Made a Mistake in Your Company's 401(k) or SIMPLE IRA? The IRS Just Widened What You Can Fix on Your Own

What happens if you find out your company’s 401(k) skipped someone? For most small plans, the answer as of Oct. 22 is that you fix it yourself, keep a record, and don’t pay the IRS a fee. That’s the main effect of Revenue Procedure 2026-34, the IRS’s rewrite of its retirement plan correction program ^{[1, 2]}. It took effect the day it was released ^[1].

What changed

The program has a long name, the Employee Plans Compliance Resolution System, or EPCRS. It’s the IRS’s rulebook for fixing mistakes in a 401(k), profit-sharing plan, 403(b), SEP or SIMPLE IRA plan so the plan keeps its tax-favored status ^[2]. It has three doors ^{[1, 2]}:

• Self-Correction Program (SCP): you fix the error yourself, with no fee and no filing.
• Voluntary Correction Program (VCP): you pay a user fee and get the IRS’s written approval of your fix.
• Audit CAP: the IRS finds the error on exam, and you fix it and pay a sanction.

The new procedure replaces Rev. Proc. 2021-30, the last full version ^[2]. Most of what’s new comes from the SECURE 2.0 Act, signed Dec. 29, 2022 ^[3]. Section 305 of that law said any “eligible inadvertent failure” could be self-corrected unless the IRS found it first or the fix wasn’t finished within a reasonable period ^[3]. Treasury and the IRS issued interim notices in 2023 and 2024. This revenue procedure folds them into one document and changes some of them in response to comments ^[2].

Here’s the short version of what matters to a small sponsor:

• More errors qualify for self-correction. Certain plan document, employer eligibility and demographic failures, plus some plan loan failures, can now go through SCP ^[2].
• No favorable letter needed. Your plan no longer has to have an IRS favorable letter to use self-correction ^[2].
• A longer clock. The interim guidance treated a fix finished within 18 months of finding the error as reasonable. After comments, the IRS now treats a fix as reasonable if it’s done by the later of 18 months after you identified it or the last day of the third plan year after the year the error happened ^[2].
• SIMPLE IRAs and SEPs get more room, but only if the plan document is an IRS model form, such as Form 5305-SIMPLE, 5304-SIMPLE or 5305-SEP, or a prototype with a current favorable opinion letter ^[2].

In the IRS release, IRS Chief Executive Officer Frank J. Bisignano said the procedures “simplify and speed up how errors with certain retirement plans and IRAs can get corrected when there is a simple problem” ^[1].

The catch: you need a routine before the mistake

Self-correction has always required “established practices and procedures,” and that hasn’t changed ^[2]. The revenue procedure says they can be formal or informal, must have been in place and routinely followed, and the error must have slipped through anyway ^[2]. It also says plainly: “A plan document alone does not constitute evidence of established procedures” ^[2].

The IRS’s own example is a plan that may be top heavy, which can trigger a minimum contribution for non-key employees, adding an annual step to check for that and make the contribution ^[2]. For a small employer, that could be a one-page calendar with the plan’s yearly checks on it.

If the IRS opens an exam, you must be able to show documentation of each self-correction: what went wrong, which years, how many employees, how it happened, how you fixed it, when, and what you changed so it won’t recur ^[2]. Once a plan is under exam, self-correction is generally limited to insignificant errors or ones where you’d already shown “a specific commitment” to fix them ^{[2, 3]}.

Does this apply to you?

The most common small-plan error is someone who should have been contributing and wasn’t. The new procedure keeps two lower-cost fixes for that, and SECURE 2.0 section 350 made the first one permanent instead of letting it expire at the end of 2023 ^{[2, 3]}.

Say you run a hypothetical 18-person HVAC company with a 401(k) that automatically enrolls new hires. Payroll missed one technician hired this spring, and you catch it during your year-end review. Because your plan has automatic enrollment, you can use the safe harbor: start correct deferrals no later than the first paycheck on or after the end of the 9½-month period after the plan year of the error, and give the technician a written notice within 45 days after they begin ^{[2, 3]}. You don’t owe a make-up contribution for the deferrals the technician missed ^[2]. You do owe any matching contributions they’d have received, adjusted for earnings. A match deposited by the last day of the 12th month after correct deferrals start counts as timely, up from six months under the interim guidance ^[2].

Now change one fact. The hypothetical company finds the miss two years later. The 9½-month window has passed, but a second safe harbor covers failures longer than three months that end within three years after the plan year they began ^[2]. You’d make a corrective contribution of 25% of the missed deferrals, plus the missed match, with the same 45-day notice ^[2]. That method now also covers employees who have since left ^[2].

A hypothetical six-person bookkeeping office with a SIMPLE IRA plan set up on Form 5305-SIMPLE can use self-correction for an eligible error ^[2]. If the office never offered an employee the chance to defer, the missed deferral is figured at 3% of that person’s pay ^[2]. If the plan was set up on some other document, self-correction is off the table, and the VCP route with its fee is what’s left ^[2].

Two small-dollar rules may also save you some trouble. You don’t have to make a corrective distribution of $75 or less when processing it would cost more than the payment ^[2]. And an overpayment of $250 or less from certain limit errors doesn’t have to be recovered or repaid to the plan ^[2].

What to do this fall

Start by putting your plan’s routine on paper, if it isn’t already. If you already know about an error, the new rules apply now ^{[1, 4]}. Morgan Lewis, a law firm, told plan sponsors to consider how the guidance affects “new and outstanding compliance issues” ^[4].

If your fix needs VCP, the user fee is set in a separate annual revenue procedure, Rev. Proc. 2026-4, not in this one ^[2].

IRAs get their own program too. Rev. Proc. 2026-33 creates an IRA Compliance Resolution System for IRA custodians and owners, effective May 1, 2027, and moves requests to waive the 60-day rollover deadline into it over 2027 and 2028 ^[1]. Morgan Lewis wrote that it “fills a longstanding gap” ^[4].

What I’m keeping an eye on

How lost earnings get calculated. Right now, fixes in a 401(k)-type plan must add the earnings the money would have made. The IRS is considering requiring the Labor Department’s online calculator rate as a floor for those earnings ^[2]. That calculator uses the IRS underpayment rates, the same rate behind the estimated tax penalty I wrote about in September ^[2]. The IRS says that rate “may be too low” compared with recent plan returns, and it’s asking whether a higher version should apply ^[2].

Comments. They’re due Jan. 20, 2027, under docket IRS-2026-1388 ^[2]. The IRS says it expects to keep updating the program ^[2].

— Sally