The IRS issued new self-correction guidance with the release of Revenue Procedure 2021-30. The new guidance expands self-corrections of plan operational failures through plan amendments, extends the safe harbor correction method for missed deferrals for plans with automatic contribution features, and increases the de minimis threshold on when failures have to be corrected.
Period For Self-Correction
The period for self-correction for significant failures has been changed to the last day of the third plan year following the plan year the failure occurred. For example, if significant failure happened in April 2020 for a plan with a plan year end of December 31, the plan sponsor has until December 31, 2023 to self- correct the significant failure. After December 31, 2023, the plan sponsor would need to submit the correction to the IRS and pay a fee.
Plan Amendments to Self-Correct Operational Failures
Prior to this revenue procedure, plan amendments to correct operational failures were only allowed if the amendment increased the benefit, rights or features to all participants. This is no longer a requirement to amend a plan using self-correction to fix an operational failure.
De Minimis Threshold for Correction of Certain Transactions
The de minimis threshold to correct the following transactions has increased from $100 to $250.
1) Overpayment of funds distributed to a participant or beneficiary.
2) Excess amounts allocated to participants above plan and statutory limits. However, amounts above statutory limits, including investment returns, are not eligible for favorable tax treatment.
Safe Harbor Correction for Certain Missed Elective Deferrals
The safe harbor correction for plans that have automatic contribution features has been extended until December 31, 2023. Under safe harbor correction, plan sponsors will not need to make a QNEC for missed deferrals if the following criteria is met.
Overpayment Corrections for Defined Benefit Plans
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