Much like white-out, the Backspace button, and an eraser, the IRS’ Self-Correction Program (“SCP”) is one of three programs that allow plan sponsors to correct any mistakes they may have made in administering an employee benefit plan. Through this program, the IRS eases some of the required burden on plan sponsors for errors in withholding a participant’s contributions. The IRS previously required plan sponsors to pay 50% of any missed participant’s contributions to correct a mistake. That percentage is now 25% of missed contributions. In addition, plan sponsors who satisfy all of the following criteria can experience greater relief by hot having to pay any portion of the qualified non-elective contribution (“QNEC”) for the participant’s missed deferrals:
- The error is discovered, and corrected participant deferrals begin, within three months of the first missed contribution.
- The participant is notified within 45 days of when the correct deferrals begin.
- If the participant would have been eligible for matching contributions, then the plan sponsor pays the additional matching contributions plus the adjusted earnings.
It behooves plan sponsors to review their employee contributions at least quarterly to avoid paying large QNEC amounts and lost earnings. If you are a plan sponsor who may need the corrective benefits of the SCP, then contact CRI’s team of CPAs and advisors.