Retirement accounts are a seemingly simple and effective way to protect assets from future creditors, but the subtle nuances of what is protected under Missouri law and what is protected in bankruptcy can be complex. In the July/August 2019 edition of the Journal of the Missouri Bar, attorneys Keith Herman and Jeffrey Herman analyze how you can use retirement accounts for asset protection and the potential loopholes to avoid.Retirement accounts are a seemingly simple and effective way to protect assets from future creditors, but the subtle nuances of what is protected under Missouri law and what is protected in bankruptcy can be complex. In the July/August 2019 edition of the Journal of the Missouri Bar, attorneys Keith Herman and Jeffrey Herman analyze how you can use retirement accounts for asset protection and the potential loopholes to avoid.

Click here to read their full article in the journal.

Two wooden people on either side of a table, representing arbitrationA U.S. Court of Appeals determined that arbitration on an individual basis is the proper forum for a participant’s claim that Charles Schwab breached its fiduciary duties and engaged in prohibited transaction under the Employee Retirement Income Security Act of 1974 (ERISA) by holding proprietary funds in its 401(k) plan.

The decision, Dorman v. Charles Schwab Corp., is significant in two ways: (1) in a published opinion, the Ninth Circuit Court of Appeals overruled its prior precedent regarding whether ERISA claims were subject to arbitration and (2) in an unpublished opinion, the court found that an arbitration provision in the plan document prohibiting class or collective action was enforceable against a participant seeking to bring ERISA fiduciary breach claims on behalf of the plan.

First, the Ninth Circuit held that Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984) was no longer good law. Amaro held that ERISA claims were not arbitrable. In light of intervening U.S. Supreme Court cases finding that federal statutory claims are generally arbitrable and arbitrators can competently interpret federal statutes, the court held that it was appropriate for a three-judge panel to overrule Amaro

Second, the Ninth Circuit reversed the district court’s decision on whether Dorman’s claims were subject to arbitration, disagreeing with most of the court’s reasoning. The district court had first found that the provision was inapplicable to Dorman because it was added after he was no longer a participant. The Ninth Circuit disagreed with this conclusion, finding the provision was effective for almost a year while Dorman was a participant. Next, citing its recent decision in Munroe v. University of Southern California, 896 F.3d 1008 (9th Circuit 2018), the court found that the relevant question is whether the plan agreed to arbitrate. The court found the dispute fell within the scope of the arbitration provision in the plan. The Ninth Circuit criticized the lower court’s opinion for showing “judicial hostility” toward arbitration and found its reasoning was rejected by the Supreme Court’s intervening decision in Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018). Furthermore, the court found that although Ninth Circuit precedent dictates that a participant cannot agree to arbitrate ERISA § 502(a)(2) claims without the plan’s consent, here, the plan had consented.

In the final part of its decision, the Ninth Circuit applied Supreme Court precedent to find that plan’s arbitration provision that waives class-wide and collective arbitration must be enforced according to its terms. The court found this is even true for claims under ERISA § 502(a)(2) that seek relief on behalf of the plan.

The decision represents a major victory for employers. Adding arbitration provisions to plan documents may be a way to avoid class action claims, but there are many other factors plan sponsors should consider before taking this step.

Blood pressure monitorCertain treatments for chronic conditions can now be covered by high deductible health plans (HDHPs) as preventive care before the deductible is met. Pursuant to an executive order, a new IRS notice will allow individuals with certain conditions, such as asthma or diabetes, to obtain coverage for treatments and medications, such as inhalers and insulin, without first meeting their high deductible.

HDHPs require covered individuals to pay all medical costs, except for preventive care, until the deductible is met. An individual must be covered by a HDHP and have no disqualifying health coverage to be eligible to use a health savings account.

In IRS Notice 2019-45, which was effective July 17, 2019, the Treasury Department and the Internal Revenue Service expanded the preventive care HDHPs may cover to include certain treatments for chronic illnesses. The IRS and Treasury used the following criteria to determine whether a treatment was preventive care:

  • the medical service or item is low-cost;
  • there is medical evidence supporting high cost efficiency of preventing exacerbation of the chronic condition or the development of a secondary condition; and
  • there is a strong likelihood, documented by clinical evidence, that with respect to the class of individuals prescribed the item or service, the specific service or use of the item will prevent the exacerbation of the chronic condition or the development of a secondary condition that requires significantly higher cost treatments.

The appendix to the notice lists the following approved preventive care treatments:

Preventive care for specified conditions

For individuals diagnosed with

Angiotensin Converting Enzyme (ACE) inhibitors

Congestive heart failure, diabetes, and/or coronary artery disease

Anti-resorptive therapy

Osteoporosis and/or osteopenia

Beta-blockers

Congestive heart failure and/or coronary artery disease

Blood pressure monitor

Hypertension

Inhaled corticosteroids

Asthma

Insulin and other glucose-lowering agents

Diabetes

Retinopathy screening

Diabetes

Peak flow meter

Asthma

Glucometer

Diabetes

Hemoglobin A1c testing

Diabetes

International Normalized Ratio (INR) testing

Liver disease and/or bleeding disorders

Low-density Lipoprotein (LDL) testing

Heart disease

Selective Serotonin Reuptake Inhibitors (SSRIs)

Depression

Statins

Heart disease and/or diabetes

The notice does not mandate that HDHPs cover the treatments as preventive care. Sponsors of HDHPs can choose whether they want to classify the treatments as preventive care that can be covered prior to an individual meeting his or her deductible.

Steps of the U.S. Supreme CourtOn Friday, June 28, 2019, the U.S. Supreme Court agreed to hear a case involving a hotly debated ERISA topic: standing to bring breach of fiduciary duty claims in defined benefit plans. The court will review Thole v. U.S. Bank, Nat’l Ass’n, 873 F.3d 617, 628 (8th Cir. 2017), which the Eighth Circuit decided on statutory standing grounds. In accepting the case, the Supreme Court also certified the additional issue of whether the defined benefit plan participants have demonstrated Article III standing.

The plaintiffs in Thole alleged that U.S. Bank breached its ERISA fiduciary duties by mismanaging its defined benefit plan. The defendants’ initial motion to dismiss for lack of Article III standing was denied. During the litigation U.S. Bank voluntarily contributed enough money to make the plan overfunded and again moved to dismiss. This time the district court dismissed the breach of fiduciary duty claims as moot because the plaintiffs lacked any concrete interest in relief.

On review, the Eighth Circuit upheld the dismissal but on different grounds. The court found that because the plan was overfunded, the plaintiffs no longer fall within the class of plaintiffs authorized to bring suit under ERISA. In doing so, the court relied on Eighth Circuit precedent, including Harley v. Minn. Mining & Mfg. Co., 284 F.3d 901 (8th Cir. 2002), which had concluded that a plaintiff could not bring an ERISA breach of fiduciary duty claim when a defined benefit plan is overfunded. The Eighth Circuit determined that Harley addressed statutory standing, not constitutional standing. The court reasoned that if a plan is fully funded, a breach of fiduciary duty causes no harm to the participant but allowing litigation does harm the plan. Therefore, such a participant is not in the class of plaintiffs allowed to sue under ERISA.

Although the Eighth Circuit notes that statutory standing and constitutional standing are often confused, the Thole decision adds to that confusion. By focusing on injury and harm to the plan, the Eighth Circuit addressed hallmark issues of constitutional standing in a decision that it said was based on statutory standing. Perhaps the Supreme Court added the Article III issue to help clear up this confusion.

But the Supreme Court may also believe that the issue of whether defined benefit plan participants have Article III standing needs resolution because of its reoccurrence, including in other petitions for certiorari that the Court denied. See, e.g., Lee v. Verizon Commc’ns, Inc., 837 F.3d 523, 546-47 (5th Cir. 2016), cert. denied sub nom. Pundt v. Verizon Commc’ns, Inc., 137 S. Ct. 1374, 197 L.Ed. 2d 568 (2017); see also Perelman v. Perelman, 793 F.3d 368, 375 (3d Cir. 2015) (finding a risk of future adverse effects on benefits is not an injury in fact); David v. Alphin, 704 F.3d 327, 338 (4th Cir. 2013) (“We find these risk-based theories of standing unpersuasive, not least because they rest on a highly speculative foundation lacking any discernible limiting principle.”)

There is no question that resolving this issue will have a dramatic impact on future ERISA breach of fiduciary duty claims involving defined benefit plans. The upcoming term will prove to be an important one for ERISA participants and plan sponsors as this is the third ERISA case the Supreme Court has added to its upcoming term.

Supreme Court ChambersAfter more than two years since the U.S. Supreme Court issued its last decision* in a case involving the Employee Retirement Income Security Act (ERISA), the court’s next term looks to be flush with ERISA issues. On June 10, 2019, the Supreme Court granted certiorari in a Ninth Circuit case addressing the “actual knowledge” standard in the statute of limitations for fiduciary breaches. Intel Corp. Investment Policy Committee, v. Sulyma, No. 18-1116.  The Supreme Court has granted certiorari in two ERISA cases in as many weeks, and it seems likely the court may grant review in at least one other case. Below is a summary of the cases that are or may be in front of the Supreme Court in the coming term.

Intel Corp. Investment Policy Committee, v. Sulyma, No. 18-1116:

Sulyma filed a putative class action alleging that the fiduciaries of Intel’s 401(k) plans breached their fiduciary duties by making imprudent investments and charging excessive fees. On summary judgment, Intel argued that the plaintiff’s claims were barred by ERISA’s three-year statute of limitations for breach of fiduciary duty claims, ERISA § 413(2), because the plans’ disclosures gave the participants “actual knowledge” of the breach. The U.S. District Court for the Northern District of California agreed, but the Ninth Circuit reversed. The Ninth Circuit found that a plaintiff must be actually aware of the nature of the alleged breach. In doing so, the court disagreed with the Sixth Circuit’s opinion in Brown v. Owens Corning Investment Review Committee, 622 F.3d 564 (6th Cir. 2010). The Supreme Court will resolve the issue of what it means to have “actual knowledge” of an ERISA fiduciary breach.

Retirement Plans Committee of IBM  v. Jander, No. 18-1165:

On June 4, the Supreme Court granted certiorari in this Second Circuit case regarding the “more harm than good” pleading standard enunciated in Fifth Third Bancorp v. Dudenhoeffer, 134 S.Ct. 2459 (2014) for when a fiduciary must disclose information related to employer stock. Since Dudenhoeffer and the Supreme Court’s reaffirmation of Dudenhoeffer in Amgen v. Harris, 136 S.Ct. 758, 759-760 (2016), most courts have found that plaintiffs have not met the high pleading standard in employer stock drop cases. The Second Circuit, in Jander, however, reversed dismissal of the complaint. This arguably created a circuit split with the Fifth and Sixth circuits. The Supreme Court will address the issue of whether generalized allegations that the harm of an inevitable disclosure of an alleged fraud generally increase over time satisfies the “more harm than good” pleading standard.

Thole v. U.S. Bank, 17-1712:

In this case from the Eighth Circuit addressing standing, the Supreme Court called for the view of the solicitor general, a move seen as showing the court’s interest in the case. The solicitor general recommended the Supreme Court grant certiorari to address the issue of whether a pension plan participant has standing to bring a claim for breach of fiduciary duty when he or she has not suffered a loss because the plan is overfunded. The district court found that once the plan became overfunded, there was no longer a live controversy. The Eighth Circuit upheld the dismissal but reasoned that if a participant was not injured, then the participant was not a member of the class of plaintiffs that Congress intended to be able to sue, i.e., the plaintiff did not have statutory standing. The solicitor general recommended the Supreme Court also address the issue of whether the plaintiffs have Article III standing in such an instance.

Putnam Investments, LLC v. Brotherston, 18-926:

In April, the Supreme Court also called for the view of the solicitor general in a case from the First Circuit. The case addresses the issue of which party bears the burden of showing loss causation in ERISA fiduciary breach cases. The First Circuit held that the defendant bears the burden, joining the Fourth, Fifth, and Eighth circuits. There is a true circuit split on the issue, as the Second, Sixth, Seventh, Ninth, Tenth, and Eleventh circuits have held that the plaintiff bears the burden of proving the losses to the plan resulted from the fiduciary breach. Given the depth of the circuit split and the request for the solicitor general’s views, it is likely the Supreme Court will decide to resolve this issue.

Advocate Health Care Network v. Stapleton, 137 S. Ct. 1652, (2017)

Arrow turning around on a brick wallOn May 24, 2019, the U.S. Department of Health & Human Services (HHS) announced that it is issuing proposed revised regulations under Section 1557 of the Affordable Care Act that remove the redefinition of “sex” and certain regulatory burdens, including language taglines. The changes substantially roll back the original Obama-era regulations.

Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age, or disability in health programs or activities. In May 2016, HHS issued final regulations defining “on the basis of sex” to include gender identity and termination of pregnancy. Many lawsuits challenged the regulation as going beyond Congress’s statute and the accepted legal definition of sex. On December 31, 2016, a federal district court issued a nation-wide injunction prohibiting the enforcement of the regulation in a case brought by several states and religious hospitals and providers. Franciscan All., Inc. v. Burwell, 227 F. Supp. 3d 660, 696 (N.D. Tex. 2016). HHS has not enforced this portion of the regulation since then.

Along with removing the definition of “sex,” HHS is proposing to repeal many other portions of the rule. In the Preamble to the proposed regulation, HHS states, “The Department believes that the Final Rule exceeded its authority under Section 1557, adopted erroneous and inconsistent interpretations of civil rights law, caused confusion, and imposed unjustified and unnecessary costs.” The proposed revisions seek to address these issues by:

  • Returning to the “ordinary” meaning of “sex.” Discrimination based on gender identity is no longer expressly prohibited under the rule and instead “on the basis of sex” will have its “plain meaning.”
  • Repealing certain language requirements. Covered entities will no longer need to mail beneficiaries, enrollees, and others, notices concerning non-discrimination and the availability of language assistance services (in 15 languages) with every “significant” publication and communication larger than a postcard or brochure.
  • Limiting the scope of who is covered by the rule. Health insurance programs administered by entities not principally engaged in providing health care will only be covered by the rule to the extent those programs receive Federal financial assistance from HHS.
  • Revising the enforcement structure. The regulations allowed for certain private rights of action. HHS proposes to return to the enforcement structure for each underlying civil right statute as provided by Congress.
  • Expressly providing a religious and conscious exemption. The regulation did not contain a religious exemption but explained that religious entities could claim existing religious exemptions under federal law (for example, the Religious Freedom and Restoration Act). The revisions add such an exemption.

The proposed revised regulations do not mean the controversy on the subject is over. Other federal district courts have found that excluding transgender services violates Section 1557 without relying on the regulation. See Boyden v. Conlin, 341 F. Supp. 3d 979, 997 (W.D. Wis. 2018). In addition, on April 22, 2019, the U.S. Supreme Court granted petitions for writs of certiorari in three cases, which raise the question whether Title VII’s prohibition on discrimination on the basis of sex also bars discrimination on the basis of gender identity or sexual orientation.

Pencil draws a straight line on paper and pencil eraser removing the lineThe Internal Revenue Service has updated the Employee Plans Compliance Resolution System (EPCRS) to allow for the self-correction of more failures. EPCRS is a program that allows plan sponsors to correct errors involving qualified plans (such as 401(k) plans, profit sharing plans, defined benefit pension plans, etc.) and certain other types of plans that, if left uncorrected, could jeopardize the tax-favored status of the plan. Revenue Procedure 2019-19 expands the self-correction program to include correction of certain loan failures and more corrections via retroactive amendment.

Plan loan failures are common in 401(k) plans, and now many can be corrected without the need to seek formal IRS approval through the Voluntary Compliance Program. The following table summarizes the loan failures, correction methods and conditions:

   

Failure

Correction under SCP

Conditions

1. The loan does not meet the exceptions of IRC 72(p)(2) or is in default that is not corrected under section 6.07(3).

  • Report deemed distribution in the year of correction instead of the year of the failure.
  • Follow IRS Regs. 1.72(p)-1 in terms of reporting the deemed distribution amount on Form 1099-R.
  • If withholding applies under IRS Regs. 1.72(p)-1 (Q&A 15), it must be paid by the plan sponsor.

2. Defaulted loans.

  • Participant makes a single lump sum payment that includes all missed payments, including accrued interest; or
  • The outstanding balance of the loan, including accrued interest, is reamortized over the remaining period of the loan so that the unpaid principal and accrued interest is repaid by the end of original term of the loan or by the end of the maximum period under IRC 72(p)(2)(B), measured from the original date of the loan.
  • The two correction methods listed above can be combined.
  • This correction method is not available if the maximum period for repayment of the loan pursuant to IRC 72(p)(2)(B) has expired.
  • The participant must be willing to take actions to fix the defaulted loan.
  • Avoids deemed distribution.
  • No need to issue a Form 1099-R.
  • The employer should make a corrective contribution to the participant’s account if the plan’s rate of return exceeded the plan loan interest rate.

3. Failure to obtain spousal consent for a plan loan as required by plan terms.

  • Notify affected participant and the participant’s spouse (who was married to the participant at the time of the loan).
  • Obtain spousal consent to the plan loan.
  • If spousal consent can’t be obtained, SCP is not available.
  • Correction may be available under VCP or Audit CAP

4. Number of plan loans to a participant exceeds the number of loans permitted by written plan terms.

  • Adopt a retroactive plan amendment to conform the written plan document to the plan’s operation.
  • The plan, as amended, must satisfy the IRC 72(p) requirements applicable to plan loans.
  • Amendment must comply with IRC 401(a) requirements.
  • Plan loans in excess of the number permitted by the plan were available to all participants or solely to one or more non-highly compensated employees

   

Revenue Procedure 2019-19 also allows plan sponsors to self-correct an operational failure in which the plan was not operated according to its terms through retroactive amendment to conform the plan terms to its operations. However, to qualify for self-correction, the retroactive amendment must result in an increase in participants’ benefits, rights or features.

The rules for fixing plan mistakes are complex. Consult with your benefits counsel before proceeding with any correction method. Revenue Procedure 2019-19 is effective April 19, 2019.

Recently, the IRS has been issuing 226J letters for the 2016 tax year. IRS Letter 226J is the penalty letter sent to employers who did not comply with the employer mandate under the Patient Protection and Affordable Care Act (ACA) in their offers of health coverage to employees. Frequently these penalties can be in the hundreds of thousands to millions of dollars. However, with the advice of counsel, you may be able to reduce, if not eliminate, the penalties, and changes can be made to avoid penalties in future years. It is important to note that while the individual mandate has been eliminated effective Jan. 1, 2019, by the current administration, the employer mandate still applies.

Background

The employer mandate under the ACA requires that Applicable Large Employers (ALE) (those with 50 or more full-time employees or full-time employee equivalents) are required to offer minimum essential coverage to at least 95 percent of their employees, including their dependents (but not spouses). The coverage offered must also provide minimum value and be affordable to avoid the ACA penalties. Each of these determinations regarding ALE status and whether the coverage offers minimum essential coverage and minimum value are technical, and the company should consult an outside expert. If the employer mandate is not met, the employer will be subject to IRS 4980H penalties, known as the Employer Shared Responsibility Payments (ESRPs), which are detailed in 226J letters.

There are two types of ESRP penalties, subsection (a) and subsection (b) penalties. Subsection (a) penalties are assessed if the company did not offer minimum essential coverage to at least 95 percent of their full-time employees and dependents and at least one full-time employee obtained a premium-tax credit to purchase coverage on the exchange. If this occurs, then each month in which at least one employee received a tax credit, a penalty is assessed based upon the total number of full-time employees of the employer. If, however, the employer did offer coverage to 95 percent of its full-time employees, it may still be liable for subsection (b) penalties. The penalty applies if a full-time employee received a tax credit and that employee was not offered coverage, the coverage offered was not affordable, or the coverage did not meet minimum value. Subsection (b) penalties are much lower and are based only upon the number of employees who received a tax credit for the month.

How to respond

So if you receive one of these letters, what should you do? The most important thing to do is to make sure to provide a timely response. Therefore, look on the first page for the response date listed on the right-hand column. This date should be 30 days after the letter is issued. You can request a 30-day extension by contacting the 4980H Response Unit using the telephone number provided on the first page of the letter. It is vital that a response is provided by this date, as the IRS will issue a Notice and Demand after that date, which can be subject to lien and levy enforcement actions.

The next step is to quickly contact benefits counsel and the benefits advisor or firm you used for ACA reporting (filing of 1094-C with the IRS and providing 1095-Cs to the individual employees). These entities will need to help you gather the data necessary to evaluate and respond to the letter.

The following are some questions to consider in working with your service providers to respond to the letter:

  • Was a corrected Form 1094-C filed with the IRS for the 2016 year, and if so, is the IRS using the corrected data? In some instances, an employer has filed corrected forms, but the IRS based the 226J off of the original form. Once the corrected form was brought to the attention of the IRS, the issues were resolved.
  • Is the plan at issue a calendar year plan? If not, there is some transition relief that may be applicable to reduce or eliminate penalties.
  • Was minimum essential coverage offered to at least 95 percent of full-time employees during each calendar month of the year? If not, check whether each person listed on the chart calculating the penalty in the 226J letter was in fact a full-time employee. Also note that the IRS defines a full-time employee as someone who works an average of 30 hours per week or 130 hours per month using the monthly measurement method or the look-back measurement method.
  • If minimum essential coverage was offered to 95 percent of full time employees, did the coverage provide minimum value and was it affordable?
  • Do any of the affordability safe harbors apply?
  • For any person who received a premium tax credit for the month, was he or she in fact a full-time employee and was he or she in a limited non-assessment period?

Many of these questions are complex, and consultation with an expert is likely necessary. The attorneys in our Employee Benefits practice group can help employers navigate this process with the best possible results.

Group of figures surrounded by a stethoscopeThe battle over health benefits rages on. In the latest salvo, a group of states scored a major court victory against the Trump administration’s new “Association Health Plan” Final Rule, which was finalized in 2018. While this decision will have major ramifications, it is important to remember that association health plans may still be established under old rules that existed long before the final rule.

The case is styled New York v. United States Dep’t of Labor, No. CV 18-1747 (JDB), 2019 WL 1410370 (D.D.C. Mar. 28, 2019).

Background

The final rule expanded existing guidance from the Department of Labor (DOL). The old guidance allowed only a “bona fide” association of employers in a particular industry to provide health benefits, in order for those benefits to be treated as a single plan (as opposed to separate plans established by each individual employer). The new guidance allowed employers who are in completely unrelated industries to form a single plan, so long as they were all in the same state or metropolitan area, and it allowed sole proprietors without any common law employees to join, too.

The final rule caused a ruckus, since these association health plans could avoid many requirements under the Patient Protection and Affordable Care Act (ACA) and significantly cut back benefits. Importantly, however, states retained tremendous freedom to regulate association health plans. States could potentially mandate their own essential health benefits or ban association health plans altogether.

The final rule acknowledged the view of several commenters that the new rules were an invalid attempt to create a loophole through the ACA’s strict requirements for individual and small group health plans. The DOL went ahead despite those comments and was promptly sued by 11 states and the District of Columbia.

The decision

On March 28, 2019, the U.S. District for the District of Columbia ruled in favor of the states, vacating three critical subsections of the new regulation created by the final rule — specifically, subsections (b), (c), and (e) of 29 C.F.R. § 2510.3-5. The court held that:

  • Allowing employers linked only by geography to constitute a single employer is inconsistent with ERISA, since such groups more “closely resemble entrepreneurial, profit-driven commercial insurance,” as opposed to an association acting as an “employer”;
  • Counting sole proprietors as both employers and employees is inconsistent with the text and purpose of ERISA; and
  • The final rule leads to absurd results under the ACA.

The court used colorful language in the opinion, stating that the “Final Rule is clearly an end-run around the ACA,” that it relies on a “tortured reading” of the ACA, and that the DOL’s legal reasoning is “pure legerdemain” (i.e., sleight of hand).

Technically, the case has been remanded to the DOL to determine what, if anything, survives the court’s ruling, and the decision is sure to be appealed. But, practically speaking, the final rule is dead for now. No associations or employers should rely on the final rule to form an association health plan.

Association health plans under old rules still valid

In the meantime, it is important to remember that the opinion did nothing to upset the DOL’s sub-regulatory guidance issued prior to the now-vacated final rule. These old rules are still in effect and can still be relied upon to form a “bona fide” employer association and provide a single health plan under ERISA. However, certain limitations will exist. For example:

  • Sole proprietors will not be able to join the association;
  • The association cannot be created for the purpose of providing health benefits; and
  • All of the association’s members must have a “commonality of interest” — employers linked by nothing but geography cannot form a single association health plan.

Depending on what a group wants to do, the decision in New York v. United States Dep’t of Labor may or may not have a large impact.

In October 2018, the IRS updated the Employee Compliance Plans Resolution System (EPCRS) by issuing Rev. Proc. 2018-52. EPCRS is a program that allows plan sponsors to correct errors involving qualified plans (such as 401(k) plans, profit sharing plans, defined benefit pension plans, etc.) and certain other types of plans that, if left uncorrected, could jeopardize the tax-favored status of the plan. Among other changes to EPCRS, Rev. Proc. 2018-52 provides that, beginning Jan. 1, 2019, Voluntary Correction Program (VCP) submissions may be made electronically via www.pay.gov. Beginning April 1, 2019, the electronic filing requirement becomes mandatory.

Form 8950 (Application for Voluntary Correction Program) is used to file VCP submissions. In January 2019, the IRS updated the instructions to Form 8950 to reflect the new electronic filing procedures. To submit a VCP application on or after April 1, 2019, the applicant must first create an account at www.pay.gov. Next, the applicant must complete a Form 8950 using the website.  Third, documents relating to the VCP submission such as a description of failures, Form 14568 (Model VCP Compliance Statement), applicable schedules and other relevant items must be converted into a single PDF file and uploaded to www.pay.gov. Finally, the applicant must pay the applicable user fee via the website.

Although the new procedures don’t change the substantive requirements of the VCP, plan sponsors should be aware of the new electronic filing requirements to avoid having paper VCP submissions rejected, as the IRS will no longer accept paper submissions beginning April 1.