Problem #2 (cont): SCP vs.VCP

If an employer has failed to operate a plan according to its provisions, the plan must be corrected. Assuming the employer finds the error before the IRS, the employer can file under VCP. Additionally, under some circumstances the employer can self-correct the error without a formal filing. While employers are often initially drawn to self-correction, not all operational issues qualify for self-correction, and in some cases more correction options are available under VCP.

The requirements for self-correction of operational errors are as follows:
• The operational error must be insignificant, or if there is a significant operational error, the error needs to be corrected by the end of the second plan year following the year in which the error occurred.
• The plan must have a favorable letter.
• At the time the error occurred, the plan must have had procedures in place to prevent operational errors.