragraph) and any elective deferrals actually
made by the employee for that year would exceed (ii) the maximum elective deferrals
permitted under the plan for the employee for that plan year (including the § 402(g)
limit). The corrective contribution is adjusted for Earnings. For purposes of correcting
other failures under this revenue procedure (including determination of any required
matching contribution) after correction has occurred under this section 2.02(1)(a)(ii)(B),
the employee is treated as having made pre-tax elective deferrals equal to the
employee’s missed deferral for the portion of the year during which the employee was
improperly excluded. (See Examples 4 and 5.)
(2) The appropriate corrective contribution for the plan’s failure to implement an
employee’s election with respect to elective deferrals is equal to the missed deferral
opportunity, which is an amount equal to 50 percent of the employee’s missed deferral.
Corrective contributions are adjusted for Earnings. The missed deferral is determined
by multiplying the employee’s deferral percentage by the employee's plan compensation
for the portion of the year during which the employee was improperly excluded. If the
employee elected a fixed dollar amount that can be attributed to the period of exclusion,
then the flat dollar amount for the period of exclusion may be used for this purpose. If
the employee elected a fixed dollar amount to be deferred for the entire plan year, then
that dollar amount is multiplied by a fraction. The fraction is equal to the number of
months, including partial months where applicable, during which the eligible employee
was excluded from making elective deferral contributions divided by 12. The missed
deferral for the portion of the plan year during which the eligible employee was
improperly excluded from making elective deferrals is reduced to the extent that (i) the
sum of the missed deferral (as determined in the preceding three sentences) and any
elective deferrals actually made by the employee for that year would exceed (ii) the
maximum elective deferrals permitted under the plan for the employee for that plan year
(including the § 402(g) limit). The corrective contribution is adjusted for Earnings. The
requirements relating to the passage of the ADP test before this correction method can
be used, as described in Appendix A, section .05(5)(d), still apply.
(C) After-Tax Employee Contribution Failures. (1) The appropriate corrective
contribution for the failure to allow employees to elect and make after-tax employee
contributions for a portion of the plan year is equal to the missed after-tax employee
contributions opportunity, which is an amount equal to 40 percent of the employee’s
missed after-tax employee contributions. The employee’s missed after-tax employee
contributions are determined by multiplying the ACP of the employee's group (either
highly or nonhighly compensated), determined prior to correction under this section
2.02(1)(a)(ii)(C), by the employee's plan compensation for the portion of the year during
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which the employee was improperly excluded. If the ACP consists of both matching
and after-tax employee contributions, then, for purposes of the preceding sentence, in
lieu of basing the missed after-tax employee contributions on the ACP for the
employee's group (either highly compensated or nonhighly compensated), the Plan
Sponsor is permitted to determine separately the portions of the ACP that are
attributable to matching contributions and after-tax employee contributions and base the
missed after-tax employee contributions on the portion of the ACP that is attributable to
after-tax employee contributions. The missed after-tax employee contribution is
reduced to the extent that (i) the sum of that contribution and the actual total after-tax
employee contributions made by the employee for the plan year would exceed (ii) the
sum of the maximum after-tax employee contributions permitted under the plan for the
employee for the plan year. The corrective contribution is adjusted for Earnings. The
requirements relating to the passage of the ACP test before this correction method can
be used, as described in Appendix A, section .05(2)(g), still apply.
(2) The appropriate corrective contribution for the plan’s failure to implement an
employee’s election with respect to after-tax employee contributions for a portion of the
plan year is equal to the missed after-tax employee contributions opportunity, which is
an amount equal to 40 percent of the employee’s missed after-tax employee
contributions. Corrective contributions are adjusted for Earnings. The missed after-tax
employee contribution is determined by multiplying the employee’s elected after-tax
employee contribution percentage by the employee's plan compensation for the portion
of the year during which the employee was improperly excluded. If the employee
elected a flat dollar amount that can be attributed to the period of exclusion, then the flat
dollar amount for the period of exclusion may be used for this purpose. If the employee
elected a flat dollar amount to be contributed for the entire plan year, then that dollar
amount is multiplied by a fraction. The fraction is equal to the number of months,
including partial months where applicable, during which the eligible employee was
excluded from making after-tax employee contributions divided by 12. The missed
after-tax employee contribution is reduced to the extent that (i) the sum of that
contribution and the actual total after-tax employee contributions made by the employee
for the plan year would exceed (ii) the sum of the maximum after-tax employee
contributions permitted under the plan for the employee for the plan year. The
requirements relating to the passage of the ACP test before this correction method can
be used, as described in Appendix A, section .05(5)(d), still apply.
(D) Matching Contribution Failures. (1) The appropriate corrective contribution
for the failure to make matching contributions for an employee because the employee
was precluded from making elective deferrals (including designated Roth contributions)
or after-tax employee contributions for a portion of the plan year is equal to the
matching contribution that would have been made for the employee if (1) the
employee’s elective deferrals for that portion of the plan year had equaled the
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employee’s missed deferrals (determined under section 2.02(1)(a)(i)(B)) or (2) the
employee’s after-tax contribution for that portion of the plan year had equaled the
employee’s missed after-tax employee contribution (determined under section
2.02(1)(a)(ii)(C)). This matching contribution is reduced to the extent that (i) the sum of
this contribution and other matching contributions actually made on behalf of the
employee for the plan year would exceed (ii) the maximum matching contribution
permitted if the employee had made the maximum matchable contributions permitted
under the plan for the plan year. The corrective contribution is adjusted for Earnings.
The requirements relating to the passage of the ACP test before this correction method
can be used, as described in Appendix A, section .05(2)(g), still apply.
(2) The appropriate corrective contribution for the failure to make matching
contributions for an employee because of the failure by the plan to implement an
employee’s election with respect to elective deferrals (including designated Roth
contributions) or, where applicable, after-tax employee contributions for a portion of the
plan year is equal to the matching contribution that would have been made for the
employee if the employee made the elective deferral as determined under section
2.02(1)(a)(ii)(B)(2), or where applicable, the after-tax employee contribution determined
under section 2.02(1)(a)(ii)(C)(2). This matching contribution is reduced to the extent
that (i) the sum of this contribution and other matching contributions actually made on
behalf of the employee for the plan year would exceed (ii) the maximum matching
contribution permitted if the employee had made the maximum matchable contributions
permitted under the plan for the plan year. The corrective contribution is adjusted for
Earnings. The requirements relating to the passage of the ACP test before this
correction method can be used, as described in Appendix A, section .05(5)(d), still
apply.
(E) Use of Prorated Compensation. For purposes of this paragraph (1)(a)(ii), for
administrative convenience, in lieu of using the employee's actual plan compensation
for the portion of the year during which the employee was improperly excluded, a pro
rata portion of the employee's plan compensation that would have been taken into
account for the plan year, if the employee had not been improperly excluded, may be
used.
(F) Special Rule for Brief Exclusion from Elective Deferrals and After-Tax
Employee Contributions. An Plan Sponsor is not required to make a corrective
contribution with respect to elective deferrals (including designated Roth contributions)
or after-tax employee contributions, as provided in sections 2.02(1)(a)(ii)(B) and (C), but
is required to make a corrective contribution with respect to any matching contributions,
as provided in section 2.02(1)(a)(ii)(D), for an employee for a plan year if the employee
has been provided the opportunity to make elective deferrals or after-tax employee
contributions under the plan for a period of at least the last 9 months in that plan year
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and during that period the employee had the opportunity to make elective deferrals or
after-tax employee contributions in an amount not less than the maximum amount that
would have been permitted if no failure had occurred. (See Examples 6 and 7.)
(b) Examples.
Example 3:
Employer B maintains a § 401(k) plan. The plan provides for matching contributions for eligible
employees equal to 100% of elective deferrals that do not exceed 3% of an employee's compensation.
The plan allows employees to make after-tax employee contributions up to a maximum of the lesser of
2% of compensation or $1,000. The after-tax employee contributions are not matched. The plan
provides that employees who complete one year of service are eligible to participate in the plan on the
next designated entry date. The entry dates are January 1, and July 1. In 2007, it is discovered that
Employee V, an NHCE with compensation of $30,000, was excluded from the plan for the 2006 plan year
even though she satisfied the plan’s eligibility requirements as of January 1, 2006.
For the 2006 plan year, the relevant employee and contribution information is as follows:
Compensation Elective deferral

Match

After-Tax Employee
Contribution

$6,000
$4,500

$0
$1,000

Highly Compensated Employees (HCEs):
R
S

$200,000
$150,000

$ 6,000
$12,000

Nonhighly Compensated Employees (NHCEs):
T
U

$80,000
$50,000

$12,000
$ 500

$2,400
$ 500

$1,000
$0

HCEs:
ADP - 5.5%
ACP - 3.33%
ACP attributable to matching contributions - 3%
ACP attributable to after-tax employee contributions - 0.33%
NHCEs:
ADP - 8%
ACP -2.63%
ACP attributable to matching contributions - 2%
ACP attributable to after-tax employee contributions - 0.63%
Correction:
Employer B uses the correction method for a full year exclusion, described in Appendix A, section
.05(2), to correct the failure to include Employee V in the plan for the full plan year beginning January 1,
2006. Employer B calculates the corrective QNEC to be made on behalf of Employee V as follows:

Page 106 of 140

Elective deferrals: Employee V was eligible to elect and make elective deferrals in 2006, but was
not provided with the opportunity to do so. Thus, Employer B must make a QNEC to the plan on behalf of
Employee V equal to the missed deferral opportunity for Employee V, which is 50% of Employee V’s
missed deferral. The QNEC is adjusted for Earnings. The missed deferral for Employee V is determined
by using the ADP for NHCEs for 2006 and multiplying that percentage by Employee V’s compensation for
2006. Accordingly, the missed deferral for Employee V on account of the employee’s improper exclusion
from the plan is $2,400 (8% x $30,000). The missed deferral opportunity is $1,200 (that is, 50% x
$2,400). Thus, the required corrective contribution for the failure to provide Employee V with the
opportunity to make elective deferrals to the plan is $1,200, adjusted for Earnings. The corrective
contribution is made to a pre-tax QNEC account for Employee V (not to a designated Roth contributions
account even if the plan offers designated Roth contributions, as provided in Appendix A, section .05(3)).
Matching contributions: Employee V should have been eligible for, but did not receive, an
allocation of employer matching contributions because Employee V was not provided the opportunity to
make elective deferrals in 2006. Thus, Employer B must make a corrective employer nonelective
contribution to the plan on behalf of Employee V that is equal to the matching contribution Employee V
would have received had the missed deferral been made. The corrective employer nonelective
contribution is adjusted for Earnings. Under the terms of the plan, if Employee V had made an elective
deferral of $2,400 or 8% of compensation ($30,000), the employee would have been entitled to a
matching contribution equal to 100% of the first 3% of Employee V’s compensation ($30,000) or $900.
Accordingly, the contribution required to replace the missed employer matching contribution is $900,
adjusted for Earnings.
After-tax employee contributions: Employee V was eligible to, but was not provided with the
opportunity to, elect and make after-tax employee contributions in 2006. Employer B must make a QNEC
to the plan equal to the missed opportunity for making after-tax employee contributions for Employee V,
which is 40% of Employee V’s missed after-tax employee contribution. The QNEC is adjusted for
Earnings. The missed after-tax employee contribution for Employee V is estimated by using the ACP for
NHCEs (to the extent that the ACP is attributable to after-tax employee contributions) for 2006 and
multiplying that percentage by Employee V’s compensation for 2006. Accordingly, the missed after-tax
employee contribution for Employee V, on account of the employee’s improper exclusion from the plan is
$189 (0.63% x $30,000). The missed opportunity to make after-tax employee contributions to the plan is
$76 (40% x $189). Thus, the required corrective contribution for the failure to provide Employee V with
the opportunity to make the $189 after-tax employee contribution to the plan is $76, adjusted for
Earnings.
The total required corrective contribution, before adjustments for Earnings, on behalf of Employee
V is $2,176 ($1,200 for the missed deferral opportunity plus $900 for the missed matching contribution
plus $76 for the missed opportunity to make after-tax employee contributions). The required corrective
contribution is further adjusted for Earnings. The corrective contribution for the missed deferral
opportunity ($1,200), the missed opportunity for after-tax employee contributions ($76), and related
Earnings must be made in the form of a QNEC.
Example 4:
Employer C maintains a § 401(k) plan. The plan provides for matching contributions for each
payroll period that are equal to 100% of an employee's elective deferrals that do not exceed 2% of the
eligible employee’s plan compensation during the payroll period. The plan provides for after-tax
employee contributions. The after-tax employee contribution cannot exceed $1,000 for the plan year.
The plan provides that employees who complete one year of service are eligible to participate in the plan

Page 107 of 140

on the next January 1 or July 1 entry date. Employee X, a nonhighly compensated employee, who met
the eligibility requirements and should have entered the plan on January 1, 2006, was not offered the
opportunity to elect to have elective contributions made on his behalf to the plan. In August of 2006, the
error was discovered and Employer C offered Employee X the opportunity to make elective deferrals and
after-tax employee contributions as of September 1, 2006. Employee X made elective deferrals equal to
4% of the employee's plan compensation for each payroll period from September 1, 2006 through
December 31, 2006 (resulting in elective deferrals of $400). Employee X’s plan compensation for 2006
was $36,000 ($26,000 for the first eight months and $10,000 for the last four months). Employer C made
matching contributions equal to $200 on behalf of Employee X, which is 2% of Employee X’s plan
compensation for each payroll period from September 1, 2006 through December 31, 2006 ($10,000).
After being allowed to participate in the plan, Employee X made $250 of after-tax employee contributions
for the 2006 plan year. The ADP for nonhighly compensated employees for 2006 was 3% and the ACP
for nonhighly compensated employees for 2006 was 2.3%. The ACP attributable to matching
contributions for nonhighly compensated employees for 2006 was 1.8%. The ACP attributable to
employee contributions for nonhighly compensated employees for 2006 was 0.5%.
Correction:
In accordance with section 2.02(1)(a)(ii), Employer C uses the correction method described in
Appendix A, section .05, to correct for the failure to provide Employee X the opportunity to elect and make
elective deferrals and after-tax employee contributions, and, as a result, the failure of Employee X to
receive matching contributions for a portion of the plan year (January 1, 2006 through August 31, 2006).
Thus, Employer C makes a corrective contribution on behalf of Employee X that satisfies the
requirements of section 2.02(1)(a)(ii). Employer C elects to utilize the provisions of section
2.02(1)(a)(ii)(E) to determine Employee X’s compensation for the portion of the year in which Employee X
was not provided the opportunity to make elective deferrals and after-tax employee contributions. Thus,
for administrative convenience, in lieu of using actual plan compensation of $26,000 for the period
Employee X was excluded, Employee X’s annual plan compensation is prorated for the 8-month period
that the employee was excluded from participating in the plan. The corrective contribution is determined
as follows:
(1) Corrective contribution for missed deferral: Employee X was eligible to, but was not provided
with the opportunity to, elect and make elective deferrals from January 1 through August 31 of 2006.
Employer C must make a QNEC to the plan on behalf of Employee X equal to Employee X’s missed
deferral opportunity for that period, which is 50% of Employee X’s missed deferral. The corrective
contribution is adjusted for Earnings. Employee X’s missed deferral is determined by multiplying the 3%
ADP for nonhighly compensated employees by $24,000 (8/12ths of the employee’s 2006 compensation
of $36,000). Accordingly, the missed deferral is $720. The missed deferral is not reduced because when
this amount is added to the amount already deferred, no plan limit (including § 402(g)) was exceeded.
Accordingly, the required QNEC is $360 (that is, 50% multiplied by the missed deferral amount of $720).
The required QNEC is adjusted for Earnings.
(2) Corrective contribution for missed matching contribution: Under the terms of the plan, if
Employee X had made an elective deferral of $720 or 3% of compensation for the period of exclusion
($24,000), the employee would have been entitled to a matching contribution equal to 2% of $24,000 or
$480. The missed matching contribution is not reduced because no plan limit is exceeded when this
amount is added to the matching contribution already contributed for the 2006 plan year. Accordingly, the
required corrective employer contribution is $480. The required corrective employer contribution is
adjusted for Earnings.

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(3) Corrective contribution for missed after-tax employee contribution: Employee X was eligible,
but was not provided with the opportunity, to elect and make after-tax employee contributions from
January 1 through August 31 of 2006. Employer C must make a QNEC to the plan on behalf of
Employee X equal to the missed opportunity to make after-tax employee contributions. The missed
opportunity to make after-tax employee contributions is equal to 40% of Employee X’s missed after-tax
employee contributions. The QNEC is adjusted for Earnings. The missed after-tax employee contribution
amount is equal to the 0.5% ACP attributable to employee contributions for nonhighly compensated
employees multiplied by $24,000 (8/12ths of the employee’s 2006 plan compensation of $36,000).
Accordingly, the missed after-tax employee contribution amount is $120. The missed after-tax employee
contribution is not reduced because the sum of $120 and the previously made after-tax employee
contribution of $250 is less than the overall plan limit of $1,000. Therefore, the required QNEC is $48
(that is, 40% multiplied by the missed after-tax employee contribution of $120). The QNEC is adjusted for
Earnings.
The total required corrective contribution, before adjustments for Earnings, on behalf of Employee
X is $888 ($360 for the missed deferral opportunity plus $480 for the missed matching contribution plus
$48 for the missed opportunity to make after-tax employee contributions). The corrective contribution for
the missed deferral opportunity ($360), the missed opportunity for after-tax employee contributions ($48),
and related Earnings must be made in the form of a QNEC.
Example 5:
The facts (including the ADP and ACP results) are the same as in Example 4, except that it is
now determined that Employee X, after being included in the plan in 2006, made after-tax employee
contributions of $950.
Correction:
The correction is the same as in Example 4, except that the QNEC required to replace the missed
after-tax employee contribution is re-calculated to take into account applicable plan limits in accordance
with the provisions of section 2.02(1)(a)(ii)(C). The QNEC is determined as follows:
The missed after-tax employee contribution amount is equal to the 0.5% ACP attributable to aftertax employee contributions for nonhighly compensated employees multiplied by $24,000 (8/12ths of the
employee’s 2006 plan compensation of $36,000). The missed after-tax employee contribution amount,
based on this calculation, is $120. However, the sum of this amount ($120) and the previously made
after-tax employee contribution ($950) is $1,070. Because the plan limit for after-tax employee
contributions is $1,000, the missed after-tax employee contribution needs to be reduced by $70, to
ensure that the total after-tax employee contributions comply with the plan limit. Accordingly, the missed
after-tax employee contribution is $50 ($120 minus $70) and the required QNEC is $20 (that is, 40%
multiplied by the missed after-tax employee contribution of $50). The QNEC is adjusted for Earnings.
Example 6:
Employer D sponsors a § 401(k) plan. The plan has a one year of service eligibility requirement
and provides for January 1 and July 1 entry dates. Employee Y, who should have been provided the
opportunity to elect and make elective deferrals for the plan year beginning on January 1, 2006, was not
provided the opportunity to elect and make elective deferrals until July 1, 2006. Employee Y made
$5,000 in elective deferrals to the plan in 2006. Employee Y was a highly compensated employee with
compensation for 2006 of $200,000. Employee Y’s compensation from January 1 through June 30, 2006

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was $130,000. The ADP for highly compensated employees for 2006 was 10%. The ADP for nonhighly
compensated employees for 2006 was 8%. The § 402(g) limit for deferrals made in 2006 was $15,000.
Correction:
QNEC for missed deferral: Employee Y’s missed deferral is equal to the 10% ADP for highly
compensated employees multiplied by $130,000 (compensation earned for the portion of the year in
which Employee Y was erroneously excluded, that is, January 1, 2006 through June 30, 2006). The
missed deferral amount based on this calculation is $13,000. However, the sum of this amount ($13,000)
and the previously made elective contribution ($5,000) is $18,000. The 2006 § 402(g) limit for elective
deferrals is $15,000. In accordance with the provisions of section 2.02(1)(a)(ii)(B), the missed deferral
needs to be reduced by $3,000 to ensure that the total elective contribution complies with the applicable
§ 402(g) limit. Accordingly, the missed deferral is $10,000 ($13,000 minus $3,000) and the required
QNEC is $5,000 (that is, 50% multiplied by the missed deferral of $10,000). The QNEC is adjusted for
Earnings.
Example 7:
Employer E maintains a § 401(k) plan. The plan provides for matching contributions for each
payroll period that are equal to 100% of an employee's elective deferrals that do not exceed 2% of the
eligible employee’s plan compensation during the payroll period. The plan also provides that the annual
limit on matching contributions is $750. The plan provides for after-tax employee contributions. The
after-tax employee contribution cannot exceed $1,000 during a plan year. The plan provides that
employees who complete one year of service are eligible to participate in the plan on the next January 1
or July 1 entry date. Employee Z, a nonhighly compensated employee who met the eligibility
requirements and should have entered the plan on January 1, 2006, was not offered the opportunity to
elect to have elective contributions made on his behalf to the plan. In March of 2006, the error was
discovered and Employer E offered the employee an election opportunity as of April 1, 2006. Employee Z
had the opportunity to make the maximum elective deferrals and/or after-tax employee contributions that
could have been made under the terms of the plan for the entire 2006 plan year. The employee made
elective deferrals equal to 3% of the employee's plan compensation for each payroll period from April 1,
2006 through December 31, 2006 (resulting in elective deferrals of $960). The employee's plan
compensation for 2006 was $40,000 ($8,000 for the first three months and $32,000 for the last nine
months). Employer E made matching contributions equal to $640 for the excluded employee, which is
2% of the employee's plan compensation for each payroll period from April 1, 2006 through December 31,
2006 ($32,000). After being allowed to participate in the plan, the employee made $500 in after-tax
employee contributions. The ADP for nonhighly compensated employees for 2006 was 3% and the ACP
for nonhighly compensated employees for 2006 was 2.3%. The portion of the ACP attributable to
matching contributions for nonhighly compensated employees for 2006 was 1.8%. The portion of the
ACP attributable to after-tax employee contributions for nonhighly compensated employees for 2006 was
0.5%.
Correction:
Employer E uses the correction method for partial year exclusions, pursuant to section
2.02(1)(a)(ii), to correct the failure to include an eligible employee in the plan. Because Employee Z was
given an opportunity to make elective deferrals and after-tax employee contributions to the plan for at
least the last 9 months of the plan year (and the amount of the elective deferrals or after-tax employee
contributions that the employee had the opportunity to make was not less than the maximum elective
deferrals or after-tax employee contributions that the employee could have made if the employee had
been given the opportunity to make elective deferrals and after-tax employee contributions on January 1,

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2006), under the special rule set forth in section 2.02(1)(a)(ii)(F), Employer E is not required to make a
QNEC for the failure to provide the employee with the opportunity to make either elective deferrals or
after-tax employee contributions. The employer only needs to make a corrective employer nonelective
contribution for the failure to provide the employee with the opportunity to receive matching contributions
on deferrals that could have been made during the first 3 months of the plan year. The calculation of the
corrective employer contribution required to correct this failure is shown as follows:
The missed matching contribution is determined by calculating the matching contribution that the
employee would have received had the employee been provided the opportunity to make elective
deferrals during the period of exclusion, that is, January 1, 2006 through March 31, 2006. Assuming that
the employee elected to defer an amount equal to 3% of compensation (which is the ADP for the
nonhighly compensated employees for the plan year), then, under the terms of the plan, the employee
would have been entitled to a matching contribution of 2% of compensation. Pursuant to the provisions of
section 2.02(1)(a)(ii)(E), Employer E determines compensation by prorating Employee Z’s annual
compensation for the portion of the year that Employee Z was not given the opportunity to make elective
deferrals or after-tax employee contributions. Accordingly, the missed matching contribution for the
period of exclusion is obtained by multiplying 2% by Employee Z’s compensation of $10,000 (3/12ths of
the employee’s 2006 plan compensation of $40,000). Based on this calculation, the missed matching
contribution is $200. However, when this amount is added to the matching contribution already received
($640), the total ($840) exceeds the $750 plan limit on matching contributions by $90. Accordingly,
pursuant to section 2.02(1)(a)(ii)(D), the missed matching contribution figure is reduced to $110 ($200
minus $90). The required corrective employer contribution is $110. The corrective contribution is
adjusted for Earnings.
Example 8:
Employer G maintains a safe harbor § 401(k) plan that requires matching contributions that
satisfy the requirements of § 401(k)(12), which are equal to: 100% of elective deferrals that do not exceed
3% of an employee's compensation and 50% of elective deferrals that exceed 3% but do not exceed 5%
of an employee’s compensation. Employee M, a nonhighly compensated employee who met the
eligibility requirements and should have entered the plan on January 1, 2006, was not offered the
opportunity to defer under the plan and was erroneously excluded for all of 2006. Employee M's
compensation for 2006 was $20,000.
Correction:
In accordance with the provisions of section 2.02(1)(a)(ii)(B), Employee M’s missed deferral on
account of exclusion from the safe harbor § 401(k) plan is 3% of compensation. Thus, the missed
deferral is equal to 3% multiplied by $20,000, or $600. Accordingly, the required QNEC for Employee M’s
missed deferral opportunity in 2006 is $300, that is, 50% of $600. The missed matching contribution,
based on the missed deferral of $600, is $600. The required corrective contribution for Employee M’s
missed matching contribution is $600. Since the matching contribution is required to satisfy the
requirements of § 401(k)(12), the corrective contribution must be made in the form of a QNEC. The total
QNEC, before adjustments for Earnings, on behalf of Employee M is $900 (that is, $300 for the missed
deferral opportunity plus $600 for the missed matching contribution). The QNEC is adjusted for Earnings.
Example 9:
Same facts as Example 8, except that the plan provides for matching contributions equal to 100%
of elective deferrals that do not exceed 4% of an employee’s compensation.

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Correction:
In accordance with the provisions of section 2.02(1)(a)(ii)(B), Employee M’s missed deferral on
account of exclusion from the safe harbor § 401(k) plan is 4% of compensation. The missed deferral is
4% of compensation because the plan provides for a 100% match for deferrals up to that level of
compensation. (See Appendix A, section .05(2)(d).) Therefore, in this case, Employee M’s missed
deferral is equal to 4% multiplied by $20,000, or $800. The QNEC for Employee M’s missed deferral
opportunity in 2006 is $400, that is, 50% multiplied by $800. The missed matching contribution, based on
the missed deferral of $800, is $800. Thus, the required corrective contribution for Employee M’s missed
matching contribution is $800. Since the matching contribution is required to satisfy the requirements of
§ 401(k)(12), the corrective contribution must be made in the form of a QNEC. The total QNEC, before
adjustments for Earnings, on behalf of Employee M is $1,200 (that is, $400 for the missed deferral
opportunity plus $800 for the missed matching contribution). The QNEC is adjusted for Earnings.
Example 10:
Same facts as Example 8, except that the plan uses a rate of nonelective contributions to satisfy
the requirements of § 401(k)(12) and provides for a nonelective contribution equal to 3% of
compensation.
Correction:
In accordance with the provisions of section 2.02(1)(a)(ii)(B), Employee M’s missed deferral on
account of exclusion from the safe harbor § 401(k) plan is 3% of compensation. Thus, the missed
deferral is equal to 3% multiplied by $20,000, or $600. Thus, the QNEC for Employee M’s missed deferral
opportunity in 2006 is $300 (50% of $600). The required nonelective contribution, based on the plan’s
formula of 3% of compensation for nonelective contributions, is $600. Since the nonelective contribution
is required to satisfy the requirements of § 401(k)(12), the corrective contribution is made in the form of a
QNEC. The total required QNEC, before adjustments for Earnings, on behalf of Employee M is $900
(that is, $300 for the missed deferral opportunity, plus $600 for the missed nonelective contribution). The
QNEC is adjusted for Earnings.
Example 11:
Employer H maintains a § 401(k) plan. The plan limit on deferrals is the lesser of the deferral
limit under § 401(a)(30) or the limitation under § 415. The plan also provides that eligible participants (as
defined in § 414(v)(5)) may make contributions in excess of the plan’s deferral limits, up to the limitations
on catch-up contributions for the year. The plan also provides for a 60% matching contribution on
elective deferrals. The deferral limit under § 401(a)(30) for 2006 is $15,000. The limitation on catch-up
contributions under the terms of the plan and § 414(v)(2)(B)(i) is $5,000. Employee R, age 55, was
provided with the opportunity to make elective deferrals up to the plan limit, but was not provided the
option to make catch-up contributions. Employee R is a nonhighly compensated employee who earned
$60,000 in compensation and made elective deferrals totaling $15,000 in 2006.
Correction:
In accordance with the provisions of Appendix A, section .05(4), Employee R’s missed deferral on
account of the plan’s failure to offer the opportunity to make catch-up contributions is $2,500 (or one half
of the limitation on catch-up contributions for 2006). The missed deferral opportunity is $1,250 (or 50% of
$2,500). Thus, the required QNEC for Employee R’s missed deferral opportunity relating to catch-up
contributions in 2006 is $1,250 adjusted for Earnings. In addition, Employee R was entitled to an

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additional matching contribution, under the terms of the plan, equal to 60% of the missed deferral that is
attributable to the catch-up contribution that the employee would have made had the failure not occurred.
In this case, the missed deferral is $2,500 and the corresponding matching contribution is $1,500 (that is,
60% of $2,500). Thus, the required corrective contribution for the additional matching contribution that
should have been made on behalf of Employee R is $1,500 adjusted for Earnings.
Example 12:
Employer K maintains a § 401(k) plan. The plan provides for matching contributions for eligible
employees equal to 100% of elective deferrals that do not exceed 3% of an employee's compensation.
On January 1, 2006, Employee T made an election to contribute 10% of compensation for the 2006 plan
year. However, Employee T’s election was not processed, and the required amounts were not withheld
from Employee T’s salary in 2006. Employee T’s salary was $30,000 in 2006.
Correction:
Employer K uses the correction method described in Appendix A, section .05(5), to correct the
failure to implement Employee T’s election to make elective deferrals under the plan for the full plan year
beginning January 1, 2006. Employer K calculates the corrective QNEC to be made on behalf of
Employee T as follows:
(1) Elective deferrals: Employee T’s election to make elective deferrals, pursuant to an election, in
2006 was not implemented. Thus, pursuant to Appendix A, section .05(5)(a), Employer K must make a
QNEC to the plan on behalf of Employee T equal to the missed deferral opportunity for Employee T,
which is 50% of Employee T’s missed deferral. The QNEC is adjusted for Earnings. The missed deferral
for Employee T is determined by using T’s elected deferral percentage (10%) for 2006 and multiplying
that percentage by Employee T’s compensation for 2006 ($30,000). Accordingly, the missed deferral for
Employee V, on account of the employee’s improper exclusion from the plan is $3,000 (10% x $30,000).
The missed deferral opportunity is $1,500 (that is, 50% x $3,000). Thus, the required QNEC for the
failure to provide Employee V with the opportunity to make elective deferrals to the plan is $1,500
(adjusted for Earnings).
(2) Matching contributions: Employee T should have been eligible for but did not receive an
allocation of employer matching contributions because no elective deferrals were made on behalf of
Employee T in 2006. Thus, pursuant to Appendix A, section .05(5)(c), Employer K must make a
corrective employer nonelective contribution to the plan on behalf of Employee T that is equal to the
matching contribution Employee T would have received had the missed deferral been made. The
corrective employer nonelective contribution is adjusted for Earnings. Under the terms of the plan, if
Employee T had made an elective deferral of $3,000 or 10% of compensation ($30,000), the employee
would have been entitled to a matching contribution equal to 100% of the first 3% of Employee T’s
compensation ($30,000) or $900. Accordingly, the contribution required to replace the missed employer
matching contribution is $900, adjusted for Earnings.
The total required corrective contribution, before adjustments for Earnings, on behalf of Employee
T is $2,400 ($1,500 for the missed deferral opportunity plus $900 for the missed matching contribution).
The corrective contribution for the missed deferral opportunity ($1,500) and related Earnings must be
made in the form of a QNEC.

(2) Exclusion of Eligible Employees In a Profit-Sharing Plan. (a) Correction
Methods. (i) Appendix A Correction Method. Appendix A, section .05, sets forth the
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method for correcting the failure to make a contribution on behalf of an employee
improperly excluded from a defined contribution plan or to provide benefit accruals for
an employee improperly excluded from a defined benefit plan. In the case of a defined
contribution plan, the correction method is to make a contribution on behalf of an
excluded employee. Section 2.02(2)(a)(ii) clarifies the correction method in the case of
a profit-sharing or stock bonus plan that provides for nonelective contributions (within
the meaning of §1.401(k)-6).
(ii) Additional Requirements for Appendix A Correction Method as applied to
Profit-Sharing Plans. To correct for the exclusion of an eligible employee from
nonelective contributions in a profit-sharing or stock bonus plan under the Appendix A
correction method, an allocation amount is determined for each excluded employee on
the same basis as the allocation amounts were determined for the other employees
under the plan's allocation formula (for example, the same ratio of allocation to
compensation), taking into account all of the employee's relevant factors (for example,
compensation) under that formula for that year. The Plan Sponsor makes a corrective
contribution on behalf of the excluded employee that is equal to the allocation amount
for the excluded employee. The corrective contribution is adjusted for Earnings. If, as a
result of excluding an employee, an amount was improperly allocated to the account
balance of an eligible employee who shared in the original allocation of the nonelective
contribution, no reduction is made to the account balance of the employee who shared
in the original allocation on account of the improper allocation. (See Example 15.)
(iii) Reallocation Correction Method. (A) In General. Subject to the limitations
set forth in section 2.02(2)(a)(iii)(F) below, in addition to the Appendix A correction
method, the exclusion of an eligible employee for a plan year from a profit-sharing or
stock bonus plan that provides for nonelective contributions may be corrected using the
reallocation correction method set forth in this section 2.02(2)(a)(iii). Under the
reallocation correction method, the account balance of the excluded employee is
increased as provided in paragraph (2)(a)(iii)(B) below, the account balances of other
employees are reduced as provided in paragraph (2)(a)(iii)(C) below, and the increases
and reductions are reconciled, as necessary, as provided in paragraph (2)(a)(iii)(D)
below. (See Examples 16 and 17.)
(B) Increase in Account Balance of Excluded Employee. The account balance of
the excluded employee is increased by an amount that is equal to the allocation the
employee would have received had the employee shared in the allocation of the
nonelective contribution. The amount is adjusted for Earnings.
(C) Reduction in Account Balances of Other Employees. (1) The account
balance of each employee who was an eligible employee who shared in the original
allocation of the nonelective contribution is reduced by the excess, if any, of (I) the
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employee's allocation of that contribution over (II) the amount that would have been
allocated to that employee’s account had the failure not occurred. This amount is
adjusted for Earnings taking into account the rules set forth in section
2.02(2)(a)(iii)(C)(2) and (3) below. The amount after adjustment for Earnings is limited
in accordance with section 2.02(2)(a)(iii)(C)(4) below.
(2) This paragraph (2)(a)(iii)(C)(2) applies if most of the employees with account
balances that are being reduced are nonhighly compensated employees. If there has
been an overall gain for the period from the date of the original allocation of the
contribution through the date of correction, no adjustment for Earnings is required to the
amount determined under section 2.02(2)(a)(iii)(C)(1) for the employee. If the amount
for the employee is being adjusted for Earnings and the plan permits investment of
account balances in more than one investment fund, for administrative convenience, the
reduction to the employee's account balance may be adjusted by the lowest rate of
return of any fund for the period from the date of the original allocation of the
contribution through the date of correction.
(3) If an employee's account balance is reduced and the original allocation was
made to more than one investment fund or there was a subsequent distribution or
transfer from the fund receiving the original allocation, then reasonable, consistent
assumptions are used to determine the Earnings adjustment.
(4) The amount determined in section 2.02(2)(a)(iii)(C)(1) for an employee after
the application of section 2.02(2)(a)(iii)(C)(2) and (3) may not exceed the account
balance of the employee on the date of correction, and the employee is permitted to
retain any distribution made prior to the date of correction.
(D) Reconciliation of Increases and Reductions. If the aggregate amount of the
increases under section 2.02(2)(a)(iii)(B) exceeds the aggregate amount of the
reductions under section 2.02(2)(a)(iii)(C), the Plan Sponsor makes a corrective
contribution to the plan for the amount of the excess. If the aggregate amount of the
reductions under section 2.02(2)(a)(iii)(C) exceeds the aggregate amount of the
increases under section 2.02(2)(a)(iii)(B), then the amount by which each employee's
account balance is reduced under section 2.02(2)(a)(iii)(C) is decreased on a pro rata
basis.
(E) Reductions Among Multiple Investment Funds. If an employee's account
balance is reduced and the employee's account balance is invested in more than one
investment fund, then the reduction may be made from the investment funds selected in
any reasonable manner.

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(F) Limitations on Use of Reallocation Correction Method. If any employee would
be permitted to retain any distribution pursuant to section 2.02(2)(a)(iii)(C)(4), then the
reallocation correction method may not be used unless most of the employees who
would be permitted to retain a distribution are nonhighly compensated employees.
(b) Examples.
Example 13:
Employer D maintains a profit-sharing plan that provides for discretionary nonelective employer
contributions. The plan provides that the employer's contributions are allocated to account balances in
the ratio that each eligible employee's compensation for the plan year bears to the compensation of all
eligible employees for the plan year and, therefore, the only relevant factor for determining an allocation is
the employee's compensation. The plan provides for self-directed investments among four investment
funds and daily valuations of account balances. For the 2006 plan year, Employer D made a contribution
to the plan of a fixed dollar amount. However, five employees who met the eligibility requirements were
inadvertently excluded from participating in the plan. The contribution resulted in an allocation on behalf
of each of the eligible employees, other than the excluded employees, equal to 10% of compensation.
Most of the employees who received allocations under the plan for the year of the failure were nonhighly
compensated employees. No distributions have been made from the plan since 2006. If the five
excluded employees had shared in the original allocation, the allocation made on behalf of each
employee would have equaled 9% of compensation. The excluded employees began participating in the
plan in the 2007 plan year.
Correction:
Employer D uses the Appendix A correction method to correct the failure to include the five
eligible employees. Thus, Employer D makes a corrective contribution to the plan. The amount of the
corrective contribution on behalf of the five excluded employees for the 2006 plan year is equal to 10% of
compensation of each excluded employee, the same allocation that was made for other eligible
employees, adjusted for Earnings. The excluded employees receive an allocation equal to 10% of
compensation (adjusted for Earnings) even though, had the excluded employees originally shared in the
allocation for the 2006 contribution, their account balances, as well as those of the other eligible
employees, would have received an allocation equal to only 9% of compensation.
Example 14:
The facts are the same as in Example 13.
Correction:
Employer D uses the reallocation correction method to correct the failure to include the five
eligible employees. Thus, the account balances are adjusted to reflect what would have resulted from the
correct allocation of the employer contribution for the 2006 plan year among all eligible employees,
including the five excluded employees. The inclusion of the excluded employees in the allocation of that
contribution would have resulted in each eligible employee, including each excluded employee, receiving
an allocation equal to 9% of compensation. Accordingly, the account balance of each excluded employee
is increased by 9% of the employee's 2006 compensation, adjusted for Earnings. The account balance of
each of the eligible employees other than the excluded employees is reduced by 1% of the employee's
2006 compensation, adjusted for Earnings. Employer D determines the adjustment for Earnings using

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the rate of return of each eligible employee's excess allocation (using reasonable, consistent
assumptions). Accordingly, for an employee who shared in the original allocation and directed the
investment of the allocation into more than one investment fund or who subsequently transferred a
portion of a fund that had been credited with a portion of the 2006 allocation to another fund, reasonable,
consistent assumptions are followed to determine the adjustment for Earnings. It is determined that the
total of the initially determined reductions in account balances exceeds the total of the required increases
in account balances. Accordingly, these initially determined reductions are decreased pro rata so that the
total of the actual reductions in account balances equals the total of the increases in the account
balances, and Employer D does not make any corrective contribution. The reductions from the account
balances are made on a pro rata basis among all of the funds in which each employee's account balance
is invested.
Example 15:
The facts are the same as in Example 13.
Correction:
The correction is the same as in Example 14, except that, because most of the employees whose
account balances are being reduced are nonhighly compensated employees, for administrative
convenience, Employer D uses the rate of return of the fund with the lowest rate of return for the period of
the failure to adjust the reduction to each account balance. It is determined that the aggregate amount
(adjusted for Earnings) by which the account balances of the excluded employees is increased exceeds
the aggregate amount (adjusted for Earnings) by which the other employees' account balances are
reduced. Accordingly, Employer D makes a contribution to the plan in an amount equal to the excess.
The reduction from account balances is made on a pro rata basis among all of the funds in which each
employee's account balance is invested.

.03 Vesting Failures. (1) Correction Methods. (a) Contribution Correction
Method. A failure in a defined contribution plan to apply the proper vesting percentage
to an employee's account balance that results in forfeiture of too large a portion of the
employee's account balance may be corrected using the contribution correction method
set forth in this paragraph. The Plan Sponsor makes a corrective contribution on behalf
of the employee whose account balance was improperly forfeited in an amount equal to
the improper forfeiture. The corrective contribution is adjusted for Earnings. If, as a
result of the improper forfeiture, an amount was improperly allocated to the account
balance of another employee, no reduction is made to the account balance of that
employee. (See Example 16.)
(b) Reallocation Correction Method. In lieu of the contribution correction method,
in a defined contribution plan under which forfeitures of account balances are
reallocated among the account balances of the other eligible employees in the plan, a
failure to apply the proper vesting percentage to an employee's account balance which
results in forfeiture of too large a portion of the employee's account balance may be
corrected under the reallocation correction method set forth in this paragraph. A
corrective reallocation is made in accordance with the reallocation correction method
set forth in section 2.02(2)(a)(iii), subject to the limitations set forth in section
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2.02(2)(a)(iii)(F). In applying section 2.02(2)(a)(iii)(B), the account balance of the
employee who incurred the improper forfeiture is increased by an amount equal to the
amount of the improper forfeiture and the amount is adjusted for Earnings. In applying
section 2.02(2)(a)(iii)(C)(1), the account balance of each employee who shared in the
allocation of the improper forfeiture is reduced by the amount of the improper forfeiture
that was allocated to that employee's account. The Earnings adjustments for the
account balances that are being reduced are determined in accordance with sections
2.02(2)(a)(iii)(C)(2) and (3) and the reductions after adjustments for Earnings are limited
in accordance with section 2.02(2)(a)(iii)(C)(4). In accordance with section
2.02(2)(a)(iii)(D), if the aggregate amount of the increases exceeds the aggregate
amount of the reductions, the Plan Sponsor makes a corrective contribution to the plan
for the amount of the excess. In accordance with section 2.02(2)(a)(iii)(D), if the
aggregate amount of the reductions exceeds the aggregate amount of the increases,
then the amount by which each employee's account balance is reduced is decreased on
a pro rata basis. (See Example 17.)
(2) Examples.
Example 16:
Employer E maintains a profit-sharing plan that provides for nonelective contributions. The plan
provides for self-directed investments among four investment funds and daily valuation of account
balances. The plan provides that forfeitures of account balances are reallocated among the account
balances of other eligible employees on the basis of compensation. During the 2006 plan year,
Employee R terminated employment with Employer E and elected and received a single-sum distribution
of the vested portion of his account balance. No other distributions have been made since 2006.
However, an incorrect determination of Employee R's vested percentage was made resulting in Employee
R receiving a distribution of less than the amount to which he was entitled under the plan. The remaining
portion of Employee R's account balance was forfeited and reallocated (and these reallocations were not
affected by the limitations of § 415). Most of the employees who received allocations of the improper
forfeiture were nonhighly compensated employees.
Correction:
Employer E uses the contribution correction method to correct the improper forfeiture. Thus,
Employer E makes a contribution on behalf of Employee R equal to the incorrectly forfeited amount
(adjusted for Earnings) and Employee R's account balance is increased accordingly and subsequently
distributed to Employee R. No reduction is made from the account balances of the employees who
received an allocation of the improper forfeiture.
Example 17:
The facts are the same as in Example 16.
Correction:
Employer E uses the reallocation correction method to correct the improper forfeiture. Thus,
Employee R's account balance is increased by the amount that was improperly forfeited (adjusted for

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Earnings) and such increase will be distributed to Employee R. The account of each employee who
shared in the allocation of the improper forfeiture is reduced by the amount of the improper forfeiture that
was allocated to that employee's account (adjusted for Earnings). Because most of the employees
whose account balances are being reduced are nonhighly compensated employees, for administrative
convenience, Employer E uses the rate of return of the fund with the lowest rate of return for the period of
the failure to adjust the reduction to each account balance. It is determined that the amount (adjusted for
Earnings) by which the account balance of Employee R is increased exceeds the aggregate amount
(adjusted for Earnings) by which the other employees' account balances are reduced. Accordingly,
Employer E makes a contribution to the plan in an amount equal to the excess. The reduction from the
account balances is made on a pro rata basis among all of the funds in which each employee's account
balance is invested.

.04 Section 415(c) Failures and Correction of Overpayments (Defined
Contribution Plans and § 403(b) Plans).
(1) Correction Methods for Failures Relating to a § 415(c) Excess. (a) Appendix
A Correction Method. Appendix A, section .08, sets forth the correction method for
correcting the failure to satisfy the § 415(c) limits on annual additions.
(b) Forfeiture Correction Method. In addition to the Appendix A correction
method, the failure to satisfy § 415(c) with respect to a nonhighly compensated
employee (A) who in the limitation year of the failure had annual additions consisting of
both (I) either elective deferrals or after-tax employee contributions or both and (II)
either matching or nonelective contributions or both, (B) for whom the matching and
nonelective contributions equal or exceed the portion of the employee’s annual addition
that exceeds the limits under § 415(c) (“§ 415(c) excess”) for the limitation year, and (C)
who has terminated with no vested interest in the matching and nonelective
contributions (and has not been reemployed at the time of the correction), may be
corrected by using the forfeiture correction method set forth in this paragraph. The
§ 415(c) excess is deemed to consist solely of the matching and nonelective
contributions. If the employee’s § 415(c) excess (adjusted for Earnings) has previously
been forfeited, the § 415(c) failure is deemed to be corrected. If the § 415(c) excess
(adjusted for Earnings) has not been forfeited, that amount is placed in an unallocated
account, as described in section 6.06(2) of this revenue procedure, to be used to reduce
employer nonelective contributions in succeeding year(s) (or if the amount would have
been allocated to other employees who were in the plan for the year of the failure if the
failure had not occurred, then that amount is reallocated to the other employees in
accordance with the plan’s allocation formula). Note that while this correction method
will permit more favorable tax treatment of elective deferrals for the employee than the
Appendix A correction method, this correction method could be less favorable to the
employee in certain cases, for example, if the employee is subsequently reemployed
and becomes vested. (See Examples 18 and 19.)

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(c) Return of Overpayment Correction Method. A failure to satisfy § 415(c) that
includes a distribution of a § 415(c) excess attributable to nonelective contributions and
matching contributions may be corrected using the return of Overpayment correction
method set forth in section 6.06(4) of this revenue procedure.
(2) Correction of Overpayment Failures that are not Attributable to a § 415(c)
Excess. An Overpayment that is not attributable to a § 415(c) excess may be corrected
in accordance with the return of Overpayment correction method in section 2.04(1)(c).
(3) Examples.
Example 18:
Employer G maintains a § 401(k) plan. The plan provides for nonelective employer contributions,
elective deferrals, and after-tax employee contributions. The plan provides that the nonelective
contributions vest under a 5-year cliff vesting schedule. The plan provides that when an employee
terminates employment, the employee’s nonvested account balance is forfeited five years after a
distribution of the employee’s vested account balance and that forfeitures are used to reduce employer
contributions. For the 1998 limitation year, the annual additions made on behalf of two nonhighly
compensated employees in the plan, Employees T and U, exceeded the limit in § 415(c). For the 1998
limitation year, Employee T had § 415 compensation of $60,000, and, accordingly, a § 415(c)(1)(B) limit
of $15,000. Employee T made elective deferrals and after-tax employee contributions. For the 1998
limitation year, Employee U had § 415 compensation of $40,000, and, accordingly, a § 415(c)(1)(B) limit
of $10,000. Employee U made elective deferrals. Also, on January 1, 1999, Employee U, who had three
years of service with Employer G, terminated his employment and received his entire vested account
balance (which consisted of his elective deferrals). The annual additions for Employees T and U
consisted of:
Nonelective Contributions
Elective Deferrals
After-tax Contributions

T
$ 7,500
$10,000
$ 500

U
$ 4,500
$ 5,800
$
0

Total Contributions
§ 415(c) Limit
§ 415(c) Excess

$18,000
$15,000
$ 3,000

$10,300
$10,000
$ 300

Correction:
Employer G uses the Appendix A correction method to correct the § 415(c) excess with respect to
Employee T (that is, $3,000). Thus, a distribution of plan assets (and corresponding reduction of the
account balance) consisting of $500 (adjusted for Earnings) of after-tax employee contributions and
$2,500 (adjusted for Earnings) of elective deferrals is made to Employee T. Employer G uses the
forfeiture correction method to correct the § 415(c) excess with respect to Employee U. Thus, the
§ 415(c) excess is deemed to consist solely of the nonelective contributions. Accordingly, Employee U’s
nonvested account balance is reduced by $300 (adjusted for Earnings) which is placed in an unallocated
account, as described in section 6.06(2) of this revenue procedure, to be used to reduce employer
contributions in succeeding year(s). After correction, it is determined that the ADP and ACP tests for
1998 were satisfied.

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Example 19:
Employer H maintains a § 401(k) plan. The plan provides for nonelective employer contributions,
matching contributions, and elective deferrals. The plan provides for matching contributions that are
equal to 100% of an employee’s elective deferrals that do not exceed 8% of the employee’s plan
compensation for the plan year. For the 1998 limitation year, Employee V had § 415 compensation of
$50,000, and, accordingly, a § 415(c)(1)(B) limit of $12,500. During that limitation year, the annual
additions for Employee V totaled $15,000, consisting of $5,000 in elective deferrals, a $4,000 matching
contribution (8% of $50,000), and a $6,000 nonelective employer contribution. Thus, the annual additions
for Employee V exceeded the § 415(c) limit by $2,500.
Correction:
Employer H uses the Appendix A correction method to correct the § 415(c) excess with respect to
Employee V (that is, $2,500). Accordingly, $1,000 of the unmatched elective deferrals (adjusted for
Earnings) are distributed to Employee V. The remaining $1,500 excess is apportioned equally between
the elective deferrals and the associated matching employer contributions, so Employee V’s account
balance is further reduced by distributing to Employee V $750 (adjusted for Earnings) of the elective
deferrals and forfeiting $750 (adjusted for Earnings) of the associated employer matching contributions.
The forfeited matching contributions are placed in an unallocated account, as described in section 6.06(2)
of this revenue procedure, to be used to reduce employer contributions in succeeding year(s). After
correction, it is determined that the ADP and ACP tests for 1998 were satisfied.

.05 Section 415(b) Failures and Correction of Overpayments (Defined Benefit
Plans). (1) In General. An Overpayment in a defined benefit plan may be corrected
using the return of Overpayment or adjustment of future payment correction methods
set forth in section 2.05(2), or, provided certain requirements are satisfied, the funding
exception correction method set forth in section 2.05(3), or the contribution credit
correction method set forth in section 2.05(4). However, the funding exception
correction method set forth in section 2.05(3) and the contribution credit correction
method set forth in section 2.05(4) may not be applied with respect to Overpayments
associated with a failure to satisfy a statutory limit (including §§ 401(a)(17), 415(b), and
436) or with Overpayments made to a disqualified person (as defined in § 4975(e)(2)) or
an owner-employee (as defined in § 401(c)). In addition, to be eligible to use the
contribution credit correction method, the plan may not have a funding deficiency or an
unpaid minimum required contribution as of the end of the last plan year before the plan
year for which the Plan Sponsor takes into account the corrected benefit payment
amount for funding purposes (taking into account contributions made after the end of
the plan year that are credited to that plan year). As provided in section 6.06(3)(e) of
this revenue procedure, any other appropriate correction method may be used to
correct an Overpayment.
(2) Return of Overpayment and Adjustment of Future Payments Correction
Methods. (a) Return of Overpayment Correction Method. (i) In General. Under the
return of Overpayment correction method, the Plan Sponsor must take reasonable
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steps to have the Overpayment (adjusted for appropriate interest) returned to the plan
by the Overpayment recipient and must reduce future benefit payments (if any) to the
Overpayment recipient to equal the correct amount payable under the terms of the plan
(or an amount that satisfies a limitation provided in the Code or regulations). The Plan
Sponsor may permit the Overpayment recipient to repay the Overpayment through the
payment of a single sum or through an installment agreement, as described in section
2.05(2)(a)(ii). If the amount returned to the plan by the Overpayment recipient is less
than the Overpayment adjusted for Earnings at the plan's earnings rate, the Plan
Sponsor or another person (other than any spouse or beneficiary of the Overpayment
recipient) must contribute the difference to the plan. In addition, if the Overpayment
was previously treated as eligible for favorable tax treatment, in accordance with section
6.06(3) of this revenue procedure, the Plan Sponsor must notify the Overpayment
recipient in writing that the Overpayment was not eligible for favorable tax treatment
accorded to distributions from qualified plans (and, specifically, was not eligible for taxfree rollover). (See Examples 23, 24, and 25.)
(ii) Rules Relating to Recoupment Through an Installment Agreement. Under the
return of Overpayment correction method, the Plan Sponsor may permit an
Overpayment recipient to repay the Overpayment through an installment agreement.
However, this option is not available in cases in which the Overpayment recipient is a
disqualified person (as defined in § 4975(e)(2)) or an owner-employee (as defined in
§ 401(c)).
(b) Adjustment of Future Payments Correction Method. (i) In General. In the
case of plan benefits that are being distributed in the form of periodic payments,
Overpayments may be corrected using the adjustment of future payments correction
method set forth in this section 2.05(2)(b). Under the adjustment of future payments
correction method, payments made to the Overpayment recipient on or after the date of
correction are reduced so that they do not exceed the correct benefit payment under the
terms of the plan (or satisfy a limitation provided in the Code or regulations). An
additional reduction is made to recoup the Overpayment (over a period not longer than
the remaining payment period) so that the actuarial present value of the additional
reduction, determined as of the date of correction, is equal to the Overpayment plus
interest at the interest rate used by the plan as of the date of correction to determine
actuarial equivalence. (See Examples 20 and 22.)
(ii) Joint and Survivor Annuity Payments. If a participant is receiving payments in
the form of a joint and survivor annuity, with the employee's spouse receiving a life
annuity upon the employee's death equal to a percentage (for example, 75 percent) of
the amount being paid to the employee, the reduction of future annuity payments to
reflect the correct amount payable to the participant under the terms of the plan (or to
satisfy a limitation provided in the Code or regulations) reduces the amount of benefits
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payable during the lives of both the employee and spouse. However, any reduction to
recoup Overpayments made to the employee’s future annuity payments does not
reduce the amount of the spouse's survivor benefit (regardless of whether the
Overpayments have been recouped fully due to the reductions during the employee’s
lifetime). Thus, the spouse's survivor benefit will be based on the specified percentage
(for example, 75 percent) of the maximum permitted amount payable under the terms of
the plan (or to satisfy a limitation provided in the Code or Regulations), instead of the
reduced periodic amount payable to the employee. (See Example 21.)
(iii) Overpayment Not Treated as an Excess Amount. An Overpayment corrected
under the adjustment of future payments correction method is not treated as an Excess
Amount as defined in section 5.01(3) of this revenue procedure.
(iv) Plan Sponsor Not Required to Contribute to the Plan. To the extent the
amount returned by an Overpayment recipient through the adjustment of future
payments correction method is less than the Overpayment (for example, due to the
death of the Overpayment recipient), the Plan Sponsor is not required to contribute any
additional amount to the plan.
(c) Overpayment Recipients May Be Given Choice of Recoupment Correction
Methods. If seeking recoupment of an Overpayment under the return of Overpayment
or adjustment of future payments correction methods under section 2.05(2), a Plan
Sponsor may provide Overpayment recipients a choice of repaying an Overpayment by:
(A) a single sum repayment, (B) entering an installment agreement, or (C) an
adjustment made to future benefit payments.
(3) Funding Exception Correction Method. Corrective payments are not required
in the case of a plan subject to § 436, provided that the plan’s certified or presumed
AFTAP that is applicable to the plan at the date of correction is equal to at least 100
percent (or, in the case of a multiemployer plan, the plan’s most recent annual funding
certification indicates that the plan is not in critical, critical and declining, or endangered
status, as defined in § 432, determined at the date of correction). For this purpose, the
rules for determining the AFTAP and presumed AFTAP under § 436 and for determining
the status of a multiemployer plan under § 432 must be followed. Future benefit
payments to an Overpayment recipient must be reduced to the correct benefit payment
amount. For purposes of EPCRS, no further payments from any party are required, no
further reductions to future benefit payments to an Overpayment recipient, or any
spouse or beneficiary of an Overpayment recipient, are permitted, and no further
corrective payments from an Overpayment recipient, or any spouse or beneficiary of an
Overpayment recipient, are permitted. (See Examples 25 and 28.)

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(4) Contribution Credit Correction Method. (a) In General. (i) Subject to the
additional rules set forth in section 2.05(4)(a)(ii) and (b), under the contribution credit
correction method, the amount of Overpayments required to be repaid to the plan is the
amount of the Overpayments reduced (but not below zero) by: (A) the cumulative
increase in the plan’s minimum funding requirements attributable to the Overpayments
(including the increase attributable to the overstatement of liabilities, whether funded
through cash contributions or through the use of a funding standard carryover balance,
prefunding balance, or funding standard account credit balance), beginning with (1) the
plan year for which the Overpayments are taken into account for funding purposes, and
through (2) the end of the plan year preceding the plan year for which the corrected
benefit payment amount is taken into account for funding purposes; and (B) certain
additional contributions in excess of minimum funding requirements paid to the plan
after the first of the Overpayments was made (see section 2.05(4)(a)(ii)). The amount
of the Overpayments and the cumulative additional contributions (taking into account
the increase in minimum funding and excess contributions) are determined without
adjustment for interest. (See Examples 26 and 27.) This reduction is referred to as the
“contribution credit.”
(ii) Contributions may not be counted toward the contribution credit if they are
designated for other plan purposes. Accordingly, the following contributions to the plan
in excess of minimum funding requirements may not be counted toward the contribution
credit: (A) contributions added to the plan’s prefunding balance (except that, if an
election was made by the date of correction to reduce the prefunding balance by all or a
portion of those contributions, then the amount by which the prefunding balance was
reduced may be counted toward the contribution credit); (B) contributions made to avoid
or remove restrictions under § 436; (C) contributions made to CSEC plans and
withdrawal liability payments and other contributions made to multiemployer plans (all of
which are automatically added to the credit balance); and (D) contributions made to
correct other Qualification Failures.
(iii) For purposes of EPCRS, if the amount of the Overpayments is reduced to
zero after the contribution credit is applied, no further corrective payments from any
party are required, no further reductions to future benefit payments to an Overpayment
recipient, or any spouse or beneficiary of an Overpayment recipient, are permitted, and
no further corrective payments from an Overpayment recipient, or any spouse or
beneficiary of an Overpayment recipient, are permitted. However, if a net amount of
Overpayments remains (“net Overpayment”) after application of the contribution credit,
subject to section 2.05(4)(a)(iv) and the additional rules set forth in section 2.05(4)(b),
the Plan Sponsor or another party must take one of the following actions to secure
repayment to the plan of the net Overpayment: (A) the Plan Sponsor or another party
makes a single sum contribution to the plan in the amount of the net Overpayment; or
(B) the Plan Sponsor takes reasonable steps to recoup the net Overpayment from the
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Overpayment recipient by (1) securing a single sum payment from the Overpayment
recipient, (2) entering into an installment agreement with the Overpayment recipient, or
(3) adjusting future benefit payments due to the Overpayment recipient in accordance
with section 2.05(2)(b). If the Plan Sponsor pursues recoupment under this section
2.05(4)(a), Overpayment recipients must be permitted to choose which of these
correction options will apply after receiving the written notification described in section
2.05(4)(b)(iv).
(iv) To the extent the amount returned by an Overpayment recipient through
either a single sum payment or an installment agreement is less than the net
Overpayment, the Plan Sponsor or another person must contribute any additional
amount owed to the plan. However, to the extent the amount returned by the
Overpayment recipient through the adjustment of future payments is less than the net
Overpayment (for example, due to the death of the Overpayment recipient), the Plan
Sponsor is not required to contribute an additional amount to the plan.
(b) Additional Rules. The following additional rules apply if a net Overpayment
remains after the application of the contribution credit as described in section 2.05(4)(a).
(i) Limitations Relating to Recoupment Through Adjustment of Future Payments.
The following limitations apply if a Plan Sponsor pursues recoupment of a net
Overpayment from an Overpayment recipient and the Overpayment recipient chooses
to have future periodic benefit payments adjusted for the net Overpayment: (A) the
maximum adjustment to a future periodic benefit payment must be limited to 10 percent
of the Overpayment recipient’s corrected periodic payment amount; (B) interest may not
accrue prior to the date that corrected periodic payments begin; and (C) appropriate
interest must accrue on the amount of the net Overpayment beginning on the date the
corrected periodic payments begin.
(ii) Rules Relating to Recoupment From an Overpayment Recipient Through an
Installment Agreement. The following rules apply if a Plan Sponsor pursues
recoupment of a net Overpayment from an Overpayment recipient and the
Overpayment recipient chooses to repay the net Overpayment through an installment
agreement: (A) interest may not accrue prior to the date that installment payments
begin; (B) appropriate interest must accrue on the amount of the net Overpayment
beginning on the date the installment payments begin; and (C) the installment period
over which the net Overpayment will be repaid to the plan must be at least five years.
(iii) Joint and Survivor Annuity Payments. The requirements set forth in section
2.05(2)(B)(ii), relating to joint and survivor annuity payments, apply to the contribution
credit correction method.
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(iv) Written Notification Required. Under the contribution credit correction
method, a Plan Sponsor that requests recoupment of a net Overpayment from an
Overpayment recipient must provide a written notification to the Overpayment recipient
with information about the net Overpayment and the repayment options available to the
Overpayment recipient. This information must include the following:
(A) a description of the error;
(B) the amount of the Overpayment;
(C) the amount of the Overpayment recipient’s benefit after reduction to reflect
the correct amount payable under the terms of the plan, or to satisfy a
limitation provided in the Code or regulations;
(D) the estimated amount of reduced future benefit payments that the
Overpayment recipient will receive if the Overpayment recipient chooses
to have future benefit payments adjusted; and
(E) the estimated repayment amounts if the Overpayment recipient chooses
to repay the Overpayment through a single sum repayment or an
installment agreement.
Information about the repayment options must indicate that if the Overpayment recipient
does not choose a repayment option within a reasonable time (which may not be less
than 30 days), the default repayment option will be the adjustment of future payments
correction method if the Overpayment recipient is entitled to future payments under the
terms of the plan, or a single sum repayment, if the Overpayment recipient is not
entitled to future payments under the terms of the plan (for example, if the Overpayment
recipient’s entire benefit was distributed as a single sum payment). The information
required by this section 2.05(4)(b)(iv) must be provided in addition to the written
notification required under section 6.06(3)(b)(ii) of this revenue procedure (but may be
set forth in the same notification to the Overpayment recipient).
(c) Examples.
Example 20:
Employer F maintains a defined benefit plan funded solely through employer contributions. The
plan provides that the benefits of employees are limited to the maximum amount permitted under
§ 415(b), disregarding cost-of-living adjustments under § 415(d) after benefit payments have
commenced. At the beginning of the 2006 plan year, Employee S retired and started receiving an annual
straight life annuity of $185,000 from the plan. Due to an administrative error, the annual amount
received by Employee S for 2006 included an Overpayment of $10,000 (because the § 415(b)(1)(A) limit
for 2006 was $175,000). This error was discovered at the beginning of 2007.
Correction:
Employer F uses the adjustment of future payments correction method to correct the failure to
satisfy the limit in § 415(b). Future annuity benefit payments to Employee S are reduced so that they do

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not exceed the § 415(b) maximum limit, and, in addition, Employee S's future benefit payments from the
plan are actuarially reduced to recoup the Overpayment. Accordingly, Employee S's future benefit
payments from the plan are reduced to $175,000 and further reduced by $1,000 annually for life,
beginning in 2007. The annual benefit amount is reduced by $1,000 annually for life because, for
Employee S, the actuarial present value of a benefit of $1,000 annually for life commencing in 2007 is
equal to the sum of $10,000 and interest at the rate used by the plan to determine actuarial equivalence
beginning with the date of the first Overpayment and ending with the date the reduced annuity payment
begins. Thus, Employee S's remaining benefit payments are reduced so that Employee S receives
$174,000 for 2007, and for each year thereafter.
Example 21:
The facts are the same as in Example 20, except that Employee S is receiving the benefit in the
form of a fully-subsidized 100% joint and survivor benefit, so that Employee S’s spouse will receive 100%
of Employee S’s benefit after Employee S’s death. As provided under Example 20, under the terms of
the plan, the annual benefit payable to Employee S should have been $175,000 for Employee S’s
lifetime, and $175,000 to Employee S’s spouse after Employee S’s death.
Correction:
The adjustment to recoup the Overpayment is applied only for Employee S’s lifetime, as
described in section 2.05(2)(b)(ii), so the actuarial adjustment is $1,000 annually as determined in
Example 20. Therefore, the future annual payments to Employee S will be $174,000 for Employee S’s
lifetime, and the annual payments to Employee S’s spouse will be $175,000 for the remainder of the
spouse’s lifetime after Employee S’s death.
Example 22:
The facts are the same as in Example 20.
Correction:
Employer F uses the adjustment of future payments correction method to correct the § 415(b)
failure, by recouping the entire excess payment made in 2006 from Employee S's remaining benefit
payments for 2007. Thus, Employee S's annual annuity benefit for 2007 is reduced to $164,400 to reflect
the excess benefit amounts (increased by interest) that were paid from the plan to Employee S during the
2006 plan year. Beginning in 2008, Employee S begins to receive annual benefit payments of $175,000.
Example 23:
The facts are the same as in Example 20, except that the benefit was paid to Employee S in the
form of a single-sum distribution in 2006, which exceeded the maximum § 415(b) limit by $110,000.
Correction:
Employer F uses the return of Overpayment correction method to correct the § 415(b) failure.
Thus, Employer F notifies Employee S of the $110,000 Overpayment and that the Overpayment was not
eligible for favorable tax treatment accorded to distributions from qualified plans (and, specifically, was
not eligible for tax-free rollover). The notice also informs Employee S that the Overpayment (with interest
at the rate used by the plan to calculate the single-sum payment) is owed to the plan. Employer F takes
reasonable steps to have the Overpayment (with interest at the rate used by the plan to calculate the

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single-sum payment) paid to the plan. Employee S pays the $110,000 (plus the requested interest) to the
plan. It is determined that the plan's rate of return for the relevant period was 2 percentage points more
than the rate used by the plan to calculate the single-sum payment. Accordingly, Employer F contributes
the difference to the plan.
Example 24:
The facts are the same as in Example 23.
Correction:
Employer F uses the return of Overpayment correction method to correct the § 415(b) failure.
Thus, Employer F notifies Employee S of the $110,000 Overpayment and that the Overpayment was not
eligible for favorable tax treatment accorded to distributions from qualified plans (and, specifically, was
not eligible for tax-free rollover). The notice also informs Employee S that the Overpayment (with interest
at the rate used by the plan to calculate the single-sum payment) is owed to the plan. Employer F takes
reasonable steps to have the Overpayment (with interest at the rate used by the plan to calculate the
single-sum payment) paid to the plan. As a result of Employer F's recovery efforts, some, but not all, of
the Overpayment (with interest) is recovered from Employee S. It is determined that the amount returned
by Employee S to the plan is less than the Overpayment adjusted for Earnings at the plan’s rate of return.
Accordingly, Employer F contributes the difference to the plan.
Example 25:
Plan H is a single-employer plan with a calendar-year plan year. In August, 2021, the Plan
Sponsor discovers that the lump sum paid to Participant U in December, 2019 was overstated by
$10,000, although the benefit was less than the maximum benefit permitted under § 415(b). Plan H’s last
certified AFTAP for the 2020 plan year is equal to 100%; however, the Plan Sponsor has not yet certified
the AFTAP for 2021.
Correction:
The Plan Sponsor notifies Participant U that $10,000 of the lump sum payment is not eligible for
favorable tax treatment because the benefit exceeded the amount that should have been provided under
plan terms. The Plan Sponsor uses the funding exception correction method to correct the
Overpayments. Because the presumed AFTAP as required under § 436 as of August, 2021 is equal to
100%, no corrective payment is required to be made to Plan H as a result of the Overpayment.
Example 26:
The facts are the same as in Example 25, except that the certified AFTAP for 2020 was 90%.
The Plan Sponsor determines that the $10,000 Overpayment increased the minimum funding
requirement by $1,700 per year, starting with the 2020 plan year when the Overpayment was first
reflected in the funding calculations. The error was discovered after the 2021 valuation was completed,
so the Overpayment was also reflected in the 2021 minimum required contribution. The Plan Sponsor
contributed an additional $1,000 over the minimum required contribution for the 2020 plan year which was
not added to the prefunding balance.
Correction:

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The Plan Sponsor corrects the Overpayment under the contribution credit correction method.
Under this correction method, the cumulative contribution credit is $4,400 (that is, $1,700 for plan year
2020, $1,700 for plan year 2021, and the additional $1,000 contribution for the 2020 plan year). The
difference of $5,600 ($10,000 - $4,400) must be repaid by the Plan Sponsor, Participant U, or another
party. Under this correction method, no adjustment for interest is made when calculating the amount of
the Overpayment or the cumulative contribution credit for periods before the date of correction.
Example 27:
The facts are the same as in Example 26 except that Participant U retired December 1, 2019,
with a life annuity and the Plan Sponsor discovered in August, 2021 that the monthly benefits paid to
Participant U were overstated by $200 per month. The Plan Sponsor reduces the life annuity to the
correct amount beginning with the benefit paid for September, 2021. The Plan Sponsor reflected the
incorrect payment in the calculation of the minimum required contribution for the 2020 and 2021 plan
years and determined that the Overpayment resulted in an increase in the minimum required contribution
of $4,900 per year. Participant U received the $200 monthly Overpayment for 21 months, for a
cumulative Overpayment of $4,200 (with no adjustment for interest prior to the date of correction).
Correction:
The Plan Sponsor corrects the Overpayment using the contribution credit correction method. The
accumulated contribution credit is $10,800 (resulting from an increase in the minimum required
contribution of $4,900 per year for two years, plus the additional $1,000 contribution for the 2020 plan
year, again with no adjustment for interest). Under the contribution credit correction method, since the
accumulated contribution credit is larger than the cumulative Overpayment, no corrective payments are
required to be made to Plan H as a result of the Overpayment.
Example 28:
Plan G is a multiemployer plan with a calendar-year plan year. In March, 2021, the enrolled
actuary certifies that Plan G is not in critical, critical and declining, or endangered status in accordance
with the rules of § 432. In June, 2021, the Plan Administrator discovers that for 12 months, Participant T
had been receiving a benefit of $1,000 per month (which is under the limit in § 415(b)) instead of the $900
per month benefit provided under the terms of the plan.
Correction:
The Plan Sponsor reduces Participant T’s benefit to the corrected amount of $900 per month
effective July 1, 2021. The Plan Sponsor uses the funding exception correction method to correct the
Overpayments. Under this correction method, because the most recent certification by Plan G’s actuary
states that Plan G is not in critical, critical and declining, or endangered status, no corrective payment is
required for Plan G as a result of the Overpayment.

.06 § 401(a)(17) Failures. (1) Reduction of Account Balance Correction Method.
The allocation of contributions or forfeitures under a defined contribution plan for a plan
year on the basis of compensation in excess of the limit under § 401(a)(17) for the plan
year may be corrected using the reduction of account balance correction method set
forth in section 6.06(2) of this revenue procedure.
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(2) Example.
Example 29:
Employer J maintains a money purchase pension plan. Under the plan, an eligible employee is
entitled to an employer contribution of 8% of the employee's compensation up to the § 401(a)(17) limit
($220,000 for 2006). During the 2006 plan year, an eligible employee, Employee W, inadvertently was
credited with a contribution based on compensation above the § 401(a)(17) limit. Employee W's
compensation for 2006 was $250,000. Employee W received a contribution of $20,000 for 2006 (8% of
$250,000), rather than the contribution of $17,600 (8% of $220,000) provided by the plan for that year,
resulting in an improper allocation of $2,400.
Correction:
The § 401(a)(17) failure is corrected using the reduction of account balance method by reducing
Employee W's account balance by $2,400 (adjusted for Earnings) and crediting that amount to an
unallocated account, as described in section 6.06(2) of this revenue procedure, to be used to reduce
employer contributions in succeeding year(s).

.07 Correction by Amendment. (1) Section 401(a)(17) Failures. (a) Contribution
Correction Method. In addition to the reduction of account balance correction method
under section 6.06(2) of this revenue procedure, a Plan Sponsor may correct a
§ 401(a)(17) failure for a plan year under a defined contribution plan by using the
contribution correction method set forth in this paragraph. The Plan Sponsor
contributes an additional amount on behalf of each of the other employees (excluding
each employee for whom there was a § 401(a)(17) failure) who received an allocation
for the year of the failure, and amends the plan (as necessary) to provide for the
additional allocation. The amount contributed for an employee is equal to the
employee's plan compensation for the year of the failure multiplied by a fraction, the
numerator of which is the improperly allocated amount made on behalf of the employee
with the largest improperly allocated amount, and the denominator of which is the limit
under § 401(a)(17) applicable to the year of the failure. The resulting additional amount
for each of the other employees is adjusted for Earnings. (See Example 30.)
(b) Example.
Example 30:
The facts are the same as in Example 29.
Correction:
Employer J corrects the failure under VCP using the contribution correction method by (1)
amending the plan to increase the contribution percentage for all eligible employees (other than
Employee W) for the 2003 plan year and (2) contributing an additional amount (adjusted for Earnings) for
those employees for that plan year. To determine the increase in the plan's contribution percentage (and
the additional amount contributed on behalf of each eligible employee), the improperly allocated amount

Page 130 of 140

($2,400) is divided by the § 401(a)(17) limit for 2006 ($220,000). Accordingly, the plan is amended to
increase the contribution percentage by 1.09 percentage points ($2,400/$220,000) from 8% to 9.09%. In
addition, each eligible employee for the 2006 plan year (other than Employee W) receives an additional
contribution of 1.09% multiplied by that employee's plan compensation for 2006. This additional
contribution is adjusted for Earnings.

(2) Hardship Distribution Failures. (a) Plan Amendment Correction Method. The
Operational Failure of making hardship distributions to employees under a plan that
does not provide for hardship distributions may be corrected using the plan amendment
correction method set forth in this paragraph. The plan is amended retroactively to
provide for the hardship distributions that were made available. This paragraph does
not apply unless (i) the amendment satisfies § 401(a), and (ii) the plan as amended
would have satisfied the qualification requirements of § 401(a) (including the
requirements applicable to hardship distributions under § 401(k), if applicable) had the
amendment been adopted when hardship distributions were first made available. (See
Example 31.)
(b) Example.
Example 31:
Employer K, a for-profit corporation, maintains a § 401(k) plan. Although plan provisions in 2005
did not provide for hardship distributions, beginning in 2005 hardship distributions of amounts allowed to
be distributed under § 401(k) were made currently and effectively available to all employees (within the
meaning of §1.401(a)(4)-4). The standard used to determine hardship satisfied the deemed hardship
distribution standards in §1.401(k)-1(d). Hardship distributions were made to a number of employees
during the 2005 and 2006 plan years, creating an Operational Failure. The failure was discovered in
2007.
Correction:
Employer K corrects the failure under VCP by adopting a plan amendment in 2007, effective
January 1, 2005, to provide a hardship distribution option that satisfies the rules applicable to hardship
distributions in §1.401(k)-1(d). The amendment provides that the hardship distribution option is available
to all employees. Thus, the amendment satisfies § 401(a), and the plan as amended in 2007 would have
satisfied § 401(a) (including §1.401(a)(4)-4 and the requirements applicable to hardship distributions
under § 401(k)) if the amendment had been adopted in 2005.

(3) Plan Loan Failures. Plan Amendment Correction Method. The Operational
Failure of (i) permitting plan loans to employees under a plan that does not provide for
plan loans, or (ii) permitting a participant to obtain a number of loans that exceeds the
number of loans permitted under the terms of the plan, may be corrected using the plan
amendment correction method set forth in this paragraph. The plan is amended
retroactively to provide for the plan loans that were made available. This paragraph
does not apply unless (i) the amendment satisfies § 401(a), (ii) the plan as amended
would have satisfied the qualification requirements of § 401(a) (and the requirements
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applicable to plan loans under § 72(p)) had the amendment been adopted when plan
loans were first made available, and (iii) plan loans (including plan loans in excess of
the number permitted under the terms of the plan) were available to either all
participants, or solely to one or more participants who were nonhighly compensated
employees.
(4) Early Inclusion of Otherwise Eligible Employee Failure. (a) Plan Amendment
Correction Method. The Operational Failure of including an otherwise eligible employee
in the plan who either (i) has not completed the plan’s minimum age or service
requirements, or (ii) has completed the plan’s minimum age or service requirements but
became a participant in the plan on a date earlier than the applicable plan entry date,
may be corrected by using the plan amendment correction method set forth in this
paragraph. The plan is amended retroactively to change the eligibility or entry date
provisions to provide for the inclusion of the ineligible employee to reflect the plan’s
actual operations. The amendment may change the eligibility or entry date provisions
with respect to only those ineligible employees that were wrongly included, and only to
those ineligible employees, provided (i) the amendment satisfies § 401(a) at the time it
is adopted, (ii) the amendment would have satisfied § 401(a) had the amendment been
adopted at the earlier time when it is effective, and (iii) the employees affected by the
amendment are predominantly nonhighly compensated employees. For a defined
benefit plan, a contribution may have to be made to the plan for a correction that is
accomplished through a plan amendment if the plan is subject to the requirements of
§ 436(c) at the time of the amendment, as described in section 6.02(4)(e)(ii).
(b) Example.
Example 32:
Employer L maintains a § 401(k) plan applicable to all of its employees who have at least six
months of service. The plan is a calendar year plan. The plan provides that Employer L will make
matching contributions based upon an employee’s salary reduction contributions. In 2007, it is
discovered that all four employees who were hired by Employer L in 2006 were permitted to make salary
reduction contributions to the plan effective with the first weekly paycheck after they were employed.
Three of the four employees are nonhighly compensated. Employer L matched these employees’ salary
reduction contributions in accordance with the plan’s matching contribution formula. Employer L
calculates the ADP and ACP tests for 2006 (taking into account the salary reduction and matching
contributions that were made for these employees) and determines that the tests were satisfied.
Correction:
Employer L corrects the failure under SCP by adopting a plan amendment, effective for
employees hired on or after January 1, 2006, to provide that there is no service eligibility requirement
under the plan.

Page 132 of 140

SECTION 3. EARNINGS ADJUSTMENT METHODS AND EXAMPLES
.01 Earnings Adjustment Methods. (1) In general. (a) Under section 6.02(4)(a)
of this revenue procedure, whenever the appropriate correction method for an
Operational Failure in a defined contribution plan includes a corrective contribution or
allocation that increases one or more employees' account balances (now or in the
future), the contribution or allocation is adjusted for Earnings and forfeitures. This
section 3 provides Earnings adjustment methods (but not forfeiture adjustment
methods) that may be used by a Plan Sponsor to adjust a corrective contribution or
allocation for Earnings in a defined contribution plan. Consequently, these Earnings
adjustment methods may be used to determine the Earnings adjustments for corrective
contributions or allocations made under the correction methods in section 2 and under
the correction methods in Appendix A. If an Earnings adjustment method in this section
3 is used to adjust a corrective contribution or allocation, that adjustment is treated as
satisfying the Earnings adjustment requirement of section 6.02(4)(a) of this revenue
procedure. Other Earnings adjustment methods, different from those illustrated in this
section 3, may also be appropriate for adjusting corrective contributions or allocations to
reflect Earnings.
(b) Under the Earnings adjustment methods of this section 3, a corrective
contribution or allocation that increases an employee's account balance is adjusted to
reflect an “earnings amount” that is based on the Earnings rate(s) (determined under
section 3.01(3)) for the period of the failure (determined under section 3.01(2)). The
Earnings amount is allocated in accordance with section 3.01(4).
(c) The rule in section 6.02(5)(a) of this revenue procedure permitting reasonable
estimates in certain circumstances applies for purposes of this section 3. For this
purpose, a determination of Earnings made in accordance with the rules of
administrative convenience set forth in this section 3 is treated as a precise
determination of Earnings. Thus, if the probable difference between an approximate
determination of Earnings and a determination of Earnings under this section 3 is
insignificant and the administrative cost of a precise determination would significantly
exceed the probable difference, reasonable estimates may be used in calculating the
appropriate Earnings.
(d) This section 3 does not apply to corrective distributions or corrective
reductions in account balances. Thus, for example, while this section 3 applies in
increasing the account balance of an improperly excluded employee to correct the
exclusion of the employee under the reallocation correction method described in section
2.02(2)(a)(iii)(B), this section 3 does not apply in reducing the account balances of other
employees under the reallocation correction method. (See section 2.02(2)(a)(iii)(C) for
rules that apply to the Earnings adjustments for such reductions.) In addition, this
Page 133 of 140

section 3 does not apply in determining Earnings adjustments under the one-to-one
correction method described in section 2.01(1)(b)(iii).
(2) Period of the Failure. (a) General Rule. For purposes of this section 3, the
“period of the failure” is the period from the date that the failure began through the date
of correction. For example, in the case of an improper forfeiture of an employee's
account balance, the beginning of the period of the failure is the date as of which the
account balance was improperly reduced. See section 6.02(4)(f) of this revenue
procedure.
(b) Rules for Beginning Date for Exclusion of Eligible Employees from Plan. (i)
General Rule. In the case of an exclusion of an eligible employee from a plan
contribution, the beginning of the period of the failure is the date on which contributions
of the same type (for example, elective deferrals, matching contributions, or
discretionary nonelective employer contributions) were made for other employees for
the year of the failure. In the case of an exclusion of an eligible employee from an
allocation of a forfeiture, the beginning of the period of the failure is the date on which
forfeitures were allocated to other employees for the year of the failure.
(ii) Exclusion from a § 401(k) or (m) Plan. For administrative convenience, for
purposes of calculating the Earnings rate for corrective contributions for a plan year (or
the portion of the plan year) during which an employee was improperly excluded from
making periodic elective deferrals or after-tax employee contributions, or from receiving
periodic matching contributions, the Plan Sponsor may treat the date on which the
contributions would have been made as the midpoint of the plan year (or the midpoint of
the portion of the plan year) for which the failure occurred. Alternatively, in this case,
the Plan Sponsor may treat the date on which the contributions would have been made
as the first date of the plan year (or the portion of the plan year) during which an
employee was excluded, provided that the Earnings rate used is one half of the
Earnings rate applicable under section 3.01(3) for the plan year (or the portion of the
plan year) for which the failure occurred.
(3) Earnings Rate. (a) General Rule. For purposes of this section 3, the
Earnings rate generally is based on the investment results that would have applied to
the corrective contribution or allocation if the failure had not occurred.
(b) Multiple Investment Funds. If a plan permits employees to direct the
investment of account balances into more than one investment fund, the Earnings rate
is based on the rate applicable to the employee's investment choices for the period of
the failure. For administrative convenience, if most of the employees for whom the
corrective contribution or allocation is made are nonhighly compensated employees, the
rate of return of the fund with the highest rate of return under the plan for the period of
Page 134 of 140

the failure may be used to determine the Earnings rate for all corrective contributions or
allocations. If the employee had not made any applicable investment choices, the
Earnings rate may be based on the rate of return under the plan as a whole (that is, the
average of the rates earned by all of the funds in the valuation periods during the period
of the failure weighted by the portion of the plan assets invested in the various funds
during the period of the failure).
(c) Other Simplifying Assumptions. For administrative convenience, the Earnings
rate applicable to the corrective contribution or allocation for a valuation period with
respect to any investment fund may be assumed to be the actual Earnings rate for the
plan's investments in that fund during that valuation period. For example, the Earnings
rate may be determined without regard to any special investment provisions that vary
according to the size of the fund. Further, the Earnings rate applicable to the corrective
contribution or allocation for a portion of a valuation period may be a pro rata portion of
the Earnings rate for the entire valuation period, unless the application of this rule would
result in either a significant understatement or overstatement of the actual Earnings
during that portion of the valuation period.
(4) Allocation Methods. (a) In General. For purposes of this section 3, the
Earnings amount generally may be allocated in accordance with any of the methods set
forth in this paragraph (4). The methods under paragraph (4)(c), (d), and (e) are
intended to be particularly helpful where corrective contributions are made at dates
between the plan's valuation dates.
(b) Plan Allocation Method. Under the plan allocation method, the Earnings
amount is allocated to account balances under the plan in accordance with the plan's
method for allocating Earnings as if the failure had not occurred. (See Example 33.)
(c) Specific Employee Allocation Method. Under the specific employee allocation
method, the entire Earnings amount is allocated solely to the account balance of the
employee on whose behalf the corrective contribution or allocation is made (regardless
of whether the plan's allocation method would have allocated the Earnings solely to that
employee). In determining the allocation of plan Earnings for the valuation period
during which the corrective contribution or allocation is made, the corrective contribution
or allocation (including the Earnings amount) is treated in the same manner as any
other contribution under the plan on behalf of the employee during that valuation period.
Alternatively, where the plan's allocation method does not allocate plan Earnings for a
valuation period to a contribution made during that valuation period, plan Earnings for
the valuation period during which the corrective contribution or allocation is made may
be allocated as if that employee's account balance had been increased as of the last
day of the prior valuation period by the corrective contribution or allocation, including
only that portion of the Earnings amount attributable to Earnings through the last day of
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the prior valuation period. The employee's account balance is then further increased as
of the last day of the valuation period during which the corrective contribution or
allocation is made by that portion of the Earnings amount attributable to Earnings after
the last day of the prior valuation period. (See Example 34.)
(d) Bifurcated Allocation Method. Under the bifurcated allocation method, the
entire Earnings amount for the valuation periods ending before the date the corrective
contribution or allocation is made is allocated solely to the account balance of the
employee on whose behalf the corrective contribution or allocation is made. The
Earnings amount for the valuation period during which the corrective contribution or
allocation is made is allocated in accordance with the plan's method for allocating other
Earnings for that valuation period in accordance with section 3.01(4)(b). (See Example
35.)
(e) Current Period Allocation Method. Under the current period allocation
method, the portion of the Earnings amount attributable to the valuation period during
which the period of the failure begins (“first partial valuation period”) is allocated in the
same manner as Earnings for the valuation period during which the corrective
contribution or allocation is made in accordance with section 3.01(4)(b). The Earnings
for the subsequent full valuation periods ending before the beginning of the valuation
period during which the corrective contribution or allocation is made are allocated solely
to the employee for whom the required contribution should have been made. The
Earnings amount for the valuation period during which the corrective contribution or
allocation is made (“second partial valuation period”) is allocated in accordance with the
plan's method for allocating other Earnings for that valuation period in accordance with
section 3.01(4)(b). (See Example 36.)
.02 Examples.
Example 33:
Employer L maintains a profit-sharing plan that provides only for nonelective contributions. The
plan has a single investment fund. Under the plan, assets are valued annually (the last day of the plan
year) and Earnings for the year are allocated in proportion to account balances as of the last day of the
prior year, after reduction for distributions during the current year but without regard to contributions
received during the current year (the “prior year account balance”). Plan contributions for 1997 were
made on March 31, 1998. On April 20, 2000, Employer L determines that an operational failure occurred
for 1997 because Employee X was improperly excluded from the plan. Employer L decides to correct the
failure by using the Appendix A correction method for the exclusion of an eligible employee from
nonelective contributions in a profit-sharing plan. Under this method, Employer L determines that this
failure is corrected by making a contribution on behalf of Employee X of $5,000 (adjusted for Earnings).
The Earnings rate under the plan for 1998 was +20%. The Earnings rate under the plan for 1999 was
+10%. On May 15, 2000, when Employer L determines that a contribution to correct for the failure will be
made on June 1, 2000, a reasonable estimate of the Earnings rate under the plan from January 1, 2000
to June 1, 2000 is +12%.

Page 136 of 140

Earnings Adjustment on the Corrective Contribution:
The $5,000 corrective contribution on behalf of Employee X is adjusted to reflect an earnings amount
based on the Earnings rates for the period of the failure (March 31, 1998 through June 1, 2000) and the
earnings amount is allocated using the plan allocation method. Employer L determines that a pro rata
simplifying assumption may be used to determine the Earnings rate for the period from March 31, 1998 to
December 31, 1998, because that rate does not significantly understate or overstate the actual
investment return for that period. Accordingly, Employer L determines that the Earnings rate for that
period is 15% (9/12 of the plan's 20% Earnings rate for the year). Thus, applicable Earnings rates under
the plan during the period of the failure are:
Time Periods
3/31/98 - 12/31/98 (First Partial Valuation Period)
1/1/99 - 12/31/99
1/1/00 - 6/1/00 (Second Partial Valuation Period)

Earnings Rate
+15%
+10%
+12%

If the $5,000 corrective contribution had been contributed for Employee X on March 31, 1998, (1)
Earnings for 1998 would have been increased by the amount of the Earnings on the additional $5,000
contribution from March 31, 1998 through December 31, 1998 and would have been allocated as 1998
Earnings in proportion to the prior year (December 31, 1997) account balances, (2) Employee X's account
balance as of December 31, 1998 would have been increased by the additional $5,000 contribution, (3)
Earnings for 1999 would have been increased by the 1999 Earnings on the additional $5,000 contribution
(including 1998 Earnings thereon) allocated in proportion to the prior year (December 31, 1998) account
balances along with other 1999 Earnings, and (4) Earnings for 2000 would have been increased by the
Earnings on the additional $5,000 (including 1998 and 1999 Earnings thereon) from January 1 to June 1,
2000 and would be allocated in proportion to the prior year (December 31, 1999) account balances along
with other 2000 Earnings. Accordingly, the $5,000 corrective contribution is adjusted to reflect an
Earnings amount of $2,084 ($5,000[(1.15)(1.10)(1.12)-1]) and the earnings amount is allocated to the
account balances under the plan allocation method as follows:
(a) Each account balance that shared in the allocation of Earnings for 1998 is increased, as of
December 31, 1998, by its appropriate share of the Earnings amount for 1998, $750 ($5,000(.15)).
(b) Employee X's account balance is increased, as of December 31, 1998, by $5,000.
(c) The resulting December 31, 1998 account balances will share in the 1999 Earnings, including
the $575 for 1999 Earnings included in the corrective contribution ($5,750(.10)), to determine the account
balances as of December 31, 1999. However, each account balance other than Employee X's account
balance has already shared in the 1999 Earnings, excluding the $575. Accordingly, Employee X's
account balance as of December 31, 1999 will include $500 of the 1999 portion of the earnings amount
based on the $5,000 corrective contribution allocated to Employee X's account balance as of December
31, 1998 ($5,000(.10)). Then each account balance that originally shared in the allocation of Earnings for
1999 (that is, excluding the $5,500 additions to Employee X's account balance) is increased by its
appropriate share of the remaining 1999 portion of the earnings amount, $75.
(d) The resulting December 31, 1999 account balances (including the $5,500 additions to
Employee X's account balance) will share in the 2000 portion of the earnings amount based on the
estimated January 1, 2000 to June 1, 2000 Earnings included in the corrective contribution equal to $759
($6,325(.12)). (See Table 1.)

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TABLE 1
CALCULATION AND ALLOCATION OF THE
CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS
Earnings Rate
Amount
Allocated to
Corrective
Contribution
First Partial Valuation
Period Earnings
1999 Earnings

Second Partial
Valuation Period
Earnings

$5,000

Employee X

15%

$7501

10%

$5752

12%

$7593

All 12/31/1997
Account Balances4
Employee X ($500)/
All 12/31/1998
Account Balances
($75)4
All 12/31/1999
Account Balances
(including Employee
X's $5,500)4

Total Amount
Contributed
1$5,000

$7,084

x 15%

2$5,750($5,000

+$750) x 10%
+$750 + $575) x 12%
4 After reduction for distributions during the year for which Earnings are being determined but without
regard to contributions received during the year for which Earnings are being determined.
3$6,325($5,000

Example 34:
The facts are the same as in Example 33.
Earnings Adjustment on the Corrective Contribution:
The earnings amount on the corrective contribution is the same as in Example 33, but the
earnings amount is allocated using the specific employee allocation method. Thus, the entire earnings
amount for all periods through June 1, 2000 (that is, $750 for March 31, 1998 to December 31, 1998,
$575 for 1999, and $759 for January 1, 2000 to June 1, 2000) is allocated to Employee X. Accordingly,
Employer L makes a contribution on June 1, 2000 to the plan of $7,084 ($5,000(1.15)(1.10)(1.12)).
Employee X's account balance as of December 31, 2000 is increased by $7,084. Alternatively, Employee
X's account balance as of December 31, 1999 is increased by $6,325 ($5,000(1.15)(1.10)), which shares
in the allocation of Earnings for 2000, and Employee X's account balance as of December 31, 2000 is
increased by the remaining $759. (See Table 2.)

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TABLE 2
CALCULATION AND ALLOCATION OF THE
CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS
Earnings Rate
Amount
Allocated to:
Corrective Contribution
$5,000
Employee X
First Partial Valuation Period 15%
$7501
Employee X
Earnings
1999 Earnings
10%
$5752
Employee X
Second Partial Valuation
12%
$7593
Employee X
Period Earnings
Total Amount Contributed
$7,084
1$5,000

x 15%

2$5,750($5,000
3$6,325($5,000

+$750) x 10%
+$750 + $575) x 12%

Example 35:
The facts are the same as in Example 33.
Earnings Adjustment on the Corrective Contribution:
The earnings amount on the corrective contribution is the same as in Example 33, but the
earnings amount is allocated using the bifurcated allocation method. Thus, the Earnings for the first
partial valuation period (March 31, 1998 to December 31, 1998) and the Earnings for 1999 are allocated
to Employee X. Accordingly, Employer L makes a contribution on June 1, 2000 to the plan of $7,084
($5,000(1.15)(1.10)(1.12)). Employee X's account balance as of December 31, 1999 is increased by
$6,325 ($5,000(1.15)(1.10)); and the December 31, 1999 account balances of employees (including
Employee X's increased account balance) will share in estimated January 1, 2000 to June 1, 2000
Earnings on the corrective contribution equal to $759 ($6,325(.12)). (See, Table 3.)
TABLE 3
CALCULATION AND ALLOCATION OF THE
CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS
Earnings Rate
Amount
Allocated to:
Corrective Contribution
$5,000
Employee X
First Partial Valuation Period 15%
$7501
Employee X
Earnings
1999 Earnings
10%
$5752
Employee X
Second Partial Valuation
12%
$7593
12/31/99 Account Balances
Period Earnings
(including Employee X's
$6,325)4
Total Amount Contributed
$7,084
1$5,000

x 15%

2$5,750($5,000

+ $750) x 10%

Page 139 of 140

3$6,325($5,000

+$750 +$575) x 12%
reduction for distributions during the 2000 year but without regard to contributions received during
the 2000 year.
.
Example 36:
4After

The facts are the same as in Example 33.
Earnings Adjustment on the Corrective Contribution:
The earnings amount on the corrective contribution is the same as in Example 33, but the
earnings amount is allocated using the current period allocation method. Thus, the Earnings for the first
partial valuation period (March 31, 1998 to December 31, 1998) are allocated as 2000 Earnings.
Accordingly, Employer L makes a contribution on June 1, 2000 to the plan of $7,084 ($5,000
(1.15)(1.10)(1.12)). Employee X's account balance as of December 31, 1999 is increased by the sum of
$5,500 ($5,000(1.10)) and the remaining 1999 Earnings on the corrective contribution equal to $75
($5,000(.15)(.10)). Further, both (1) the estimated March 31, 1998 to December 31, 1998 Earnings on
the corrective contribution equal to $750 ($5,000(.15)) and (2) the estimated January 1, 2000 to June 1,
2000 Earnings on the corrective contribution equal to $759 ($6,325(.12)) are treated in the same manner
as 2000 Earnings by allocating these amounts to the December 31, 2000 account balances of employees
in proportion to account balances as of December 31, 1999 (including Employee X's increased account
balance). (See, Table 4.) Thus, Employee X is allocated the Earnings for the full valuation period during
the period of the failure.
TABLE 4
CALCULATION AND ALLOCATION OF THE
CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS
Earnings Rate
Amount
Allocated to:
Corrective Contribution
$5,000
Employee X
First Partial Valuation Period 15%
$7501
12/31/99 Account
Earnings
Balances (including
Employee X's $5,575)4
1999 Earnings
10%
$5752
Employee X
Second Partial Valuation
12%
$7593
12/31/99 Account Balances
Period Earnings
(including Employee X's
$5,575)4
Total Amount Contributed
$7,084
1$5,000

x 15%
($5,000 +$750) x 10%
3$6,325 ($5,000 +$750 +$575) x 12%
4After reduction for distributions during the year for which Earnings are being determined but without
regard to contributions received during the year for which Earnings are being determined.
2$5,750

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