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A retirement plan helps you and your employees save money for retirement. obÌåÓýever, plan errors can jeopardize your plan¡¯s tax-favored status. Here are a few things you should know:

1. obÌåÓý do plan errors happen?
2. Why should I correct plan errors?
3. obÌåÓý can I correct plan errors?
4. Are there any resources to help me correct plan errors?

obÌåÓý do plan errors happen?

Despite your best intentions, different plan errors may happen. For example:

• You don¡¯t allow eligible employees to participate in the plan on time.
• You don¡¯t use the correct plan definition of compensation for certain plan operations (for example, contributions and nondiscrimination testing).
• You miss the deadline to amend your written plan document for tax law changes.
• A plan loan to a participant goes into default and you did not issue a Form 1099-R to report the deemed distribution.

To reduce the likelihood of plan errors, your plan should have internal controls.

Why should I correct plan errors?

Correct plan errors so that you and your employees can continue to receive the tax benefits of having a qualified retirement plan, including:

• Your deduction (up to certain limits) for plan contributions
• Your employees' tax deferral of their pre-tax contributions and earnings until distribution

See Tax Consequences of Plan Disqualification for additional information.

obÌåÓý can I correct plan errors?

Generally, there are two ways you can correct plan errors if your plan isn¡¯t being audited and you¡¯ve discovered the error on your own.

1. Use the Self-Correction Program without paying any fee or notifying the IRS if:
   • your plan has sufficient compliance practices and procedures to avoid errors, and
   • the plan errors are insignificant operational mistakes, or significant operational mistakes or  that you correct within an IRS-specified timeframe.
      
2. For failures fixed after April 19, 2019, SCP was expanded to permit:
   • The self-correction of certain plan document failures,
   • Correction options and possible relief from deemed distributions associated with certain, specified failures involving plan loans made to plan participants, and
   • Additional opportunities for correcting certain operational failures by plan amendment
      
3. For any errors you can¡¯t or don¡¯t wish to correct under the Self-Correction Program, you can use the Voluntary Correction Program.
   • correct qualification failures (errors that affect your plan¡¯s tax-favored status) with IRS approval, and
   • pay a user fee generally based on the amount of assets that are in the plan.

Are there any resources to help me correct plan errors?

You can use the Fix-It Guides to help you find, fix and avoid common mistakes in the following plan types:

• 401(k)
• 403(b)
• SARSEP
• SEP
• SIMPLE IRA

Related

• Revenue Procedure 2021-30
• Expanded Self Correction Program - EPCRS Rev. Proc. 2019-19
• Fixing Common Plan Mistakes - articles that describe how to spot problems in your plan and correct mistakes.
• A Guide to Common Qualified Plan Requirements - list of some important plan requirements to help you apply practices, procedures and internal controls to monitor your plan operations.