Change in VCP Fee Structure Bumps Up Fees for Smaller Plans
A change in methodology means that sponsors of large retirement plans will pay significantly less to fix plan mistakes through the Voluntary Correction Program (VCP) – but plans with fewer than 100 participants generally will pay more.
On Jan. 2, Rev. Proc. 2018-4 outlined new fees for VCP applications under IRS' Employee Plans Compliance Resolution System (EPCRS). However, this new fee schedule is based on plan assets, rather than participant head count. Under the prior schedule, fees could have run as high as $15,000 for plans with 10,000 or more participants. Fees for regular VCP filings (including anonymous submissions) submitted on or after Jan. 2 now are:
- $1,500 for plans with assets of $500,000 or less;
- 3,000 for plans with assets of over $500,000 to $10,000,000; and
- 3,500 for plans with assets of over $10,000,000
All of which means that, particularly for plans with more than $10 million in assets where the fee is now capped at $3,500, the change could indeed represent a significant reduction
– and that is how the change was initially positioned.
However, the change in methodology, not to mention the elimination of special reduced fees previously available for certain failures, means that for small plans, VCP fees will increase significantly. American Retirement Association CEO and ASPPA Executive Director Brian Graff said "It is outrageous for the IRS to increase the fees on small plans in this way, without any conversation or without any warning. ASPPA will be fighting this."
While the fee for group submissions and fee waiver for terminating orphan plans are unchanged, all other reduced or alternative fees no longer apply. A Mercer analysis indicates that the following discounts are now gone:
- 375 fee for failures involving late adoption of interim amendments;
- 500 fee for failures to timely adopt amendments required as a condition of a favorable determination letter;
- 50% discount for failures submitted within one year after the expiration of the applicable extended remedial amendment period;
- fees for plan loan failures; and
- fees for required minimum distribution failures.
In essence, by eliminating the discounts for early correction and the common plan document and operational failures noted above, the VCP has essentially become a flat fee program.
In addition to the VCP change, the user fee for a Form 5310 filing (a determination letter application for a terminating plan) has increased from $2,300 to $3,000.
The IRS webpage states that plans should submit the correct fee shown in Rev. Proc. 2018-4 and continue to use the current Form 8951 until IRS updates the form and instructions.
ASPPA GAC’s IRS sub-committee is currently analyzing the issue and plans to engage with the IRS on this issue. An ASPPA ASAP should be available shortly with additional information.