Frequently Asked Questions

Employee Ownership FAQs

Common questions about employee stock ownership plans (ESOPs), employee ownership trusts (EOTs), and other forms of employee ownership, from the basics to technical topics.

This FAQ is written primarily for business owners, managers, and advisors involved in setting up or running an employee ownership plan. If you're an employee at an ESOP company looking to understand your own benefits and rights, see our articles on Working at an ESOP Company and The Rights of ESOP Participants.

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What is the Employee Plans Compliance Resolution System (EPCRS)?

The IRS Employee Plans Compliance Resolution System (EPCRS) allows retirement plan sponsors to voluntarily correct plan document, operational, and tax failures to maintain tax-favored status. It includes three components: the Self-Correction Program (SCP), the Voluntary Correction Program (VCP) with IRS approval, and Audit CAP for issues found during audit

VCR is generally used for procedural problems relating to qualification failures, such as Section 415 issues, improper distributions, failure to include people in the plan who should have been included, violation of top-heavy rules, and failure to make timely distributions, rather than plan flaws that could have harmed plan participants or resulted in improper tax benefits. VRC applies to the general qualification issues for ERISA plans, but does not apply to special ESOP provisions, such as Section 1042 or Section 404(k) dividend deductibility rules). A Closing Agreement Procedure may be required depending on the magnitude of the problem, local IRS office practices, timing issues, and other variables.

Link to this FAQ Topic: Governance, Fiduciaries & Compliance