Effective January 2, 2018, the Internal Revenue Service (“IRS”) has revised the structure of user fees for submissions in the Voluntary Compliance Program (“VCP”) under the Employee Plans Compliance Resolution System (“EPCRS”). The new fee structure is based on a plan’s total asset value and represents a significant departure from the historical methods the IRS used to assess VCP user fees. While the new structure will significantly lower the user fee for some applicants, it raises the fees for others (particularly small plans).
The VCP program allows sponsors of retirement plans to obtain IRS approval for the voluntary correction of plan errors that could jeopardize a plan’s tax-exempt status under the Internal Revenue Code. Traditionally, the IRS has assessed user fees for VCP submissions based on a plan’s total participant count and discounted submission fees were offered for certain types of streamlined submissions, such as corrections of loan or required minimum distribution (“RMD”) failures. For standard VCP submissions prior to this change, the minimum user fee (for plans with fewer than 21 participants) was $500 and the maximum fee (for plans with over 10,000 participants) was $15,000, while under the streamlined VCP procedures, the user fee could be as low as $300 for plans submitting to correct fewer than 14 participant loan failures.
The new procedures create a simplified fee structure based on total plan assets as follows:
Total Plan Assets User Fee
· $500,000 or less $1,500
· $500,001 to $10,000,000 $3,000
· Over $10,000,000 $3,500
In general, the user fees are determined based on the end of year net plan assets based on the most recently filed Form 5500. Specifically, the fee is calculated based on the entry in Schedule H line 1l(b), Schedule I line 1c(b), or Form 5500-SF line 7c(b). For plans not required to file a Form 5500 series return, the user fee is determined by the net plan assets as of the last day of the most recent plan year preceding the VCP filing; however, if such information has not yet been compiled and the submission is filed within the first seven months following the most recent plan year end the fees can be based on the most recently completed plan year in which information on the net plan assets is available. For SEP, SARSEP, and SIMPLE IRA plans, the user fee is based on the total value of the account balances for all participants associated with the plan.
As the IRS has eliminated the special fees for certain streamlined VCP submissions, the filing fee is now the same for any type of error. The new VCP fee schedule does not apply to group VCP submissions or to submissions for orphan or 457(b) plans.
Many larger plans will welcome these changes as they can reduce the VCP user fee from $15,000 to $3,500 (a decrease of over 75%); however, the change will negatively impact many smaller plans. Take, for example, a small 401(k) plan with 25 participants and $1,000,000 in net plan assets. A VCP submission filed on December 28, 2017 would have required a user fee of $750 (see Revenue Procedure 2017-4) while a submission filed on or after January 2, 2018 will require a user fee of $3,000 (a 400% increase). Small plans should consider the new fee schedule when determining the benefit of correcting plan errors under VCP. The self-correction program (“SCP”) under EPCRS is still available, with no user fee, to correct certain operational errors.
2018 Advanced Pension Conference – February 7-9 – Early Fee Expires on Jan. 12!
Plus, Just for ERPAs Workshop – February 6, 2018
Hard Rock Hotel® at Universal Orlando®.
Register by Jan 12, save $150: here.
Other Live Web Seminars
Fundamentals 12: Participant Loans, 01/9/2018 at 12:00 pm ET
Fundamentals 13: Distributions, 01/11 at 12:00 pm ET
Fundamentals 14: Fiduciary Requirements, 01/16 at 12:00 pm ET
Compensation: Distinctions with a Difference, 01/18 at 12:00 pm ET
Keeping Current 2017: The Year in Review, 01/23 at 12:00 pm ET
403(b) Plans for 401(k) Administrators: A 3-Part Program, 2/26-27-28 at 12:00 pm ET each day
403(b) Pre-Approved Plan Document Workshop: A 3-Part Program, 3/5-6-7 at 12:00 pm ET each day
For more details about these programs, and to register online: www.relius.net/events/events.aspx?Web.
Pensions on Peachtree – Atlanta, GA – April 23-24 2018 – Save the dates
Program details and online registration will be available in February 2018, here.