Presented by:

Sal Tripodi

TRI Pension Services

EPCRS Update

EPCRS� Definition of Elective Deferral Failure (p.12)

� Failure to implement a deferral election, including an affirmative election made by an EE who otherwise is subject to auto-enrollment or auto-escalation� Failure to timely or properly enroll EE who is subject to auto-enrollment� Failure to timely or properly implement auto-escalation� Failure to give EE an opportunity to make an affirmative election because EE was improperly excluded

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EPCRS� New Correction Method #1: correcting auto-enrollment/auto-escalation failures (p.12)

� Failure must not extend beyond 9-1/2 months after close of PY� Correct deferrals must start by first comp paid on or after EARLIER of

� The 9-1/2 month date� End of month following month EE notifies plan of failure

� EE must receive notice w/i 45 days of when correct deferrals began� Correction of missed match (adj for Earnings) as if missed deferrals had been made by end of SCP correction period for significant failures

� No corrective contrib for missed deferrals

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EPCRS� Contents of notice to EE:

� Description of failure (specific $ amount not required)� Appropriate amounts have begun (or will begin shortly)� Corrective contribution for missed match have been made (or will be made) ($ amount and date of contrib not required)� Explanation that EE may increase deferrals in order to make up for missed opportunity (subject to 402(g) limit)� Plan contact information (name, street address, email address, telephone #)

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EPCRS� May apply to failure to:

� Timely or properly implement affirmative election made by � EE who was otherwise subject to auto-enrollment or auto-escalation

� Not limited to ADP-tested plans (i.e., may use in SH plan with auto-enrollment)

� Expires 12/31/2020� IRS will assess its “success” (i.e., is there evidence that more plans are including auto-enrollment features)

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EPCRS� New Correction Method #2: early correction of any type of Elective Deferral Failure (p.14)

� Not limited to auto-enrollment plans� May be used in SH plan� No corrective contribution needed for missed deferral� Correct deferrals must start by first compensation paid on or after the EARLIER of:

� 3 months after failure began� End of month following month in which plan was notified of the failure by the EE

� EE must receive notice w/i 45 days of when correct deferrals began (same content as earlier)

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EPCRS

� Early correction of any type of Elective Deferral Failure

� 3-month period does NOT have to be the first three months of the plan year� Corrective contribution for missed match (adjusted for Earnings) no later than end of SCP correction period for significant operational failures

� Generally by end of 2nd PY following PY in which failure occurred� If no election (affirmatively or by default) applied, use guidelines in Appendix A, section .05, to calculate missed deferral that needs to be matched

� No sunset provision7

EPCRS

� New Correction Method #3: deferrals corrected by end of SCP significant failure correction period (p.14)

� Available if: � Conditions of other 2 new methods not met , OR� Correction is not eligible for one of those methods)

� Available to SH plans and plans without auto-enrollment

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EPCRS� Deferrals corrected by end of SCP significant failure correction period

� Correct deferrals must start by first compensation paid on or after the EARLIER of:

� Last day of 2nd plan year following PY of the failure� End of month following month in which EE notifies plan of failure

� Notice to EE within 45 days following start of correct deferrals

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EPCRS� Deferrals corrected by end of SCP significant failure correction period

� 50% QNEC for missed deferral opportunity that otherwise would apply under Appendix A or B is reduced to 25% QNEC� Corrective contribution, adjusted for earnings, must be made by end of SCP correction period for significant failures� No sunset

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EPCRS

� Alternative Earnings calculation (p.15)� May use plans default investment alternative if participant has not selected investment options� If using New Correction Method #1 (9-1/2 mo auto-enrollment correction option)

� Cannot result in reduction of corrective contribution of match

� May instead use normal Earnings calculation method in EPCRS, Appendix B, section 3� DOL calculator NOT available unless plan qualifies for estimated earnings option

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EPCRS� Case Study #1 (p.3)

� John becomes eligible for auto-enrollment on April 1, 2015. � The auto deferral rate is 4%. John does not file a timely affirmative election. � No default enrollment is triggered. � The plan provides a match of 50% of the 1st 6% deferred. � The TPA learns of this error when EE census information is being gathered in March 2016.

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EPCRS

� Case Study #1� How should this be corrected?

� Use New Correction Method #1 because within 9-1/2 month period following close of PY� Start correct deferrals� Make up missed match by end of SCP correction period� Match calculated as if missed deferrals had been made

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EPCRS� Case Study #1

� Suppose John contacted the plan administrator in Nov 2015 that he noticed no amounts were being withdrawn from his paycheck?

� Must start correct deferrals by end of December 2015 to use new method

� Suppose John notified the plan administrator in May 2015, but no steps were made to start deferrals until September?

� Not eligible for new method; use traditional EPCRS correction (50% QNEC)� Fiduciary issues here

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EPCRS� Example #2 (p.3)

� John filed a timely affirmative election to have 6% contributed to the plan, starting on his enrollment date of August 1, 2015� Plan would have defaulted at 4% had the affirmative election not been made� Payroll did not implement the affirmative election. � No auto-enrollment was implemented either� The election is not discovered until March 2016

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EPCRS� Example #2

� How should this be corrected?� May still use Method #1 because it is an auto-enrollment plan and 9-1/2 month period hasn’t ended� Must match on the missed deferrals that should have been made under the affirmative election (50% under plan formula)

� Suppose instead of implementing John’s election, the plan defaults him at 4%. How should this be corrected?

� Missed deferral is the extra 2% he had affirmatively elected� May still use Method #1� Must match on the additional deferrals that were missed

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EPCRS

� Example #3�John filed a timely affirmative election to have 6% contributed to the plan, starting on his enrollment date of August 1, 2015� No default enrollment provision in the plan� Payroll did not implement the affirmative election. � The election is not discovered until March 2016.

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EPCRS

� Example #3� How should this be corrected if error is discovered in March 2016?

� Method #1 not available because plan is not auto-enrollment� Method #2 not available because more than 3 months have passed since election should have been implemented� Use Method #3

� 25% QNEC on missed deferral amount (based on election)� Match that would have been made on issued deferral (50% under plan formula)� Must make corrective contribution by end of 2-year SCP correction period

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EPCRS

� Example #3� How should this be corrected if the error is discovered in October 2015?

� Method #2 IS available because plan is within the 3-month period (August, September, October) � Must start correct deferrals by first compensation paid on or after October 31, 2015� Corrective contribution of match based on missed deferrals that weren’t made (50% under the plan formula)

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EPCRS� Review on new methods

� For all plans . . .� First see if Elective Deferral Failure happened less than 3 months ago

� If yes, use new Method #2� If no, determine if plan is auto-enrollment plan

� If auto-enrollment plan . . .� Use new Method #1 if have not reached 9-1/2 months after close of PY� Use new Method #3 if 9-1/2 month deadline has passed, but before end of 2nd

PY following PY of failure� If Method #3 not available, use traditional EPCRS method (50% QNEC)

� If not auto-enrollment� Use only 2nd or 3rd option for auto-enrollment plans

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EPCRS� Correcting Overpayments (p.6)

� Allows for “any other appropriate correction method” in lieu of what is outlined in section 6.06(3) and (4)

� Includes ER or other person paying plan back for Overpayment rather than pursuing repayment� Might include a corrective amendment instead (VCP required unless amendment is described in sec. 2.07 of Appendix B)

� Concerned about large repayment amounts being requested of retirees

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EPCRS� Case Study #4 (p.6)

� Actuarial calculation error

� Retired participant has been paid $4,500 per month� Correct pension was $2,875 per month� Reduced pension will start November 1, 2015� Plan seeking repayment of the $1,625 overpayment for 45 months, plus interest� Could actuarial firm restore the overpayment without seeking payment from the participant?

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EPCRS

� Case Study #4 � Could plan be amended to increase the benefit payable to the participant for the prior months to avoid needing any restoration or repayment?

� No. Need to use VCP.� Must not violation 401(a)(4) nondiscrimination testing standards� Must consider IRC section 436 benefit restrictions if plan is underfunded

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EPCRS� 415(c) corrections (p.7)

� Exception to practices and procedures rule, allowing for repeated corrections under this method

� 2-1/2 month period following close of plan year is extended to 9-1/2 months� Must have elective deferrals and nonelective contributions in the plan� Must be able to correct with elective deferrals and NOT match� If conditions not met, may still be able to correct under section 6.06 of RP 2013-12, but no relief on practices and procedures requirement (might result in VCP)

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EPCRS� Case Study #5 (p.5)

� Corporation maintains 401k plan� Usually extends its return to September 15� PS contribution generally determined in August� New comparability formula� PS for one or more participants typically causes IRC §415(c) violation� Plan refunds sufficient amount of unmatched deferrals� Eligible for SCP because of practices and procedures relief

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EPCRS� Case Study #5

� How are ADP tests affected by the 415(c) correction? (question c)

� Must disregard returned deferrals; see examples in materials

� Suppose periodically it is necessary to refund deferrals that are matched

� Proportionate refund of deferrals and forfeiture of related match, as described in section 6.06(2) of RP 2013-12� Is SCP precluded (question b)?

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EPCRS� DL applications with VCP submission involving corrective amendment (p.9)

� Clarifies that DL requirement generally applies ONLY to individually-designed plans

� Also applies to SCP correction by amendment (as permitted by section 2.07 of Appendix B) and whether DL is required during next on-cycle period

� Modification to a pre-approved plan solely to accommodate VCP correction does NOT trigger DL� For terminated plans that have distributed substantially all assets at least 12 months ago – NO DL 27

EPCRS� Expands time frame for adopting corrective amendment required by DL issued as part of VCP submission (p.10)

� Later of:� 150 days after VCP compliance letter is issued� 91 days after DL issued (for governmental plan – 91 days after end of first legislative session that begins more than 120 days after VCP compliance letter is issued)

� Recognizes remedial amendment rules

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EPCRS� Reduced VCP fees (p.10)

� Minimum distribution failures� $500 if affects no more than 150 EEs (rather than 50)� $1,500 if affects 151 to 300 EEs� More than 300: use regular fees

� Loan failures (p.22)� New schedule of reduced fees� Based on number of participants with loan failures (not total number of participants in the plan)� Ranges from $300 (13 or fewer) to $3,000 (more than 150)

� Originally 50% of regular VCP fee

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EPCRS� Model forms removed from Appendixes C and D (p.10)

� Form 14568 series replaces model VCP compliance letter and model Schedules formerly in Appendix C

� 9 Schedules: Late amendments (Schs 1 and 2), SEPs (Sch 3), SIMPLEs (Sch 4), Loans (Sch 5), Employer Eligibility Failure (Sch 6), 402(g) failure (Sch 7), Minimum distribution failure (Sch 8), Correction by plan amendment (Sch 9)

� IRS letter 5265 replaces Appendix D sample acknowledgment letter� Weblinks provided in materials

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