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November 23, 2004
Mr. Paul Shultz (CC:PA:RU)
Internal Revenue Service
1111 Constitution Avenue, N.W.
Room 5226
Washington, D.C.
RE: Scriveners' Errors
Dear Paul,
On behalf of the American Institute of Certified Public Accountants (AICPA) we are responding to an issue that affects many employee benefit plans. Unintentional scriveners' errors that affect the operation and administration of qualified plans are frequently found in plan documents. We believe that the Internal Revenue Service enforcement efforts are best served by increasing agent awareness of scriveners' errors and providing agents with appropriate methods to address them effectively and consistently.
The scriveners' errors we are particularly concerned about are unintentional drafting mistakes. The two most important factors contributing to an increase in scriveners' errors are:
1. The increase in the number and frequency of plan amendments and restatements either to comply with law changes or as part of a move from one plan document provider to another; and
2. The failure or inability of plan sponsors to recognize the subtle (and not so subtle) differences between the sixty-page plan document they were using and the seventy-five page plan document they have just adopted.
Plan documents have increasingly become a commodity—part of the investment product sold to sponsors for investing their plan assets. When plan sponsors adopt qualified plans, they are not receiving the detailed advice that they received in the past. In addition, qualified plan regulations have become increasingly complex.
We recommend that the IRS adopt a definition of scrivener's errors and establish methods to correct the resulting issues under the self-correction program. Currently, the Service appears to require that all scriveners' errors that require reformative amendments to correct must be corrected under the Voluntary Compliance Program (VCP). Under VCP, reformative amendments are only allowed with proper substantiation that:
1. The plan sponsor did not intend the provision that is the subject of the error;
2. The plan has been operated in accordance with the sponsor's intention; and
3. No participant relied, or reasonably would have relied, on the mistaken provision to their detriment.
Substantiation requires specific written instructions to the "scrivener" before the plan was adopted, and a showing that the new plan document fails to comply with the previous instructions.
Although we recommend maintaining the substantiation standards, self correction would be a more efficient method to cure these unintentional defects. Also, the Determination Letter Program should be revised to adopt these substantiation standards and allow plan sponsors to correct the plan documentation using corporate resolutions or official plan amendments. Further, absent written evidence to the contrary, there should be a presumption of no change in policies or procedures when a plan document is amended.
If we can be of further assistance please contact me at (913) 234-1022; or Lisa A. Winton, AICPA Technical Manager, at (202) 434-9234.
Sincerely,
Cindy Dwyer, Chairman
AICPA Employee Benefits Technical Resource Panel
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