Retirement plan correction under the new EPCRS: how we decide

On October 22, 2026, the IRS announced in news release IR-2026-126 that Rev. Proc. 2026-34 rewrites the Employee Plans Compliance Resolution System, the program a plan sponsor uses to fix mistakes in a 401(k), 403(b), SEP, or SIMPLE IRA plan. The new revenue procedure took effect the same day and replaces Rev. Proc. 2021-30. A companion revenue procedure, Rev. Proc. 2026-33, creates a separate correction system for IRAs that doesn't start until May 1, 2027.

Retirement plan correction isn't a new idea. What changed is who can fix what on their own, how long they have to do it, and what happens when the fix is still in progress when an examiner shows up. For the closely held Oklahoma or Texas company whose owner signed the adoption agreement, that's the whole question.

Here's how we think about it: five questions, asked in order, before anyone picks self-correction, a voluntary filing, or the quiet hope that nobody notices, which is a choice too.

Question one: whether this is an "eligible inadvertent failure" at all

Everything in the restructured program turns on a defined term. Under section 4.09 of the revenue procedure, an Eligible Inadvertent Failure is one that occurs despite the existence of practices and procedures that satisfy the standards in section 7.02. In plain terms, the plan was being run with real compliance routines and the mistake slipped through anyway.

The definition carves three things out. A failure that's egregious, one that relates to the diversion or misuse of plan assets, or one tied to an abusive tax avoidance transaction is not an Eligible Inadvertent Failure, and the self-correction door closes.

One example of egregious appears in the revenue procedure: a plan that has consistently and improperly covered only highly compensated employees. Section 5.06 adds that SCP isn't available for egregious failures at all, while VCP and Audit CAP are, with the IRS reserving the right to impose a larger sanction.

Why does this matter to a twelve-employee company? Because "we don't have written procedures, we just have the person who runs payroll" is a sentence that gets said a lot, and the practices-and-procedures requirement is the gate everything else sits behind. Our first job in any plan-error conversation is to find out what routines actually existed and who ran them. Then comes the harder question of whether they can be documented after the fact without inventing anything.

Question two: which kind of failure it is

The revenue procedure sorts failures into categories, and the category decides the menu. The ones a small employer actually meets are these.

Operational failures

Here the plan document said one thing and the payroll system did another. The wrong definition of compensation, a missed deferral for a newly eligible employee, a late match, or a loan that wasn't repaid on schedule. This is the bread and butter of self-correction, and it's where most of the expanded relief lands.

Plan document, demographic, and employer eligibility failures

A Plan Document Failure, per section 4.01(2)(a), is a plan provision (or the absence of one) that on its face violates the qualification requirements. A Demographic Failure is one whose correction, under section 6.06, generally requires a corrective amendment to the plan adding more benefits. An Employer Eligibility Failure is the one whose only permitted correction, under section 6.05, is the cessation of all contributions under the plan, which tells you what kind of problem it is.

Under the prior program these were VCP territory. Rev. Proc. 2026-34, implementing section 305 of the SECURE 2.0 Act, now permits self-correction of certain Demographic, Employer Eligibility, and Plan Document Failures under sections 6.05 through 6.07. It also removes the old requirement that a qualified plan or 403(b) plan hold a favorable IRS letter before using SCP.

Loan failures

Participant loan problems get their own self-correction route in section 6.13, which the revenue procedure lists among the failures a sponsor may now fix without a filing. The mechanics for a specific loan defect sit in that section, and we'd read it against the plan's loan policy before choosing a method.

Where the practitioner's edge lives

A plan error almost never surfaces on the day it happens. It surfaces when the payroll provider changes or when a new recordkeeper runs a conversion file and the numbers don't tie. The same handoff that exposes a payroll deposit problem tends to expose the deferral problem sitting next to it.

That timing matters because the clock in the next question runs from identification, not from the original mistake. The day someone in the company first understands there's a failure is a date we try to pin down early and document, because later it will be the most contested fact in the file.

Question three: how much time is actually left

The old instinct was "we'll clean it up next plan year." The new revenue procedure gives that instinct a defined clock.

Self-correction of an Eligible Inadvertent Failure must be completed within a reasonable period after the failure is identified. Section 7.05 then supplies a deemed-reasonable test: a correction 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 identification of the failure, is treated as timely. A footnote notes this replaces the flat 18-month rule in Notice 2023-43.

Two special clocks sit alongside it. An Employer Eligibility Failure is timely self-corrected if contributions cease as soon as reasonably practicable and no later than the last day of the sixth month after the failure is identified. And a deferral failure can be corrected with a reduced QNEC (a qualified nonelective contribution the employer makes to make the employee whole) only if the correction is completed by the last day of the third plan year after the failure year.

Read those together and a pattern appears. Our reading of the text is that it rewards the sponsor who moves once the problem is known and withdraws the cheapest correction methods from the sponsor who waits. A three-year-old deferral failure found today still has 18 months of runway for self-correction, but the reduced-QNEC method may already be gone for the earliest affected year.

For the SEP or SIMPLE IRA sponsor, there's a threshold step before any of this. Section 2.02(1)(a)(vi) extends SCP to those arrangements only "if certain plan document requirements are met," with the details in section 7. A small employer who adopted a SIMPLE on a prototype form a decade ago and hasn't looked at it since should expect that document to be the first thing anyone pulls.

Question four: whether an examination is already in motion

The general rule in section 5.02 is blunt: if the plan or the plan sponsor is Under Examination, SCP and VCP are not available. The term is defined in section 4.08 to cover a plan under an Employee Plans examination, a sponsor under an Exempt Organizations examination, and a plan under investigation by IRS Criminal Investigation. A plan aggregated with an examined plan for certain coverage or nondiscrimination purposes is treated as examined too.

Once that status attaches, self-correction narrows to two lanes. The sponsor can show a specific commitment to implement a self-correction of the failure, or the failure is an insignificant Operational Failure under section 8.02. Whether a specific commitment exists depends on all the facts and circumstances, and section 8.01 says it must include a demonstration that the sponsor is actively pursuing correction.

Section 7.05(2)(b) adds a paper requirement: when the plan is Under Examination, the sponsor has to provide documentation substantiating the self-correction. A fix that lives in someone's memory doesn't count.

This is the point where the decision framework flips from accounting to posture. The government-favorable reading is simple and fair: a sponsor shouldn't get the no-fee program by starting the fix the week the examiner's letter arrives. The taxpayer-favorable reading is equally real: a sponsor who identified the error, engaged the recordkeeper, and started computing corrective contributions months before the exam notice has a legitimate specific commitment, provided the file shows it. Which reading applies is decided by what's written down, which is why we'd want a lawyer looking at the correction file before any examiner does.

Question five: what each retirement plan correction program costs in exposure

With the first four answers in hand, the choice among the three programs is usually obvious. Section 1.03 lays out the structure.

• Self-Correction Program (SCP). A sponsor with established compliance practices and procedures may correct certain failures without paying any fee or sanction. There's no IRS filing and no approval letter at the end. The sponsor carries the burden of proving later that the correction was proper and timely.
• Voluntary Correction Program (VCP). The sponsor pays a limited fee and receives IRS approval of the correction. It's available at any time before the plan or sponsor is Under Examination. The fee schedule is in the IRS's annual user-fee revenue procedure, not in the EPCRS document itself, so we don't state amounts here.
• Audit Closing Agreement Program (Audit CAP). For failures the IRS finds on examination, the sponsor corrects and pays a sanction. The revenue procedure ties the sanction to the nature, extent, and severity of the failure and to how much correction took place before the audit.

The honest trade-off between SCP and VCP is certainty versus cost. SCP is free, but a self-corrected Plan Document Failure that an examiner later disagrees with becomes an Audit CAP conversation with no closing letter to point to. VCP costs a fee and takes time, but it ends with the IRS signing off on the method. For a failure that's unusual or large relative to plan assets, that signature can be worth more than the fee.

Section 1.02 states one of the program's guiding principles as "Plan Sponsors should be able to rely on the availability of EPCRS." Our reading is that reliance runs in both directions. The sponsor who documents and moves gets the benefit of the doubt; the sponsor who discovers the error, shrugs, and keeps filing the 5500 is the one Audit CAP exists for.

The small-dollar rules and the owner-participant problem

A few specifics in Rev. Proc. 2026-34 are aimed squarely at small plans, and they change the math on whether a cleanup is even worth a filing.

Under new Code section 414(aa), as implemented in section 6.12, no corrective payment is generally required for an Inadvertent Benefit Overpayment. The exceptions are overpayments caused by section 401(a)(17), 415, or 436 failures, which still have to be restored to the plan unless recouped. Even for those, section 6.03(4) says the sponsor isn't required to seek return of a payment of $250 or less. Recoupment from a participant is permitted but may be limited by section 206(h) of ERISA, and an overpayment the sponsor chooses not to recover is treated as an eligible rollover distribution.

Section 6.03(5) applies similar relief to Excess Amounts: if the amount is $250 or less, the sponsor isn't required to distribute or forfeit it, and the revenue procedure eliminates the prior notice requirement for those amounts.

On the deferral side, Code section 414(cc), added by section 350 of SECURE 2.0, provides a safe harbor for correcting employee deferral failures in plans with automatic enrollment or automatic escalation. The correction requires no QNEC for the missed deferrals. Rev. Proc. 2026-34 eliminates the December 31, 2023 sunset of that safe harbor and extends it to SEP arrangements, SIMPLE IRA plans, and terminated employees. The corrective matching contribution has to be allocated within a reasonable period after correct deferrals begin.

Now the wrinkle we see constantly in closely held companies. The owner who's the plan's fiduciary is often also its highest-paid participant, so the person deciding whether to recoup an overpayment or forfeit a small excess is frequently deciding about their own account. The revenue procedure doesn't carve out a special rule for that. It does mean the documentation standard in section 7.02 is doing extra work, because a correction that happens to favor the decision-maker will get read more carefully than one that doesn't. A company that recently claimed startup plan credits on Form 8881 for an auto-enrollment feature has a particular reason to get the deferral mechanics right, since the feature that earned the credit is the same one the 414(cc) safe harbor is built around.

Two things we deliberately aren't telling you

First, how the IRS will apply any of this. The revenue procedure is a day old as we write, and its section 2.03 says Treasury and the IRS continue to invite comments on how to improve EPCRS, including a proposed earnings-calculation method that would use the Department of Labor's online calculator underpayment rate as a floor. Submission instructions are in section 16 of the document; we haven't stated a comment deadline for Rev. Proc. 2026-34 because the news release doesn't give one and we aren't going to guess.

Second, anything about IRA-level errors. Rev. Proc. 2026-33, the companion document, sets up the IRA Compliance Resolution System, which at launch consists of a voluntary correction program for four failure types: required minimum distribution failures, IRA establishment failures, nonspouse beneficiary distribution or rollover failures, and 60-day rollover failures. It's effective May 1, 2027, comments are due on or before January 20, 2027, and the document says self-correction of IRA failures isn't available under it at this time. SEP and SIMPLE IRA plan failures stay in EPCRS. The release also notes that 60-day rollover waiver requests, which today go through private letter rulings, will move into ICRS over 2027 and 2028, while the existing automatic waiver and self-certification procedures remain available at no cost.

That's a separate article. The one you've just read is for the employer who signed the plan.

When the conversation should happen

If a recordkeeper or payroll provider has flagged an error in your company's 401(k), SEP, or SIMPLE IRA plan, the identification clock under Rev. Proc. 2026-34 has likely already started, and the choice between fixing it quietly and filing with the IRS gets narrower each month. We're glad to work through the five questions above with you and your plan's advisors through our contact page or our Oklahoma City office. A conversation while the correction is still yours to choose is almost always cheaper than one that starts with an examination letter.

This article is general information about Oklahoma, Texas, and federal law, not legal advice, and it does not create an attorney-client relationship. Facts matter; talk to a lawyer about yours.