Fix It Before They Find It: IRS Overhauls Retirement Plan Correction Rules and Launches First-Ever IRA Correction Program

by Ari Sonneberg

What Rev. Procs. 2026-34 and 2026-33 mean for plan sponsors, IRA custodians, and IRA owners

On October 22, 2026, the IRS issued Revenue Procedure 2026-34, a new consolidated version of the Employee Plans Compliance Resolution System (EPCRS). EPCRS is the IRS program that lets employers fix mistakes in their retirement plans, such as errors in the plan document or in how the plan has been operated, so that the plan keeps its tax-favored status and participants receive the benefits they are owed. It took effect the day it was issued and replaces Rev. Proc. 2021-30.

EPCRS still retains its three core elements: the Self-Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (Audit CAP). It covers 401(k) and other qualified plans, 403(b) plans, SEPs, and SIMPLE IRA plans.

The new procedure bakes in changes made under the SECURE 2.0 Act (covered in a prior law alert, here) and three interim IRS notices (2023-43, 2024-2, and 2024-77). Several rules were made more lenient in response to public comments. The net result of these changes is that more retirement plan errors can now be fixed without going to the IRS, and sponsors have a more generous amount of time within which to complete the correction. The significant changes to EPCRS are detailed below.

The same day, the IRS released a companion, Revenue Procedure 2026-33, creating a separate IRA Compliance Resolution System (ICRS). ICRS takes effect May 1, 2027, and its details are covered below as well.

 Key EPCRS Changes for Retirement Plan Sponsors

1. Self-Correction is Now the Main Path to Correction

SCP now covers any “Eligible Inadvertent Failure”: a failure that happens despite having compliance practices and procedures in place, and that is not egregious, a misuse of plan assets, or tied to an abusive tax shelter scheme. Critical updates include:

No favorable IRS letter needed. Under the prior rules (Rev. Proc. 2021-30), a 401(k) plan, other qualified plan, or 403(b) plan needed a favorable IRS determination letter (or, for a pre-approved plan, an IRS Opinion Letter) to self-correct significant operational errors or plan document errors. Insignificant operational errors could be self-corrected without one. That requirement has been eliminated, so a favorable letter is no longer needed to self-correct any eligible error.

Significant failures. Under the prior rules, significant operational errors had to be self-corrected by the end of the third plan year after the plan year in which the error occurred, while insignificant errors could be fixed at any time. Now, an eligible error may be self-corrected as long as it is fixed within a reasonable period after it is identified. A correction is automatically treated as reasonable if it is completed by the later of (a) the last day of the third plan year after the plan year in which the error occurred or (b) 18 months after the error was identified. The IRS’s interim guidance (Notice 2023-43) used only the 18-month test; the alternative deadline was added in response to public comments.

More failure types. Under the prior rules, self-correction was generally limited to operational errors (failures to follow the plan’s terms), and plan document errors could be self-corrected only by plans holding a favorable IRS letter. New under EPCRS, the failures described in the following bullets may now be self-corrected.

• Plan document failures, such as a missed required amendment, even if the plan has no favorable IRS letter.
• Demographic failures, meaning failures of the minimum coverage (Code Section 410(b)), nondiscrimination (Section 401(a)(4)), or minimum participation (Section 401(a)(26)) requirements. These may be self-corrected only by a retroactive amendment that adds or increases benefits under the method in Treas. Reg. § 1.401(a)(4)-11(g); other approaches still require a VCP filing.
• Employer eligibility failures, which occur when an employer that is not eligible to sponsor a particular type of plan adopts one (such as a for-profit company adopting a 403(b) plan or a state or local government adopting a 401(k) plan). The employer may now self-correct by stopping all contributions as soon as reasonably practicable, but no later than six months after the problem is identified.
• Plan loans. Loan errors that previously required a VCP filing, such as loans that exceed the maximum loan amount, have too long a repayment term, or are not repaid in level installments, can now be self-corrected. The correction methods are carried over from the prior rules (section 6.07 of Rev. Proc. 2021-30): generally, a corrective payment by the participant or reamortization of the loan. A deemed distribution corrected this way does not have to be reported on Form 1099-R. Two limits apply: these methods are not available once the maximum repayment period (generally five years) has expired, and for a defaulted loan, the employer should pay the portion of the correction attributable to interest. If a participant took more loans than the plan allows, the plan may be amended to permit them. For a loan made without required spousal consent, the correction is to notify the participant and spouse so the spouse can consent. If consent is not obtained and the loan is still unpaid when the participant takes a distribution, the plan sponsor must now ensure that the spouse receives the full benefit the spouse is entitled to.
• SEPs and SIMPLE IRAs. Previously, SEP and SIMPLE IRA plan sponsors could self-correct only insignificant operational errors. Significant errors may now be self-corrected too, but only if the plan is maintained on an IRS model form (Form 5305-SEP, 5305A-SEP, 5305-SIMPLE, or 5304-SIMPLE) or on a prototype document that has a current favorable IRS opinion letter and has been amended as required. Self-correction is still not available if the correction would leave excess contributions in an employee’s IRA.

Some failures remain off-limits for SCP, including failing to adopt a written plan document when the plan was first established; any failure in an orphan plan; a significant operational, plan document, employer eligibility, or demographic failure in a terminated plan; correcting an operational error with a retroactive amendment that is less favorable to participants; and failures in fully insured defined benefit plans. The IRS clarified one exception for plan adoption: if employees of one employer have been participating in a plan sponsored by another employer, but their own employer never formally adopted the plan as a participating employer, that is not treated as a failure to adopt a plan and can still be self-corrected. This most often arises with related companies in a controlled group and with employers in a multiple employer plan.

 2. Required Documentation

SCP still requires no IRS filing and no fee. But if a plan that utilized SCP is later audited, the plan sponsor must produce documentation substantiating the self-correction. Once an audit begins, the self-correction period generally ends. SCP remains available only if the error is an insignificant operational error or if, before the audit began, the sponsor had already taken actions showing a “specific commitment” to correct that particular error, meaning it was actively pursuing correction. Completing an annual plan review or adopting a general statement of intent to fix errors when they are found is not sufficient. This standard is partly new. Under the prior rules, a significant error found on audit could be self-corrected only if correction was completed or substantially completed before the audit began; the new standard also extends to plan document, employer eligibility, and demographic errors. A separate new restriction applies to determination letter applications: if the IRS identifies an error while reviewing the application, the error can be self-corrected only if it is an insignificant operational error.

To substantiate a self-correction on audit, the documentation should (1) identify the error, the year(s) in which it occurred, the number of employees affected, and the date on which it was identified; (2) explain how the error occurred and show that reasonable compliance procedures were in place at the time; (3) describe the correction method and the date correction was completed; and (4) describe any changes to procedures made to prevent the error from recurring.

 3. Permanent Safe-Harbor Correction Method for Certain Missed Deferrals

If an employee’s automatic enrollment or automatic escalation salary deferral contribution is missed or wrong, the plan can fix it with no employer make-up contribution (QNEC) for the missed deferral. Under the new procedure:

• This safe harbor was first introduced in Rev. Proc. 2015-28 and carried into Rev. Proc. 2021-30, but it applied only to errors that began on or before December 31, 2023. That sunset has been eliminated; the safe harbor is now permanent under SECURE 2.0.
• The rule now applies to SEPs, SIMPLE IRA plans, and employees who have terminated.
• Any missed matching contribution is deemed timely if made within 12 months after correct deferrals start. The interim guidance had allowed only six months to correct.
• To use the safe harbor, correct deferrals must begin by the first paycheck on or after the last day of the 9½-month period following the end of the plan year in which the error first occurred (or after the end of the month following the month in which the employee reports the error, if earlier), and the plan sponsor must notify the participant of the error within 45 days after correct deferrals begin. The safe harbor also covers participants whose own deferral elections were not implemented, and lost earnings may be calculated using the plan’s default investment.

 4. Other Missed-Deferral Relief 

• When a plan sponsor fails to permit an eligible employee to make elective deferrals, the plan sponsor normally must make a qualified nonelective contribution (QNEC) equal to 50% of the missed deferral, plus any related missed matching contributions, with earnings. Two safe harbors reduce that cost. If the error lasts no more than three months, no QNEC is required for the missed deferral, as long as correct deferrals begin by the first paycheck after the three-month period (or after the end of the month following the month in which the employee reports the error, if earlier), the employee is notified within 45 days after correct deferrals begin, and any missed matching contribution is made up. If the error lasts longer than three months, the QNEC drops to 25% of the missed deferral, as long as correct deferrals begin by the first paycheck on or after the last day of the third plan year after the plan year in which the error occurred (or sooner if the employee reports it), the same 45-day notice is given, and the corrective contributions are made within a reasonable period. A missed match made within 12 months after correct deferrals begin is deemed timely.
• That method now also covers terminated employees and missed after-tax contributions (for after-tax contributions, the reduced contribution is 20% of the missed amount instead of the usual 40%).
• The Rev. Proc. confirms that the correction methods for employees wrongly excluded from deferrals, matching contributions, or after-tax contributions may be used when the exclusion lasted only part of a plan year (for example, because an entry date was missed). For convenience, the correction may be calculated using a prorated share of the employee’s compensation for the year.
• The Rev. Proc. also adds a new way to calculate the missed deferral in one specific situation. Normally, when an employee is wrongly excluded from making elective deferrals, the missed deferral is calculated using the average deferral rate (the ADP) of the plan’s other non-highly compensated employees. In the event no non-highly compensated employee made any deferrals that year (for example, because all of them were wrongly excluded), and thus, there is no average to use, the missed deferral is calculated based on the employee’s compensation for the excluded period multiplied by the greater of 3% or the deferral rate needed for the plan to pass the ADP test.

 5. Benefit Overpayments

Rev. Proc. 2026-34 incorporates the SECURE 2.0 overpayment rules and the IRS’s interim guidance on them (Notice 2024-77), with a few changes made in response to public comments, such as the $250 exception noted below. Under these rules, a plan generally does not have to recover an “Inadvertent Benefit Overpayment” (an overpayment caused by an eligible inadvertent error) or make the plan whole. Key points:

• The plan sponsor may still choose to seek repayment, subject to limits in ERISA Section 206(h), added by SECURE 2.0, for plans covered by ERISA. Among other things, the plan generally may not charge interest or collection costs, may not reduce future annuity payments by more than 10% per year to recoup an overpayment, may not seek recovery from a spouse or beneficiary of the original recipient, and may not seek recovery if the first overpayment was made more than three years before the recipient is notified in writing. These limits generally do not apply if the recipient was culpable, for example by misrepresenting facts.
• Overpayments caused by Section 415, 401(a)(17), or 436 limit failures still must be repaid or made up to the plan, unless they total $250 or less.
• If the plan sponsor does not seek repayment, the overpayment can be rolled over. If, however, repayment is sought, the plan sponsor must notify the recipient that any unreturned amount is not eligible for rollover. Overpayments caused by Section 415 or 401(a)(17) failures are always treated as if repayment were sought, so the notice is required and any unreturned amount cannot be rolled over.
• Overpayments to disqualified persons (as defined in Code Section 4975(e)(2), which generally includes plan fiduciaries and service providers, the employer, owners of 50% or more of the employer, certain officers, directors, and 10% shareholders, and family members of these persons) or owner-employees (sole proprietors and partners owning more than 10% of a partnership) are not eligible for this relief.
• If the plan will keep paying the incorrect amount going forward, the sponsor must adopt a plan amendment reflecting past and future payments, and the amendment cannot violate other Internal Revenue Code limits such as Sections 415 and 401(a)(17).
• An overpayment may also require a corrective payment if it caused another error, such as a misallocated profit-sharing contribution that shortchanged other participants.

 6. Other Practical Changes 

• No notice is required to inform a participant that an excess amount of $250 or less is not rollover-eligible.
• A commercial locator service using consumer reporting agency data is deemed a reasonable search for lost participants.
• A new safe-harbor method covers missed suspension-of-benefits notices in defined benefit plans.
• Spousal consent corrections must ensure the spouse receives the full benefit due.
• Group VCP submissions let pre-approved plan providers, 403(b) annuity providers, and plan administrators correct the same systemic error across many client plans in a single filing. A group submission requires at least 10 affected plans, and the provider must notify each plan sponsor at least 30 days before filing; a plan is included unless its sponsor opts out.
• If the only problem the IRS finds in a determination letter review is a late required amendment (a “nonamender failure”) that the sponsor did not disclose, the Audit CAP sanction is 200% of the applicable VCP user fee. The IRS may reduce the sanction, but generally not below 100% of the VCP fee, if an amendment was timely adopted but turned out to be defective, and may increase the sanction in egregious cases.
• SEP and SIMPLE IRA corrections generally mirror those for a qualified plan with a similar failure. Because contributions go to IRAs, a reasonable interest rate may be used for earnings when actual returns cannot be estimated. Excess contributions left in an employee’s IRA trigger a sanction of at least 10% of the excess, unless the total excess is $250 or less.
• The two appendices of correction methods in Rev. Proc. 2021-30 (Appendix A, safe harbor correction methods, and Appendix B, additional correction methods, examples, and earnings adjustment methods) are merged into a single Appendix. Duplicative provisions were removed, and the examples now use current contribution limits and plan years.

 7. A Possible Change Ahead: Earnings Calculations

The IRS is asking for comments on making the DOL’s Voluntary Fiduciary Correction Program (“VFCP”) Online Calculator a standard way to compute lost earnings. It may also make that rate a minimum (floor) for all defined contribution plan corrections. Comments are due January 20, 2027. Sponsors should expect that the rules governing the calculation of lost earnings may change.

The New IRA Correction Program (ICRS)

For the first time, IRA owners and IRA custodians will have a formal IRS program to fix certain IRA errors. ICRS is created by the companion Rev. Proc. 2026-33 and takes effect May 1, 2027. Rev. Proc. 2026-34 points to it for IRA issues that EPCRS does not cover.

For now, ICRS has one component: the IRA Voluntary Correction Program (IVCP). There is no self-correction available for IRAs yet. Key features of IVCP:

• Who can apply: the IRA custodian or the IRA owner (including beneficiaries). Covered accounts include traditional, Roth, SEP, and SIMPLE IRAs. Plan-level SEP and SIMPLE failures still go through EPCRS.
• Filing: online only, through Pay.gov, using IRS Form 15443. Model compliance statement IRS Form 15745 and standard schedules (IRS Forms 15745-A to 15745-C) can simplify the filing.
• Fees (filed before 2028): $3,500 for a single submission. Custodian group submissions start at $10,000 for the first 10 IRA owners, plus $250 per additional owner, capped at $50,000. Fees for 2028 and later will appear in the annual Employee Plans fee revenue procedure.
• Timing: corrections must be completed within 90 days of the compliance statement (150 days for group submissions).
• Tax relief: the IRS may waive the excise tax for missed required minimum distributions (RMDs) (Section 4974), the 6% excess contribution tax (Section 4973), and the 10% early distribution tax (Section 72(t)) when directly related to the failure.
• Eligibility limits: the IRA owner must be current on all income tax filings and not under IRS examination. Egregious failures, misuse of IRA assets, and abusive transactions are excluded.

 The Four Eligible Failures 

• Missed required minimum distribution (RMD). A service provider error caused the IRA owner to receive less than the RMD. To correct, the custodian distributes all missed RMDs with earnings, and a Form 1099-R is issued for the year of correction.
• IRA established incorrectly. The provider opened the wrong type of IRA (for example, a Roth IRA instead of a traditional IRA) or a non-IRA account. To correct, the correct type of IRA is opened and the balance is transferred to it with earnings; the new IRA is treated as opened on the original date. The IVCP submission must be filed by December 31 of the year immediately after the account was opened.
• Nonspouse beneficiary distribution or rollover. A provider error led a nonspouse beneficiary to take a distribution or make a rollover instead of a direct transfer to an inherited IRA. To correct, the beneficiary deposits the amount (with earnings, less any RMDs that would have applied) into a new inherited IRA, and the transaction is treated as a nontaxable transfer.
• Missed 60-day rollover. A rollover was not completed within 60 days, and denying relief would be inequitable (for example, because of illness, a disaster, or a financial institution’s error). To correct, the amount is deposited into an eligible plan or IRA and treated as a valid rollover. Only the IRA owner can apply, and a provider error is not required.

The first three failures require that a service provider made the error. That includes custodians, financial planners, advisers, accountants, and attorneys under a service contract. For RMD and IRA establishment failures, the provider must also have had reasonable practices and procedures that were routinely followed.

60-Day Rollover Waivers Are Moving to ICRS

Today, waivers outside the automatic and self-certification rules require a private letter ruling. In 2027, taxpayers may use either a letter ruling or ICRS. Starting in 2028, the IRS expects these requests to go only through ICRS. The free self-certification procedure (Rev. Proc. 2020-46) and automatic waivers remain available.

Watch the Refund Clock

Filing under IVCP does not extend the time to claim a tax refund. If a correction will produce a refund for a year that may close soon, the IRA owner should consider a protective refund claim. After the compliance statement is issued, the owner may need to file an amended return.

What Do These Changes Mean for You?

 Plan sponsors

• Put your procedures in writing. Self-correction depends on having compliance practices and procedures in place before the error. Written payroll, eligibility, deferral, loan, and distribution procedures will be your best evidence. Section 7.02 of Rev. Proc. 2026-34 states that a plan document alone does not constitute evidence of established procedures.
• Document every fix. For each error, record the occurrence, including when it was found, who was affected, how it was calculated, and when it was fixed. Without that memorialization, the IRS may not accept an attempted self-correction on audit.
• Pay attention to timing. Self-correction must be completed within a reasonable period after an error is identified, so the date the error is identified starts the clock. Record that date for each error. A correction is treated as timely if it is finished by the later of (1) the last day of the third plan year after the plan year in which the error occurred or (2) 18 months after the error was identified. If the employer was never eligible to sponsor the plan, it must stop all contributions within six months after identifying the problem.
• Act before an audit letter arrives. Once the plan is under examination, most self-correction options close and correcting an error can become significantly more costly than had it been addressed prior to audit.
• Revisit open overpayments. Decide whether to seek repayment under the new rules, and send the required rollover notices if repayment is being sought.
• Review auto-enrollment administration. Confirm deferral elections and escalations are applied correctly so errors are caught within the safe-harbor windows.

IRA owners and custodians

• Flag possible IRA errors now, even though ICRS opens May 1, 2027. The IRA establishment failure has a hard deadline: December 31 of the year after the account was opened.
• Save the paper trail. For beneficiary and service-provider errors, the IRS will want written communications. Notes of phone calls help but carry less weight.
• Stay current on tax filings. IRA owners must be current on all returns to be included in an IVCP submission.
• Custodians: review your procedures. Group submissions require at least 10 affected IRA owners, a 45-day advance notice, owner opt-in, and a post-correction notice. Your procedures will be reviewed as part of the filing.

 Found an Error?

The new rules reward sponsors and IRA owners who act quickly and document well. The sooner we hear about a problem, the more correction options stay open and the lower the cost tends to be.

If you discover, or even suspect, a plan or IRA error, please contact us before taking corrective action. We can help you:

• Determine whether the error qualifies for self-correction, VCP, or the new IRA program.
• Choose the correction method, including any applicable safe-harbor method, and calculate corrective contributions and lost earnings.
• Build the correction file you will need if the IRS asks for proof.
• Draft any plan amendments, participant notices, and overpayment letters.
• Prepare and file VCP or IVCP submissions, including requests for excise tax relief.
• Review your written procedures so future errors qualify for self-correction.

Please reach out to us to discuss any plan correction issues you might have. Our attorneys combine decades of plan correction experience and deep understanding of the IRS correction procedures. A call now can prevent a much larger and more costly problem.

Ari Sonneberg specializes in the fields of ERISA and employee benefits. Ari advises and represents clients with respect to design, compliance and all other aspects of qualified and non-qualified employee benefit plans. He has extensive experience in drafting, designing, amending, and restating qualified and non-qualified employee benefit plans and related trusts, including money purchase pension plans, profit sharing plans, 401(k) plans, defined benefit plans, welfare benefit plans, medical expense reimbursement plans, 403(b) plans, and nonqualified deferred compensation plans.