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Decoding IRS Notice 2023-43: Easier 401(k) Error Fixes!

IRS Notice 2023-43 was released today (May 25, 2023) and provides guidance about changes stemming from Section 305 of the SECURE 2.0 Act of 2022. This part of the law is about the Employee Plans Compliance Resolution System, or EPCRS for short. The EPCRS helps Plan Sponsors fix mistakes in employee benefit plans, like mistakes identified during 401(k) plan audits.

Let's discuss the main differences that IRS Notice 2023-43 introduces compared to the existing rules before the SECURE 2.0 Act.

Before this Notice, the types of errors that could be fixed on their own were limited and there was a specific time limit for making these corrections.   Other mistakes or errors had to be corrected with direct help from the IRS. This process could be time-consuming and complicated.

But with IRS Notice 2023-43, based on Section 305 of the SECURE 2.0 Act, there are more options for fixing errors.  Now, Plan Sponsors can correct a wider range of errors themselves. These are called "eligible inadvertent failures." It includes mistakes that happened even though there were good procedures in place and the mistakes weren't too bad or done on purpose (including errors surrounding participant loans which previously were not among the items allowable for self correction).

Also, the time limit to fix these errors is now more flexible. Corrections can be made at any time, as long as they're done reasonably soon after finding the mistake.

However, the Notice also says that some rules must be followed when correcting these mistakes.  Also, the people who manage Individual Retirement Accounts (IRAs), called IRA custodians, can't correct mistakes in the same way yet. They have to wait until there are updates to some IRS rules, known as Revenue Procedures.

So, in summary, this new Notice lets Plan Sponsors correct more types of errors themselves, and they have more time to do it. But, there are rules to follow, and not everyone can use these new options yet. This is a big change from the more limited and strict rules that were in place before.  Stay tuned as we will provide updates as they become available.