Banner Image

Correcting Plan Errors: SCP vs. VCP

Posted by Wende Wadsworth, CPA on Jul 14, 2020 1:58:41 PM
Retirement 1

Despite your best efforts to remain compliant, operational errors are sometimes made in the administration of employee retirement plans. When errors occur, you generally have two main options for correcting them:

The Self-Correction Program (SCP): You can use this program to self-correct operational errors without contacting the IRS, submitting an application or paying a fee. SCP can correct any type of insignificant operational error that occurs with 401(k), 403(b), profit-sharing and other qualified plans, but not with SIMPLE IRAs or SEPs.

In certain circumstances, SCP can also be used to correct significant operational errors, such as to correct mistakes or failure of reasonable procedures that result in:

  • Failure to follow the plan document,
  • Exclusion of eligible participants,
  • Errors in calculating or remitting contributions
  • Loan failures

SCP can also correct significant errors if corrected before the end of the second plan year after the failure occurred or if you substantially correct the error.

The Voluntary Correction Program (VCP): This program can correct mistakes in plan document language or how a plan is being run. It requires you to mail a written submission to the IRS and pay a user fee. The IRS then reviews and approves your proposed correction methods.

Using VCP to correct plan errors preserves the plan’s qualification and tax-favored status by bringing it back into compliance with federal tax law. VCP might be preferable to SCP if you prefer to receive a written IRS compliance statement. Also, VCP provides certain federal income and excise tax relief that’s not available under SCP.

If an error occurs with a SIMPLE IRA or SEP, you’ll need to use VCP because SCP is not an option for these plans.

Topics: Audit & Assurance, Employee Benefit Plans

Learn more about the services Sweeney Conrad offers