Correcting SIMPLE IRA Mistakes: EPCRS, VCP, and the DOL Fix

Most SIMPLE IRA mistakes are fixable without penalty, and almost none disqualify your plan. Operational errors self-correct under the IRS Employee Plans Compliance Resolution System (EPCRS). Late employee deferral deposits are a fiduciary problem you fix through the Department of Labor, not the IRS, by restoring the money plus lost earnings. It's about making sure you have the correct error resolution program so that if you don't, your money goes down the drain paying an unnecessary filing fee, or the original issue remains unresolved.

What is EPCRS?

EPCRS is the IRS Employee Plans Compliance Resolution System. It allows employers to correct errors in their employee plans before they lose the tax benefits of those plans.^[1] All of the most common small employer mistakes fall within EPCRS. Examples include omitting an eligible employee from the plan, using the wrong compensation figure, funding the wrong matching amount, and failing to send the annual notice by November 1. There are three options for correcting your mistake(s): the Self-Correction Program (SCP), which provides for correction of "operational" mistakes, the Voluntary Correction Program (VCP), which requires you to file a document with the IRS, or the Audit Closing Agreement Program, if you were audited and found to have made one of these errors. Regardless of which route applies, a SIMPLE IRA is covered.

A plan mistake does not mean the IRS will disqualify your SIMPLE IRA. The IRS can only disqualify you if there has been an egregious, intentional violation. However, Revenue Procedure 2021-30 prevents honest, nonegregious mistakes from ever becoming disqualified.^[2] The one split determines everything: Operational failures are something you deal with when filing with the IRS while Late Deposits are something you need to correct with the U.S. Department of Labor. If you correctly complete this split, it saves you the Filing Fee because the SIMPLE IRA rules for employers each determine which correction process you follow.

Can you fix a SIMPLE IRA mistake yourself?

Usually, yes. The Self-Correction Program allows you to correct an operational mistake yourself, without having to file a form with the IRS or pay a fee. However, this will be allowed only if the operational failure was minor and if the Plan itself is not currently being audited by the Internal Revenue Service. Operational failures are typically when you fail to follow your own plan documents, for example, when you do not include in the plan an eligible employee (as defined in the plan), or when you fund the incorrect amount of "match". In order to self-correct an operational failure, you must put the plan and the employee(s) affected back into compliance, so that they are in the same position as if the error had never happened. Then, you must document how you corrected the problem.

The simple fact is that SIMPLE IRA and SEP plans are only permitted to self-correct insignificant violations. The extent of the violation (how many employees) the amount of money involved, and when you discovered the issue are all used as factors to determine if your failure has been insignificant enough to be allowed under the correction process. If the violation has been significant, then you generally have until the end of the second plan year after the mistake to correct the issue.^[2]

The fix employers botch most often is the one for a missed eligible employee. In this case, you'd have to pay 50 percent of the deferred compensation he or she would have received had they been included in the plan, along with 100 percent of the employer portion of the contributions you failed to make. Each of these amounts is adjusted for earnings.^[3] Because there is never written approval given by the IRS for an SCP correction, a later audit could always question whether or not the correction is valid. This is why employers purchase the Voluntary Correction Program (VCP).

What is the Voluntary Correction Program (VCP)?

The Voluntary Correction Program (VCP) is the paid IRS method of correcting errors that are either too large, too old or too risky to be corrected by using the SCP. Once you have completed the VCP application you will need to describe the error in detail. Next you will need to describe how you intend to correct the error. Finally, you will need to submit payment for a user fee which is based on the total amount of the assets of the plan. In the case of 2026 submitted applications, if the plan's net asset value does not exceed $500,000, then the fee is $2,000. However, if the plan has assets greater than $500,000 but not more than $10 million then you will be required to pay $3,500. If the plan has assets greater than $10 million then you will be required to pay $4,000.^[4] If the IRS accepts your request for a compliance statement then they will issue you a signed compliance statement, the written assurance SCP can never provide.^[1]

VCP can only be used during the time that the employer's retirement plan is not being audited by the IRS. As soon as an IRS agent begins auditing your company's plan, all of your voluntary options cease to exist and you will enter the more costly Audit CAP (CAP is short for "Closing Agreement Program"). Employers typically choose to use VCP when they have had a failure in their application of the plan rules over several years, missed the SCP deadline, or the size of the failure was so great that it would be desirable to obtain IRS approval. In cases where employers have made an error in applying the SIMPLE IRA employer match rules across multiple years, VCP is often the most ethical choice.

How do you fix a late SIMPLE IRA deposit?

The error employers make most often and one that EPCRS doesn't address is depositing withheld deferrals late. As soon as you withhold a deferral, that amount becomes plan assets the moment it can reasonably be separated from your general business accounts. If you fail to deposit those amounts on time this is a prohibited transaction under ERISA and a fiduciary breach.^[5] A small employer has a 7-business-day "safe harbor" to place deferrals into custody with the plan's custodian. If you miss this safe-harbor, you correct the fiduciary breach through the Department of Labor's Voluntary Fiduciary Correction Program (VFCP), not through the IRS. The amended VFCP, effective March 17, 2025, added a Self-Correction Component: when the lost earnings owed to participants totals $1,000 or less you file the online SCC Notice of Self-Correction (not a full VFCP Application), lost earnings calculated using either method with the DOL VFCP Online Calculator.^[6]

Correcting quickly will remove the excise tax. A late deposit is charged a 15 percent excise tax based upon the amount of lost earnings. The excise tax is reported on Form 5330.^[8] Completing the VFCP can waive that excise under Prohibited Transaction Exemption 2002-51. However, the relief will only occur if all participating parties are notified and you have not used the exemption for the exact same type of transactions during the past three years.^[7]

How do you correct an excess SIMPLE IRA contribution?

Excess contributions are allocated based on which account they were made into, the employee's or the owner's. If you have over-funded an employee's SIMPLE IRA (e.g., over funded their account), then this is an operational error that can be corrected under the Employee Plans Compliance Resolution System (EPCRS) by taking out the excess amount and all of the associated earnings. On the other hand, if the excess was contributed to the owner's own SIMPLE IRA, the excess will be considered an excess IRA contribution, with the tax code being harsher than for a participant's SIMPLE IRA. Specifically, Section 4973 imposes a 6% annual excise tax that recurs every year the excess stays in the account.^[9] Withdraw the excess along with earnings prior to your federal income tax filing deadline (including any extended deadline) to avoid the excise tax. Compare your company's deferral limits for each plan year against the current SIMPLE IRA contribution limits first.

Which program fixes which mistake?

The fastest way to fix a mistake in your SIMPLE IRA is to route it to the right authority before you spend one dollar. Here are the common mistakes we see and what it will cost you for correction as well as which program will be able to help you with the problem:

The Bottom Line

Correcting a SIMPLE IRA mistake means routing it to the right authority. If your error falls into one of the two categories (operational vs. late deposit), you will report it to the correct authority. EPCRS has jurisdiction over operational errors (i.e., failure to include an employee) and if an employee was missed from contributions, the employer would be subject to a 50 percent make-up contribution for the employee's missed deferrals as well as the entire amount of the missed match. The DOL also has jurisdiction over late deposit errors which can now use the VFCP Self-Correction Component provided that lost earnings remain at $1,000 or less. Catch mistakes early and most fixes stay cheap.

This guide is educational and summarizes IRS and DOL rules for SIMPLE IRA plan corrections. It is not investment, legal, or tax advice. Your plan documents and current IRS limits control. Talk to your tax advisor about your business's circumstances.