IRS Compliance Corrections Made Easier: What Plan Sponsors Need to Know About the EPCRS Expansion

The IRS recently released Revenue Procedure 2026-34 ("Rev. Proc. 2026-34"), expanding the Employee Plans Compliance Resolution System (EPCRS), the framework that allows plan sponsors to correct retirement plan errors without jeopardizing the plan's tax-qualified status. Generally effective October 22, 2026, the Rev. Proc. 2026-34 implements the self-correction expansion mandated by Section 305 of the SECURE 2.0 Act of 2022 and changes addressing overpayments under Section 301(b). This alert summarizes selected key changes to EPCRS and practical steps for plan sponsors to consider under Rev. Proc. 2026-34.

Brief Background

EPCRS is the IRS's correction program for qualified retirement plans, 403(b) plans, simplified employee pension (SEP) arrangements, and savings incentive match plan for employees (SIMPLE) individual retirement account (IRA) plans. It has three components: the Self-Correction Program (SCP), which lets sponsors fix errors internally without an IRS filing or user fee; the Voluntary Correction Program (VCP), which requires an IRS filing and a user fee; and Audit CAP, used when a failure is found during an IRS examination. Rev. Proc. 2026-34 broadens what can be self-corrected and for how long, while also clarifying the treatment of inadvertent overpayments and retroactive plan amendments. Plan sponsors should expect meaningfully more flexibility to resolve routine errors without an IRS filing.

What's Changing?

• "Eligible Inadvertent Failure." The updated EPCRS creates the category of "Eligible Inadvertent Failure" as the general gateway to self-correction, subject to specific exclusions. The distinction between significant and insignificant failures, however, remains relevant in certain circumstances. An Eligible Inadvertent Failure is an error that occurs despite established practices and procedures reasonably designed to promote compliance. This category excludes egregious failures, failures relating to the diversion or misuse of plan assets, and failures directly or indirectly related to an abusive tax avoidance transaction.
• A Longer and More Flexible Self-Correction Window. Correction of an Eligible Inadvertent Failure must be completed within a "reasonable period" after the sponsor identifies it. 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 deemed timely. Special rules apply to actual deferral percentage (ADP) and actual contribution percentage (ACP) test failures. For an Employer Eligibility Failure, the sponsor generally must cease all contributions as soon as reasonably practicable after identification, but no later than the last day of the sixth month following the date of identification.
• Self-Correction While Under IRS Examination. An Eligible Inadvertent Failure may still be self-corrected while the plan or sponsor is "Under Examination" if the failure is an insignificant Operational Failure otherwise eligible for the SCP, or the sponsor took actions demonstrating a specific commitment to correct the failure before becoming Under Examination. Those actions generally must show that the sponsor is actively pursuing correction of the identified failure. An annual audit or general statement of intent to correct future discoveries is insufficient. Rev. Proc. 2026-34 also clarifies that "Under Examination" includes notice of an impending examination, not merely the commencement of fieldwork.
• New Flexibility on Inadvertent Overpayments. Rev. Proc. 2026-34 creates the "Inadvertent Benefit Overpayment" category, subject to exclusions for certain recipients. An Inadvertent Benefit Overpayment generally does not require a corrective payment unless it involves a failure under Code section 401(a)(17), 415, or 436, or results in another failure requiring correction. Special relief applies to certain payments of $250 or less. Recoupment remains an option under EPCRS, but ERISA section 206(h) may preclude or limit recovery. Rev. Proc. 2026-34 also addresses rollover treatment, including the consequences of seeking recoupment and the recipient-notification requirements.
• Standard for Retroactive "Less Favorable" Plan Amendments. Rev. Proc. 2026-34 clarifies the limited correction method for retroactive plan amendments that conform the written plan to prior operations on terms less favorable to employees, participants, or beneficiaries. To take advantage of that correction method, the sponsor must prove through clear and convincing documentary evidence that, when the relevant written language became effective, the sponsor and affected employees, participants, and beneficiaries shared the same understanding and expectation of the plan's terms, but the written document did not reflect those terms. Supporting records may include plan documents, summary plan descriptions, employee communications, and board resolutions. The sponsor must disclose inconsistent documents and make the required representations. Consistent operations alone are insufficient, and affidavits are not accepted as clear and convincing evidence. This correction method is available only through VCP or Audit CAP, not SCP, and remains subject to applicable Code requirements.
• Documentation of Self-Corrections. The documentation requirements for self-correction are now explicit. If a plan is later examined, the sponsor must be able to produce documentation substantiating the self-correction, including the nature of the failure, when it was identified, how the sponsor's established practices and procedures operated (and failed), how and when the failure was corrected, and what changes were made to prevent recurrence.

Practice Pointers

• Document compliance practices. To qualify as an Eligible Inadvertent Failure, an error must occur despite established practices and procedures that satisfy the applicable EPCRS compliance standard. This practice and procedures requirement is not new. Sponsors should maintain records showing the procedures in place when the failure occurred and how those procedures were routinely followed.
• Act within the reasonable-period window. Plan sponsors should establish a process for promptly escalating errors and recording when each failure was identified. Once an error is discovered, assign responsibility for correction, develop a timetable, and monitor completion against the applicable deadline. The expanded correction window should not be treated as permission to delay. Contemporaneous records showing that concrete corrective steps have begun may be particularly important if an IRS examination begins before correction is complete.
• Evaluate correction options. Greater access to self-correction does not mean that every failure or correction method qualifies. Even when an error is eligible for self-correction, there may be reasons to file under VCP. Sponsors should work with their advisers to determine the appropriate correction method.
• Reassess overpayment recoupment policies. Sponsors should review existing policies with their recordkeepers and advisers rather than automatically seeking repayment whenever an overpayment is discovered. Policies should require a review of each overpayment to determine whether it qualifies for the new relief, whether corrective funding is needed, and how any decision to pursue or forgo recoupment will be communicated to the affected participant. Sponsors should also consider the applicable rollover treatment and coordinate any participant communications before taking action.
• Document self-corrections. Although documenting corrections has long been a recommended best practice, the updated EPCRS expressly anticipates that sponsors will substantiate self-corrections if the plan is examined. Sponsors should maintain a correction file identifying the failure, the date it was discovered, the compliance procedures in place when it occurred, the basis for using SCP, and the correction method and completion date. The file should also include supporting calculations and records and describe the procedural changes adopted to prevent recurrence of the error.

The expanded EPCRS gives plan sponsors more flexibility to address retirement plan errors, but that flexibility depends on sound compliance practices, timely action, and a well-supported and documented correction process. Sponsors should use this opportunity to review their procedures with counsel and service providers, revisit unresolved errors to assess available correction options, and establish a consistent approach to documenting corrections.

If you have any questions about tax-qualified plan compliance, including the updated EPCRS, please contact any member of our Employee Benefits and Executive Compensation practice group.

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