rp-15-28.pdf

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Rev. Proc. 2015-28
SECTION 1. PURPOSE
The Employee Plans Compliance Resolution System (“EPCRS”) sets forth a
comprehensive system of correction programs for sponsors of retirement plans that are
intended to satisfy the requirements of § 401(a), 403(a), 403(b), 408(k), or 408(p) of the
Internal Revenue Code ("Code"), but that have failed to meet those requirements for a
period of time. The components of EPCRS are the Self-Correction Program ("SCP"),
the Voluntary Correction Program ("VCP"), and the Audit Closing Agreement Program
("Audit CAP"). EPCRS permits plan sponsors to correct failures and thereby continue
to provide employees with retirement benefits on a tax-favored basis. The most recent
restatement of EPCRS is set forth in Rev. Proc. 2013-12, 2013-4 I.R.B. 313. The
following modifications to Rev. Proc. 2013-12 are reflected in this revenue procedure:
• New safe harbor EPCRS correction methods relating to automatic contribution
features (including automatic enrollment and automatic escalation of elective
deferrals) in plans described in § 401(k) and § 403(b); and
• Special safe harbor correction methods for plans (including those with automatic
contribution features) that have failures that are of limited duration and involve
elective deferrals.
SECTION 2. BACKGROUND
.01 Section 2.05 of Rev. Proc. 2013-12 provides that it is expected that the
EPCRS revenue procedure will continue to be updated, in whole or in part, from time to
time, including in response to questions received from the public.
.02 Section 2.05(2) of Rev. Proc. 2013-12 specifically requested comments
regarding methods to correct failures to implement automatic contribution features
(including automatic escalation features that were affirmatively elected) with respect to
elective deferrals in a § 401(k) plan or a § 403(b) Plan.
.03 The Internal Revenue Service (“Service“) has received comments requesting
special correction methods with respect to a failure to implement automatic contribution
features. Commenters have stated that the cost associated with correcting failures to
implement automatic contribution features under the current rules in EPCRS, as set
forth in Rev. Proc. 2013-12, discourages employers from adopting plans with automatic
contribution features because implementation errors are more common for plans with
automatic contribution features (particularly automatic escalation features). The
commenters also noted that implementation errors typically are discovered in
connection with the preparation of a plan’s Form 5500 series return/report for a plan
year. In addition, commenters expressed the view that current EPCRS safe harbor

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correction methods for the exclusion of eligible employees in a § 401(k) plan or § 403(b)
Plan, or for failing to implement a salary reduction election in a § 401(k) plan or § 403(b)
Plan, create a “windfall” for affected employees because those employees receive both
their full salary and a 50% make-up corrective contribution. Commenters argue that this
correction overcompensates affected participants for failures that last a short period of
time because the participants usually have the opportunity to increase elective deferrals
in later periods.
.04 The 50% make-up corrective contribution mentioned by commenters was first
provided with respect to the improper exclusion of eligible employees in Rev. Proc.
2006-27, 2006-1 C.B. 945, and was extended to failures to implement employee
elections with respect to elective deferrals in Rev. Proc. 2008-50, 2008-2 C.B. 464.
Previously, Rev. Proc. 2003-44, 2003-1 C.B. 1051, had provided for a make-up
corrective contribution based on the actual deferral percentage for an affected
employee’s group multiplied by the affected employee’s compensation. The correction
principle underlying the 50% make-up corrective contribution was that corrective
contributions should make up for the value of the lost opportunity for an employee to
have a portion of his or her compensation accumulate with earnings tax deferred in the
future assuming the participant would not have the opportunity to increase elective
deferrals in later periods to make up for missed contributions and earnings that would
have accumulated until retirement.

.05 The Service is issuing this revenue procedure to improve and update EPCRS
by making limited modifications to Rev. Proc. 2013-12. These modifications to EPCRS
are described in Section 3, and revisions to Rev. Proc. 2013-12 implementing these
modifications are set forth in Section 4.
.06 The Treasury Department and the Service continue to invite further
comments on how to improve EPCRS. For information about how to submit comments,
see section 7 of this revenue procedure.

SECTION 3. DESCRIPTION OF MODIFICATIONS TO EPCRS

.01 Effect on programs. This revenue procedure modifies, but does not
supersede, Rev. Proc. 2013-12.

.02 Description of special safe harbor methods to correct failures related to
automatic contribution features in a § 401(k) plan or § 403(b) Plan. This revenue
procedure modifies the safe harbor correction methods and examples in Appendices A
and B to Rev. Proc. 2013-12 to provide alternative correction methods for Employee
Elective Deferral Failures (as defined in section 3.04 of this revenue procedure)
associated with missed elective deferrals for eligible employees who are subject to
automatic contribution features under § 401(k) plans or § 403(b) Plans (including

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employees who made affirmative elections in lieu of automatic contributions but whose
elections were not implemented correctly).
(1) Modified safe harbor correction method for Employee Elective Deferral
Failures to implement an automatic contribution feature. If the failure to implement an
automatic contribution feature for an affected eligible employee or the failure to
implement an affirmative election of an eligible employee who is otherwise subject to an
automatic contribution feature does not extend beyond the end of the 9½ month period
after the end of the plan year of the failure (which is generally the filing deadline of the
Form 5500 series return, including automatic extensions), no qualified nonelective
contribution (“QNEC”) (as defined in § 1.401(k)-6 of the Income Tax Regulations) for the
missed elective deferrals is required, provided that the following conditions are satisfied:
(a) correct deferrals begin no later than the earlier of (i) the first payment of
compensation made on or after the last day of the 9½ month period after the end of the
plan year in which the failure first occurred for the affected eligible employee or (ii) if the
Plan Sponsor was notified of the failure by the affected eligible employee, the first
payment of compensation made on or after the last day of the month after the month of
notification;
(b) notice of the failure that satisfies specified requirements in new section
.05(8)(c) of Appendix A of Rev. Proc. 2013-12 is given to the affected eligible employee
not later than 45 days after the date on which correct deferrals begin; and
(c) corrective contributions to make up for any missed matching contributions
are made in accordance with timing requirements under SCP for significant operational
failures (described in section 9.02 of Rev. Proc. 2013-12) and are adjusted for
Earnings. See section 9.04 of Rev. Proc. 2013-12.
(2) Calculation of Earnings for certain failures to implement automatic
contribution features. This revenue procedure provides an alternative safe harbor
method for calculating Earnings for Employee Elective Deferral Failures under § 401(k)
plans or § 403(b) Plans that have automatic contribution features and that are corrected
in accordance with the procedures in section 3.02(1) or 3.03 of this revenue procedure.
If an affected eligible employee has not affirmatively designated an investment
alternative, missed Earnings may be calculated based on the plan’s default investment
alternative, provided that, with respect to a correction made in accordance with the
procedures in section 3.02(1) of this revenue procedure, any cumulative losses
reflected in the Earnings calculation will not result in a reduction in the required
corrective contributions relating to any matching contributions.
(3) Availability of safe harbor correction method. The safe harbor correction
method under section 3.02(1) of this revenue procedure is available only for plans with

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respect to failures that begin on or before December 31, 2020. At a later date, the
Service will consider whether to extend the safe harbor correction method for failures
that begin in later years. In deciding whether to extend the safe harbor correction
method, the Service will take into account, among other relevant factors, the extent to
which there is an increase in the number of plans implemented with automatic
contribution features.
.03 Description of modifications to encourage the early correction of Employee
Elective Deferral Failures.
(1) Safe harbor correction method for Employee Elective Deferral Failures that
do not exceed three months. This safe harbor correction method creates a rolling
correction period for Employee Elective Deferral Failures that do not exceed three
months. Under this safe harbor, no QNEC for the missed elective deferrals is required
provided that the following conditions are satisfied:
(a) correct deferrals begin no later than the earlier of (i) the first payment of
compensation made on or after the three-month period that begins when the failure first
occurred for the affected eligible employee or (ii) if the Plan Sponsor was notified of the
failure by the affected eligible employee, the first payment of compensation made on or
after the last day of the month after the month of notification;
(b) notice of the failure that satisfies specified requirements in new section
.05(9)(c) of Appendix A of Rev. Proc. 2013-12 is given to the affected eligible employee
not later than 45 days after the date on which correct deferrals begin; and
(c) corrective contributions to make up for any missed matching contributions
are made in accordance with timing requirements under SCP for significant operational
failures (described in section 9.02 of Rev. Proc. 2013-12) and are adjusted for
Earnings. See section 9.04 of Rev. Proc. 2013-12.
(2) Safe harbor correction method for Employee Elective Deferral Failures
that extend beyond three months but do not extend beyond the SCP correction period
for significant failures. This revenue procedure creates a safe harbor correction method
for Employee Elective Deferral Failures if the period of failure exceeds three months (or
the conditions for the safe harbor correction method described in section 3.02 or 3.03(1)
are not met by the Plan Sponsor). This safe harbor correction would permit the Plan
Sponsor to make a corrective contribution equal to 25% of the missed deferrals (25%
QNEC) in lieu of the higher QNEC required in sections .05(2)(b) and .05(5)(a) of
Appendix A and section .02(1)(B) of Appendix B to Rev. Proc. 2013-12. In order to use
this safe harbor correction, the Plan Sponsor must satisfy the following conditions:

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(a) correct deferrals begin no later than the earlier of (i) the first payment of
compensation made on or after the last day of the second plan year following the plan
year in which the failure occurred or (ii) if the Plan Sponsor was notified of the failure by
the affected eligible employee, the first payment of compensation made on or after the
last day of the month after the month of notification;
(b) notice of the failure that satisfies specified requirements in new section
.05(9)(c) of Appendix A of Rev. Proc. 2013-12 is given to the affected eligible employee
not later than 45 days after the date on which correct deferrals begin; and
(c) corrective contributions (including the 25% QNEC and employer
contributions to make up for any missed matching contributions) are made in
accordance with timing requirements under SCP for significant operational failures
(described in section 9.02 of Rev. Proc. 2013-12) and are adjusted for Earnings. See
section 9.04 of Rev. Proc. 2013-12.
.04 Employee Elective Deferral Failure. For purposes of this revenue procedure,
an Employee Elective Deferral Failure is a failure to correctly implement elective
deferrals in a § 401(k) plan or § 403(b) Plan including elective deferrals pursuant to an
affirmative election or pursuant to an automatic contribution feature (including an
automatic escalation feature) and a failure to afford an employee the opportunity to
make an affirmative election because the employee was improperly excluded from the
plan.
SECTION 4. MODIFICATIONS TO REV. PROC. 2013-12
.01 Appendix A of Rev. Proc. 2013-12 is revised to add the following new section
.05(8) to Appendix A. As revised, section .05(8) of Appendix A reads as follows:
(8) Special safe harbor correction method for failures
related to automatic contribution features in a § 401(k) plan or a
403(b) Plan. (a) Eligibility to use safe harbor correction method.
This safe harbor correction method is available for certain
Employee Elective Deferral Failures (as defined in section
.05(10) of this Appendix A) associated with missed elective
deferrals for eligible employees who are subject to an automatic
contribution feature in a § 401(k) plan or 403(b) Plan (including
employees who made affirmative elections in lieu of automatic
contributions but whose elections were not implemented
correctly). If the failure to implement an automatic contribution
feature for an affected eligible employee or the failure to
implement an affirmative election of an eligible employee who is
otherwise subject to an automatic contribution feature does not

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extend beyond the end of the 9½ month period after the end of
the plan year of the failure (which is generally the filing deadline
of the Form 5500 series return, including automatic extensions),
no QNEC for the missed elective deferrals is required, provided
that the following conditions are satisfied:
(i) Correct deferrals begin no later than the earlier of
the first payment of compensation made on or after the last day
of the 9½ month period after the end of the plan year in which
the failure first occurred for the affected eligible employee or, if
the Plan Sponsor was notified of the failure by the affected
eligible employee, the first payment of compensation made on or
after the end of the month after the month of notification;
(ii) Notice of the failure that satisfies the content
requirements of section .05(8)(c) of this Appendix A is given to
the affected eligible employee not later than 45 days after the
date on which correct deferrals begin; and
(iii) If the eligible employee would have been entitled to
additional matching contributions had the missed deferrals been
made, the Plan Sponsor makes a corrective contribution
(adjusted for Earnings) on behalf of the employee equal to the
matching contributions that would have been required under the
terms of the plan as if the missed deferrals had been contributed
to the plan in accordance with timing requirements under SCP
for significant operational failures (described in section 9.02 of
this revenue procedure).
(b) Calculation of Earnings for certain failures to
implement automatic contribution features. This correction
method provides an alternative safe harbor method for
calculating Earnings for Employee Elective Deferral Failures
under § 401(k) plans or 403(b) Plans that have automatic
contribution features and that are corrected in accordance with
the procedures in this section .05(8). If an affected eligible
employee has not affirmatively designated an investment
alternative, missed Earnings may be calculated based on the
plan’s default investment alternative, provided that, with respect
to a correction made in accordance with the procedures in this
section .05(8), any cumulative losses reflected in the Earnings
calculation will not result in a reduction in the required corrective

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contributions relating to any matching contributions. The Plan
sponsor may also use the Earnings adjustment methods set forth
in section 3 of Appendix B of this revenue procedure.
(c) Content of notice requirement. The notice required
under section .05(8)(a)(ii) of this Appendix A must include the
following information:
(i) General information relating to the failure, such as
the percentage of eligible compensation that should have been
deferred and the approximate date that the compensation should
have begun to be deferred. The general information need not
include a statement of the dollar amounts that should have been
deferred.
(ii) A statement that appropriate amounts have begun
to be deducted from compensation and contributed to the plan
(or that appropriate deductions and contributions will begin
shortly).
(iii) A statement that corrective contributions relating to
missed matching contributions have been made (or that
corrective contributions will be made). Information relating to the
date and the amount of corrective contributions need not be
provided.
(iv) An explanation that the affected participant may
increase his or her deferral percentage in order to make up for
the missed deferral opportunity, subject to applicable limits under
section 402(g).
(v) The name of the plan and plan contact information
(including name, street address, e-mail address, and telephone
number of a plan contact).
(d) Sunset of safe harbor correction method. The safe
harbor correction method described in this section .05(8) of this
Appendix A is available for plans only with respect to failures that
begin on or before December 31, 2020.
.02 Appendix A of Rev. Proc. 2013-12 is revised to add the following new section
.05(9) to Appendix A. As revised, section .05(9) of Appendix A reads as follows:

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(9) Safe harbor correction methods for Employee Elective
Deferral Failures in § 401(k) plans or 403(b) Plans. (a) Safe
harbor correction method for Employee Elective Deferral Failures
that do not exceed three months. Under this safe harbor
correction method, an Employee Elective Deferral Failure (as
defined in section .05(10) of this Appendix A) can be corrected
without a QNEC for missed elective deferrals if the following
conditions are satisfied:
(i) Correct deferrals begin no later than the earlier of
the first payment of compensation made on or after the last day
of the three-month period that begins when the failure first
occurred for the affected eligible employee or, if the Plan
Sponsor was notified of the failure by the affected eligible
employee, the first payment of compensation made on or after
the end of the month after the month of notification;
(ii) Notice of the failure that satisfies the content
requirements of section .05(9)(c) of this Appendix A is given to
the affected eligible employee not later than 45 days after the
date on which correct deferrals begin; and
(iii) If the eligible employee would have been entitled to
additional matching contributions had the missed deferrals been
made, the Plan Sponsor makes a corrective contribution
(adjusted for Earnings, which may be calculated as described in
section .05(8)(b) of this Appendix A) on behalf of the employee
equal to the matching contributions that would have been
required under the terms of the plan as if the missed deferrals
had been contributed to the plan in accordance with timing
requirements under SCP for significant operational failures
(described in section 9.02 of this revenue procedure).
(b) Safe harbor correction method for Employee Elective
Deferral Failures that extend beyond three months but do not
extend beyond the SCP correction period for significant failures.
This safe harbor correction is for failures that exceed three
months (or the conditions for the safe harbor correction method
described in section .05(8) or .05(9)(a) of Appendix A of this
revenue procedure are not met by the Plan Sponsor). Under this
safe harbor correction, the required corrective employer
contribution is equal to 25% of the missed deferrals (25% QNEC)

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in lieu of the higher QNEC required in sections .05(2)(b) and
.05(5)(a) of Appendix A of this revenue procedure. In order to
use this safe harbor correction method, the Plan Sponsor must
satisfy the following conditions:
(i) Correct deferrals begin no later than the earlier of
the first payment of compensation made on or after the last day
of the second plan year following the plan year in which the
failure occurred or, if the Plan Sponsor was notified of the failure
by the affected eligible employee, the first payment of
compensation made on or after the end of the month after the
month of notification;
(ii) Notice of the failure that satisfies the content
requirements of section .05(9)(c) of this Appendix A is given to
an affected participant not later than 45 days after the date on
which correct deferrals begin; and
(iii) Corrective contributions (including the 25% QNEC
and employer contributions to make up for any missed matching
contributions) are made in accordance with timing requirements
under SCP for significant operational failures (described in
section 9.02 of this revenue procedure), including adjustments
for Earnings, which may be calculated as described in section
.05(8)(b) of this Appendix A.
(c) Content of notice requirement. The notice required
under section .05(9)(a)(ii) and section .05(9)(b)(ii) of this
Appendix A must include the following information:
(i) General information relating to the failure, such as
the percentage of eligible compensation that should have been
deferred and the approximate date that the compensation should
have begun to be deferred. The general information need not
include a statement of the dollar amounts that should have been
deferred.
(ii) A statement that appropriate amounts have begun
to be deducted from compensation and contributed to the plan
(or that appropriate deductions and contributions will begin
shortly).

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(iii) A statement that corrective contributions have been
made (or that corrective contributions will be made). Information
relating to the date and the amount of corrective contributions
need not be provided.
(iv) An explanation that the affected participant may
increase his or her deferral percentage in order to make up for
the missed deferral opportunity, subject to applicable limits under
section 402(g).
(v) The name of the plan and plan contact information
(including name, street address, e-mail address, and telephone
number of a plan contact).
.03 Appendix A of Rev. Proc. 2013-12 is revised to add the following
new section .05(10). As revised, section .05(10) of Appendix A reads as
follows:
(10) Employee Elective Deferral Failure. For purposes of
sections .05(8) and .05(9) of this Appendix A, an “Employee
Elective Deferral Failure” is a failure to implement elective
deferrals correctly in a § 401(k) plan or 403(b) Plan, including
elective deferrals pursuant to an affirmative election or pursuant
to an automatic contribution feature under a § 401(k) plan or
403(b) Plan, and a failure to afford an employee the opportunity
to make an affirmative election because the employee was
improperly excluded from the plan. Automatic contribution
features include automatic enrollment and automatic escalation
features (including automatic escalation features that were
affirmatively elected).
SECTION 5. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 2013-12 is modified by this revenue procedure.

SECTION 6. EFFECTIVE DATE

This revenue procedure is effective April 2, 2015.

SECTION 7. PUBLIC COMMENTS

The Treasury Department and the Service invite comments on this revenue
procedure. Send submissions to CC:PA:LPD:PR, (Rev. Proc. 2015-28), Room 5203,
Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, D.C.

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20044. Comments may also be hand delivered Monday through Friday between the
hours of 8 a.m. and 4 p.m. to: Internal Revenue Service, CC:PA:LPD:PR, (Rev. Proc.
2015-28), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W.,
Washington DC. Alternatively, comments may be submitted via the Internet at
notice.comments@irscounsel.treas.gov
(Rev. Proc. 2015-28). All comments will be
available for public inspection.

SECTION 8. PAPERWORK REDUCTION ACT

The collection of information contained in this revenue procedure has been
reviewed and approved by the Office of Management and Budget in accordance with
the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-1673.

An agency may not conduct or sponsor, and a person is not required to respond
to, a collection of information unless the collection of information displays a valid OMB
control number.

The collection of information in this revenue procedure is in sections 4.01 and
4.02. This information is required to enable the Commissioner, Tax Exempt and
Government Entities Division of the Internal Revenue Service to consider the issuance
of various types of closing agreements and compliance statements. This information
will be used to issue closing agreements and compliance statements to allow individual
plans to continue to maintain their tax favored status. As a result, favorable tax
treatment of the benefits of the eligible employees is retained. The likely respondents
are individuals, state or local governments, businesses or other for-profit institutions,
nonprofit institutions, and small businesses or organizations.

The estimated total annual reporting or recordkeeping burden is 5,643 hours.

The estimated annual burden per respondent/recordkeeper varies from .5 to 10
hours, depending on individual circumstances, with an estimated average of 5.25 hours.
The estimated number of respondents or recordkeepers is 1,075.

The estimated frequency of responses is occasional.

Books or records relating to a collection of information must be retained as long
as their contents may become material in the administration of any internal revenue law.
Generally tax returns and tax return information are confidential, as required by 26
U.S.C. § 6103.

SECTION 9. DRAFTING INFORMATION

The principal author of this revenue procedure is Kathleen Herrmann of the
Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government

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Entities). For further information regarding this revenue procedure, contact Kathleen
Herrmann or Vernon Carter at (202) 317-6799 (not a toll-free number).