EPCRS 2026: Correct Retirement Plan Errors Before an IRS Audit

A missed employee, incorrect match, late plan amendment, or loan administered outside the document can threaten a retirement plan’s tax-favored status. Effective October 22, 2026, Revenue Procedure 2026-34 replaces the prior Employee Plans Compliance Resolution System, or EPCRS, and expands when sponsors can fix eligible inadvertent failures without first asking the IRS. The sponsor still must restore benefits, calculate earnings, document the failure, and prove that reasonable compliance procedures existed before the mistake.

What Revenue Procedure 2026-34 Changed

EPCRS continues to cover qualified plans under Sections 401(a) and 403(a), Section 403(b) plans, SEP arrangements, and SIMPLE IRA plans. The new procedure incorporates SECURE 2.0 changes and supersedes Revenue Procedure 2021-30 and related interim guidance.

Key changes include:

• Broader SCP access. Eligible inadvertent failures can include certain operational, plan-document, demographic, employer-eligibility, and participant-loan failures.
• No favorable-letter prerequisite. A qualified or 403(b) plan does not need a favorable determination, opinion, or advisory letter merely to use SCP.
• More plan types. SEP arrangements and SIMPLE IRA plans can use SCP when their documents satisfy the procedure’s conditions.
• Permanent automatic-enrollment relief. The correction method for certain automatic contribution failures no longer expires, extends to SEP and SIMPLE IRA arrangements, and can cover terminated employees when the conditions are met.
• Updated overpayment rules. A sponsor generally need not recover an inadvertent benefit overpayment unless another failure or specified Code limit requires restoration; ERISA can separately limit recovery.

The procedure also recognizes a separate IRA Compliance Resolution System under Revenue Procedure 2026-33. That program begins May 1, 2027; it is not a reason to run an employer plan correction through an individual IRA process.

Choose SCP, VCP, or Audit CAP Before You Calculate

The correction program determines the sponsor’s cost, process, and level of IRS reliance.

1. Self-Correction Program (SCP): no IRS filing or user fee. Use it only when the plan has qualifying compliance procedures, the failure and correction method are eligible, and the correction is completed within a reasonable period.
2. Voluntary Correction Program (VCP): file Form 8950 through Pay.gov before the plan or sponsor is under examination. The submission identifies the failure, proposed correction, calculations, and administrative changes. An accepted case produces an IRS compliance statement covering the disclosed failures.
3. Audit Closing Agreement Program (Audit CAP): used when the IRS identifies an uncorrected failure during examination. The sponsor corrects the plan and negotiates a sanction tied to the nature, duration, severity, participant impact, and potential tax exposure.

SCP does not produce an IRS approval letter. VCP may be preferable when the failure is outside SCP, the method is unusual, a transaction is pending, or other parties need formal reliance.

Build the Documentation File That SCP Requires

Revenue Procedure 2026-34 requires established practices and procedures—formal or informal—reasonably designed to keep the plan compliant. They must have been in place and routinely followed; a plan document alone is not enough.

For each correction, retain a sponsor-approved memorandum or workpaper that records:

• the failure type, governing provision, affected years, discovery date, and participants;
• how the error occurred and which pre-existing control failed;
• participant calculations, source reports, earnings method, and funding evidence;
• the legal basis for using SCP and the correction method selected;
• completion dates, participant notices, plan amendments, tax reporting, and approvals; and
• the control change designed to prevent recurrence.

If the plan later comes under examination, the IRS may request this documentation to determine whether the sponsor completed a valid self-correction.

Use the New Timing Rule Without Treating It as a Delay

An identified eligible inadvertent failure must be corrected within a reasonable period. The new safe timing rule deems a correction reasonable when it is completed by the later of:

• the last day of the third plan year following the plan year in which the failure occurred; or
• 18 months after the sponsor identifies the failure.

Specific failures can have different conditions or shorter operational deadlines. For example, an employer-eligibility failure generally requires contributions to stop as soon as reasonably practicable and no later than the last day of the sixth month after identification. A reduced QNEC for certain elective-deferral failures also has its own deadline.

Do not bank the full outer window. Earnings grow, records deteriorate, participants leave, and an IRS examination can end the normal SCP period. After examination begins, SCP generally survives only for an insignificant operational failure or where the sponsor had demonstrated a specific commitment and was actively pursuing correction.

Know Which Failures Still Do Not Belong in SCP

Broader self-correction is not universal. Revenue Procedure 2026-34 excludes or restricts SCP for several failures, including an initial failure to adopt a written plan, failures under certain SEP or SIMPLE IRA documents, orphan-plan failures, specified failures in terminated plans, certain ESOP failures, and failures in fully insured defined benefit plans described in Section 412(e)(3).

A retroactive amendment generally cannot be self-corrected if it makes benefits, rights, or features less favorable. Certain demographic failures require a prescribed method, and excess amounts cannot remain in a SEP or SIMPLE IRA under a disallowed SCP method.

EPCRS does not cure every related issue. Form 5500 failures, prohibited transactions, some excise taxes, DOL fiduciary violations, late deposits, and disclosure errors may require separate programs. One event can require coordinated IRS, DOL, tax-form, and plan-document work.

Run a Sponsor-Level Correction Workflow

A recordkeeper or administrator can process a correction, but the employer remains the plan sponsor. Use a repeatable sequence:

1. Freeze the facts. Preserve the plan document, amendments, payroll files, census, trust records, elections, notices, and service-provider communications for the affected period.
2. Classify the failure. Separate operational, document, demographic, employer-eligibility, loan, overpayment, tax-reporting, and fiduciary issues.
3. Select the program. Prepare a written SCP eligibility analysis or a VCP submission plan before money moves.
4. Model the correction. Calculate principal, earnings, allocations, notices, amendments, and tax forms by participant.
5. Execute and reconcile. Tie cash and participant accounts to the approved schedule, then confirm every required notice, amendment, Form 1099-R, Form W-2, or other filing.
6. Repair the control. Assign an owner, cadence, evidence standard, and escalation threshold for the failed process.

For VCP, the sponsor submits Form 8950 and supporting PDFs through Pay.gov. If the IRS issues a compliance statement, corrections and administrative changes generally must be implemented within 150 days, unless the IRS approves an extension.

Common Mistakes

• Assuming “inadvertent” means automatically eligible. SCP still requires qualifying procedures, an eligible failure, an acceptable method, and timely completion.
• Starting the clock at year-end. The file should identify the actual discovery date because the 18-month period runs from identification.
• Keeping only the funding receipt. The correction file also needs the failure analysis, affected population, earnings, notices, approvals, and preventive control.
• Letting the vendor own the conclusion. Service providers supply records and calculations; the sponsor must approve the legal and operational path.
• Using SCP for an excluded failure. Initial document adoption, certain terminated-plan matters, and less-favorable retroactive amendments can require VCP or another process.
• Ignoring DOL and tax-reporting consequences. A valid IRS plan correction may not resolve late deposits, fiduciary breaches, prohibited transactions, or incorrect forms.
• Waiting for an audit notice. Examination can close VCP and materially narrow SCP, moving the issue into a negotiated Audit CAP sanction.

The Bottom Line

Revenue Procedure 2026-34 gives sponsors more room to repair honest errors without an IRS filing, but only a documented process can defend that result. Identify failures early, preserve the discovery date, prove that controls existed, calculate participant restoration, and close the loop with evidence. Use VCP before examination when SCP is unavailable or formal reliance is worth the fee. Include the CPA, administrator, ERISA counsel, payroll provider, and fiduciaries when the facts cross tax, labor, or reporting rules.