Latest IRS Correction Fees & What They Mean for Plans

ERISA law is complex causing even the best-intentioned retirement plan sponsors to make mistakes. The Department of Labor (DOL) estimates that three out of four plans are out of compliance with ERISA, and these violations can lead to significant fines.[1] Because audits are timely and expensive, the IRS devised a system for plan sponsors to acknowledge and correct their mistakes on their own initiative. The Voluntary Correction Program (VCP) allows plan sponsors to save both time and money by correcting plan failures on their own without being audited.

IRS Correction Fees in the Past

The IRS created the VCP to encourage voluntary compliance and make their own jobs easier. They made it appealing to plan sponsors by charging fees much lower than potential sanctions resulting from audit findings. The fees started at $750 for plans with 20 or fewer participants and went all the way up to $25,000 for plans with 10,000 or more participants. For small plans with 100 or fewer participants, the maximum fee was $2,500.

In 2015, the IRS made voluntary correction even more affordable. They even created a special fee schedule for the most common errors. For example, a plan could correct up to 13 plan loan errors for only $300 or a plan could correct failed participants’ required minimum distributions (RMD), as long as there were not more than 150 participants, and only be charged $500. While the special fee schedule was designed to help large plans with minimal errors, all plans benefited from it and voluntary correction became very appealing.

The IRS lowered VCP filing fees in 2016, to a range of $500 to $15,000. The only plans that did not see a reduction in fees were those with 101 to 500 participants. This made self-correction and compliance even more accessible and appealing to plan sponsors.

Latest Fee Update

In January of 2018, a new fee schedule was released which is still in effect as of today. Instead of being based on the number of participants in a plan, it is now based on plan assets. Here it is:

Plan Assets

VCP Fee

$500,000 or less

$1,500

Over $500,000 to $10,000,000

$3,000

Over $10,000,000

$3,500

The fees have been compressed so that the minimum fee has tripled and the maximum fee is less than a quarter of what it used to be. While this is great news for large retirement plans, it may be concerning for small plans. 

Additionally, the special schedule for loan and RMD failures has been eliminated in lieu of the schedule above. For example, if a plan with $500,000 in plan assets has a single loan failure, the correction fee has increased 1,000%, from $300 to $3,000.

How to Protect Your Small Plans from Fees

With a much higher barrier to self-correction, it is now more important than ever to do things right the first time around. However, staying on top of ERISA law and all the details that come with it can be very difficult for small companies that sponsor retirement plans. There is so much that a plan administrator needs to know and it is very easy to make mistakes.

How We Can Can Help

It is crucial for you to work with someone who can help you build and manage effective, successful retirement plans while mitigating your ERISA/DOL risk. A specialist who performs an annual compliance review helps keep your plan compliant and avoid expensive correction fees or fiduciary claims altogether.

Delegating fiduciary responsibilities can be a great solution for plan sponsors who lack time and the knowledge of ever-changing requirements to manage a retirement plan. At Stonebridge Financial Group, this is all we've done since our inception back in 2004! Our robust service offering starts with ERISA 3(21) and 3(38) services and is the tip of the iceberg. We are consultants that help you with every aspect of your plan:

  • Ensuring participant retirement readiness
  • 1:1 and group participant education and retirement readiness meetings
  • Financial wellness
  • Committee fiduciary training
  • Process creation and documentation
  • Plan design
  • Contribution match modeling
  • Annual plan compliance review
  • And so much more

We become your outsourced retirement plan officer who dives into the morass of retirement plan details and resolves issues so you don't have to!

Please click here to schedule a short call, give us a call at (855) 530-0500 x601 or email info@stonebridgefinancialgroup.com. We look forward to helping your committee successfully fulfill their fiduciary duties with ease and excellence!

[1]https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/retirement-plan-compliance-guide.aspx