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Rep. Neal Asks IRS to Reevaluate VCP User Fees

In a Feb. 21 letter to Acting IRS Commissioner David Kautter, Rep. Richard Neal (D-MA) has requested that the IRS reevaluate the new Voluntary Correction Program (VCP) user fees announced earlier this year. Neal is the Ranking Member of the House Ways & Means Committee.

In Revenue Procedure 2018-4, issued on Jan. 2, the IRS changed the methodology it uses in conjunction with the fees; as a result, sponsors of large retirement plans will pay significantly less to fix plan mistakes through the VCP, but plans with fewer than 100 participants generally will pay more.

In his Feb 21 letter, Neal told Kauffer that he is concerned about the changes because they increase costs for small employers. Not only that, he said, the rules that had been in place “explicitly allowed for reduced fees for plans with fewer than 101 participants.” In addition, he observed, Rev. Proc. 2018-4 eliminated the rule that allowed plans to fix more types of mistakes at a reduced fee.

Neal also noted that the IRS implemented the new fees “with little feedback from small businesses” and that doing so was inconsistent with the Pension Protection Act of 2006, which directs the IRS to “take into account the special concerns and circumstances that small employers face with respect to compliance and correction of compliance features” when it updates the Employee Plans Compliance Resolution System.

“I worry about the unintended consequences these changes will have on small employers maintaining their retirement plans and new businesses entering the employer retirement system,” Neal wrote, suggesting that the IRS could avoid the hardships they pose for small businesses by rescinding the new rules and making self-correction “more easily available.”

The American Retirement Association sent a comment letter to Kautter on Jan. 31 taking issue with the new VCP fee structure and approach taken by the IRS, emphasizing that it is “unfair to small employers, and will have an adverse impact on plan participants.”