Years ago, any volume submitter plan or non-standardized prototype plan would apply for its own determination letter from the Internal Revenue Service (IRS). Then one day, the IRS tried to cut back on their agent’s workload and said that line-by-line adopters of these types of plans didn’t need their own determination letter.
Just now, the IRS is telling us all that they are inundated by Voluntary Correction Program (VCP) applications. That is probably why they are expanding the Self-Correction Program. While the expansion of the SCP and the cut in VCP applications may affect my bottom line, there will be a cost for plan sponsors. The cost of that increased opportunities for self-correction will create larger penalties for those that don’t fix errors and let the IRS agent on an audit help fix things, with a larger hammer to penalize plan sponsors. I think the increase in Self Correction will also lead to programs from third-party administrators and ERISA attorneys like myself, to offer plan reviews, that might be a cost-effective tool to root out plan errors that can be corrected through SCP.
