EPCRS Correction Programs: SCP, VCP, and Audit CAP

The IRS Employee Plans Compliance Resolution System gives retirement plan sponsors three ways to fix a mistake before it costs the plan its tax-qualified status. The EPCRS correction programs are the Self-Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (Audit CAP). Which one you use depends on how the error was found, how serious it is, and whether the plan is already under IRS examination.¹

The stakes justify the process. If a plan loses qualification, the trust’s investment earnings become taxable, the employer loses contribution deductions (potentially retroactively), participants can be taxed immediately on their balances, and rollovers stop being permitted. EPCRS exists to keep those consequences off the table.

Self-Correction Program

SCP is the cheapest and fastest route because there is no IRS filing, no user fee, and no waiting for approval. You identify the failure, correct it using a method consistent with IRS guidance, and document what happened. Eligibility hinges on two things: whether the plan had real compliance procedures in place before the error, and whether the failure is one the program actually covers.²

The Procedures Requirement

Self-correction is only available if the sponsor can show it had practices and procedures reasonably designed to keep the plan compliant. Formal or informal is fine, but they have to be routinely followed. A plan document sitting in a filing cabinet does not count. A checklist run each year to verify top-heavy status, or a written procedure for tracking eligibility dates, would.²

Insignificant Versus Significant Failures

Under the traditional SCP framework, an insignificant operational failure can be corrected at any time. A significant one had to be corrected by the last day of the third plan year after the year the failure occurred.³ The IRS decides which side of the line a failure sits on by looking at the percentage of assets and participants involved, how many plan years the error persisted, how quickly the sponsor corrected once it was found, the underlying cause, and whether other failures happened during the same period. No single factor controls, and affecting multiple participants does not automatically make a failure significant.²

The SECURE 2.0 Expansion

Section 305 of the SECURE 2.0 Act reshaped SCP. Any “eligible inadvertent failure” in a 401(a), 403(a), 403(b), SEP, or SIMPLE IRA plan can now be self-corrected on an indefinite timeline, as long as the sponsor acts within a reasonable time after discovery and the IRS has not already flagged the failure. A correction completed within 18 months of identifying the error is treated as reasonable.⁴

An eligible inadvertent failure is one that occurred despite the sponsor having practices and procedures reasonably designed to promote compliance. The expansion does not cover failures that are egregious, involve diversion or misuse of plan assets, or relate to abusive tax avoidance transactions.⁴

One boundary worth noting: IRA custodians cannot yet use SCP for IRA failures. The statute directs the IRS to extend EPCRS to IRAs, but custodians must wait for updated guidance.⁴

Plan Document Failures

Certain plan document failures in 401(a) and 403(b) plans can be self-corrected if the sponsor holds a current favorable determination or opinion letter and adopts the corrective amendment within the correction window. SCP still does not cover a failure to adopt an initial plan document, or demographic failures where the corrective amendment was not timely adopted.²

Voluntary Correction Program

VCP is the route when self-correction is not available or when you want written IRS assurance that the problem is fixed. It covers operational failures and plan document failures. The plan cannot be under examination when you file.⁵

Sponsors sometimes choose VCP even when SCP would technically work. Complex failures, uncertain correction methods, or a pending corporate transaction that demands documented compliance are all reasons to want the compliance statement VCP produces, which is essentially a letter from the IRS confirming the plan is back in good standing.

What You File

A VCP submission uses Form 8950 as the application,⁶ plus Form 14568 (the model compliance statement) and whichever of its nine schedules matches your failure type—for example, Schedule 5 (Form 14568-E) for plan loan failures, Schedule 8 (Form 14568-H) for late required minimum distributions, or Schedule 7 (Form 14568-G) for excess elective deferrals above the 402(g) limit.⁷ The package also needs a narrative explaining how the failure occurred, which internal controls broke down, and how any corrective distributions or contributions were calculated. If earnings were lost, the submission must include the earnings calculation.

Filing and Fees

Submissions go through Pay.gov, which is the only accepted channel.⁸ User fees run off net plan assets from the most recently filed Form 5500: $2,000 for plans with $500,000 or less in assets, $3,500 for plans over $500,000 through $10 million, and $4,000 for plans over $10 million. For SEPs, SARSEPs, and SIMPLE IRAs, plan assets are the combined value of all participants’ IRA balances associated with the plan.⁹

After submission and payment, Pay.gov generates a confirmation email with a tracking ID.¹⁰ The IRS reviews the filing, may ask for more information, and ultimately issues a compliance statement approving the correction.

The 150-Day Deadline

Once the compliance statement issues, you have 150 days to finish the corrective actions it describes. Miss the window and the statement becomes invalid, meaning a new submission and a new user fee. If more time is needed, request a written extension before day 150.¹¹

Anonymous Pre-Submission Conferences

Anonymous VCP submissions ended January 1, 2022. An authorized representative can still request an anonymous pre-submission conference to test a proposed correction approach with the IRS without identifying the plan.¹²

Audit Closing Agreement Program

Audit CAP is the route once the IRS is already looking. If failures surface during an active examination, SCP and VCP are off the table, and negotiating a closing agreement with the IRS is the sponsor’s only alternative to disqualification.¹³

The sponsor corrects the failures and pays a negotiated sanction. The IRS has stated the sanction should always exceed what would have been paid as a VCP user fee, but should also bear a reasonable relationship to the severity of the problem. Sanction size turns on whether internal controls existed, how many participants were affected (especially rank-and-file versus highly compensated), how long the failure ran, why it happened, and whether it involves demographics or employer eligibility.¹³ The sanction typically represents a fraction of the tax the government could have collected on disqualification. Sponsors who had reasonable procedures in place beforehand and who cooperate promptly during the exam tend to negotiate lower numbers.

Common Failures and Their Fixes

Most sponsors reach EPCRS with a specific problem. A handful come up repeatedly.

Missed Elective Deferrals

The most common EPCRS correction. An employer fails to offer an eligible employee the chance to make salary deferrals, or fails to withhold the deferrals the employee elected. The standard correction is a qualified nonelective contribution equal to 50% of the missed deferral, plus lost earnings, plus any missed matching contributions adjusted for earnings.

Failed ADP or ACP Testing

Failed nondiscrimination testing is treated as an operational failure. Depending on the circumstances and timing, the correction is either distributing excess contributions to highly compensated employees or making additional contributions for non-highly compensated employees.

Missed Required Minimum Distributions

When RMDs go out late, the correction distributes the missed amounts along with earnings calculated through the date of the corrective distribution. Schedule 8 (Form 14568-H) is the VCP schedule for this failure.⁷

Plan Loan Violations

Loans that exceed dollar limits or fail repayment term requirements were historically excluded from self-correction. Under the SECURE 2.0 expansion, they may now qualify for SCP if they meet the eligible inadvertent failure standard. Schedule 5 (Form 14568-E) covers loan failures on the VCP side.⁷

Calculating Lost Earnings

Nearly every correction that puts money back into a participant’s account requires an earnings adjustment. The idea is to make the participant whole, as though the error never happened.

For plans where participants direct their own investments, the primary method uses each affected participant’s actual rate of return during the period between when the failure occurred and when it is corrected. For plans without participant-directed accounts, use the plan’s overall rate of return for that period.

There are administrative shortcuts. When most affected participants are non-highly compensated employees, the sponsor can apply the rate of return of whichever plan fund performed best during the correction period to all corrective allocations, rather than tracing each individual’s investment elections. For automatic enrollment corrections where participants never made an affirmative choice, the default investment fund’s return can be used.

When a precise calculation is not feasible or would cost more than the difference it would produce, reasonable estimates are allowed. The interest rate from the Department of Labor’s Voluntary Fiduciary Correction Program online calculator counts as a reasonable rate. One detail that catches sponsors off guard: EPCRS does not require corrective allocations to be reduced for investment losses, though a sponsor may choose to apply losses.

Inadvertent Overpayments After SECURE 2.0

SECURE 2.0 changed the rules for inadvertent benefit overpayments. A plan will not lose qualified status just because it fails to recoup an overpayment from a participant or beneficiary. Recoupment is now permitted but generally not required.¹⁴

Exceptions remain. For defined benefit plans subject to funding-based benefit restrictions, if an overpayment occurred because those restrictions were violated, the plan sponsor or another party must make a corrective payment to the plan to the extent the amount is not recouped from the recipient. The same applies to overpayments that exceed the compensation cap or the annual benefit and contribution limits. Outside those situations, the prior rule requiring sponsors to make the plan whole for unrecouped overpayments no longer applies.¹⁴

1
Internal Revenue Service. EPCRS Overview
2
Internal Revenue Service. Self-Correction Program (SCP) FAQs
3
Internal Revenue Service. Correcting Plan Errors – Self-Correction Program (SCP) General Description
4
Internal Revenue Service. Notice 2023-43 – Guidance on Section 305 of the SECURE 2.0 Act
5
Internal Revenue Service. Voluntary Correction Program – General Description
6
Internal Revenue Service. About Form 8950
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Internal Revenue Service. Correcting Plan Errors Fill in VCP Submission Documents
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Pay.gov. Application for Voluntary Correction Program
9
Internal Revenue Service. Voluntary Correction Program (VCP) Fees
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Internal Revenue Service. VCP Submission Status
11
Internal Revenue Service. Voluntary Correction Program – Did You Complete Your Correction?
12
Internal Revenue Service. Anonymous VCP Submissions
13
Internal Revenue Service. Audit Closing Agreement Program (Audit CAP) – General Description
14
Internal Revenue Service. Notice 2024-77 – Guidance Under Sections 414(aa) and 402(c)(12)