One of the biggest misconceptions I encounter is that finding an operational error means someone must have done a terrible job. That’s simply not true.
Retirement plans are governed by thousands of pages of statutes, regulations, IRS guidance, and plan-specific provisions. Even the best HR departments, payroll personnel, TPAs, recordkeepers, and advisors make mistakes from time to time.
What separates a well-run plan from a poorly run one isn’t whether mistakes occur. It’s how they’re handled once they’re discovered.
The IRS recognizes this reality, which is why it created the Employee Plans Compliance Resolution System (EPCRS). The correction program exists because the IRS understands that errors happen. The goal is to encourage plan sponsors to identify problems, correct them promptly, and preserve the tax-qualified status of the plan.
I’ve worked with clients who discovered missed deferrals, incorrect matching contributions, eligibility errors, and plan document failures years after they occurred. While no one enjoys finding these issues, almost every problem has a correction method if it’s addressed in a timely manner.
The worst response is denial. Hoping a mistake disappears rarely works. Ignoring an error often makes it more expensive and complicated to fix later. Addressing it immediately demonstrates good fiduciary governance and protects both the plan and its participants.
If your advisor, TPA, or ERISA attorney tells you that a correction is necessary, don’t view it as evidence that your plan has failed. View it as evidence that your compliance process is working. You found the problem before the IRS or the Department of Labor did.
Perfection isn’t the standard. Prudence is. A plan sponsor who promptly corrects mistakes and learns from them is usually in a much better position than one who assumes nothing could possibly be wrong.
