Certified Plan Sponsor Professional (CPSP) Practice Exam

How does the VCP ensure corrective measures are approved before an IRS audit?

1. By conducting audits prior to IRS contact

2. By mandatory reporting to the IRS

3. By submitting a filing for approval

4. By automatically correcting errors

The correct answer is: By submitting a filing for approval

The process by which the Voluntary Correction Program (VCP) ensures that corrective measures are approved before an IRS audit involves submitting a filing for approval. This is a critical step in the VCP as it allows plan sponsors to proactively address and correct operational failures or compliance issues related to their retirement plans. When a plan sponsor identifies a failure, they can choose to participate in the VCP, which requires them to submit a formal application to the IRS. This application details the nature of the failure, the proposed corrective action, and how the sponsor intends to implement these corrections. Once submitted, the IRS reviews the filing to ensure that the corrective measures are adequate and that they comply with applicable regulations. The benefit of this process is that it provides a level of certainty and protection for plan sponsors, as obtaining IRS approval before an audit ensures that the corrective measures have been deemed acceptable by the IRS. This proactive approach helps to mitigate potential penalties and facilitates compliance with retirement plan regulations.