Overpayment Correction Options
Previously, pension plan sponsors had no choice but to ask overpayment recipients to repay any excess annuity amounts received. As of July 16, 2021, sponsors of defined benefit plans have two additional correction methods available to correct operational deficiencies resulting from overpayments:
1. Method of correcting funding exceptions. Defined benefit plans subject to the funding limits in Section 436 of the Internal Revenue Code are not required to make corrective payments as long as the percentage of meeting the plan’s adjusted funding goal is equal to minus 100% (or, in the case of a multiemployer plan, the plan’s most recent annual funding certificate indicates that the plan is not in critical, critical and declining condition, or endangered ). Any future benefit payment to a member or beneficiary who has received an overpayment must still be reduced to the correct benefit payment amount.
2. Contribution credit correction method. Overpayments to be returned to the plan are reduced by a âcontribution creditâ equal to (i) the amount of the increase in the minimum funding requirement of the plan due to the overpayment and (ii) to certain employer contributions that exceed minimum funding requirements paid. to the plan after payment of the overpayment. If any overpayments remain after the application of the contribution credit, the plan sponsor or another party must reimburse the plan for the remainder of the overpayment. If there are no overpayments left after the application of the contribution credit, no corrective payment to the plan is required.
Extending autocorrection of significant operational failures
As of July 16, 2021, the self-correction period for material deficiencies in operational documents and the plan has been extended until the last day of the third plan year following the plan year for which the failure occurred. . Previously, the auto-correction period was only until the last day of the second plan year following the plan year for which the failure occurred.
Expansion of autocorrection for retroactive plan changes
Previously, self-correction by plan amendment required that any plan amendment increasing a benefit, entitlement or characteristic apply to all members eligible to participate in the plan. As of July 16, 2021, an increase in a benefit, entitlement or feature resulting from a corrective plan amendment need not apply to all members eligible to participate in the plan.
Eliminate anonymous VCP submissions, add anonymous pre-submission conferences
Currently, plan sponsors can make anonymous submissions to the VCP in which the plan, plan sponsor or qualifying organization is not initially identified. Effective January 1, 2022, the anonymous submission process will be phased out, but the IRS will allow plan sponsors to make an anonymous written request for a free pre-submission conference to discuss a potential VCP submission.
Extended Safe Harbor Correction for Automatic Contribution Failures
The EPCRS previously implemented a safe harbor correction method for certain optional carry-forward failures related to automatic contribution features in an Internal Revenue Code Section 401 (k) or 403 (b) plan. If a failure to implement an automatic contribution feature or a failure to implement an affirmative choice by an employee subject to an automatic assessment feature does not last beyond 9Â½ months after the at the end of the plan year in which the failure occurred, no corrective contribution is required under the Safe Harbor if certain conditions are met. The Safe Harbor which was to end on December 31, 2020 has been extended to failures that occur on or before December 31, 2023.
Threshold increased for of Minimis Correction amounts
As of July 16, 2021, the threshold for certain of minimizes the amounts for which a plan sponsor is not required to implement a correction is reduced from $ 100 to $ 250.