IRS Form 14568-G – In the complex world of retirement plan administration, ensuring compliance with IRS regulations is crucial for plan sponsors and administrators. One common issue arises when elective deferrals exceed the annual limits set by Internal Revenue Code (IRC) Section 402(g). This is where IRS Form 14568-G comes into play as part of the Voluntary Correction Program (VCP). This form, officially titled “Model VCP Compliance Statement – Schedule 7: Failure to Distribute Elective Deferrals in Excess of the 402(g) Limit,” helps correct failures related to untimely or insufficient distributions of these excess amounts. In this comprehensive guide, we’ll explore the form’s purpose, key sections, and how it fits into the broader Employee Plans Compliance Resolution System (EPCRS).
What Is the IRC Section 402(g) Limit?
The IRC Section 402(g) limit caps the amount of elective deferrals an individual can contribute to retirement plans like 401(k)s and 403(b)s in a given calendar year. For 2026, the limit is $23,500 for individuals under 50, with an additional $7,500 catch-up contribution for those 50 and older, bringing the total to $31,000. These limits are adjusted annually for inflation and apply across all plans an employee participates in.
Exceeding this limit can lead to tax complications, including double taxation if not corrected promptly. The IRS requires that excess deferrals be distributed by April 15 of the following year to avoid penalties. If not distributed timely, the plan may face disqualification risks, making corrective tools like VCP essential.
Common Failures: Not Distributing Excess Elective Deferrals
A “failure to distribute elective deferrals in excess of the 402(g) limit” occurs when a participant defers more than allowed, and the plan sponsor fails to return the excess amount (plus earnings) by the deadline. This can happen due to administrative oversights, such as miscalculations or delays in processing.
Such failures are correctable under EPCRS, which includes three programs: Self-Correction Program (SCP) for minor issues, VCP for more significant errors requiring IRS approval, and Audit Closing Agreement Program (Audit CAP) for issues discovered during audits. Form 14568-G is specifically designed for VCP submissions addressing these excess deferral distribution failures, ensuring the plan regains compliance without disqualification.
The Role of IRS Form 14568-G in the Voluntary Correction Program (VCP)
Form 14568-G is a model schedule attached to the main Form 14568, Model VCP Compliance Statement, as part of a VCP submission. It’s used when applying to the IRS for approval of a correction plan. Submissions are made via Pay.gov, following guidelines in Revenue Procedure 2021-30 (effective July 16, 2021), which outlines EPCRS procedures.
The form applies to plans like 401(k)s and 403(b)s. For 403(b) plans, special considerations include ensuring distributions from annuity contracts or custodial accounts. User fees for VCP submissions vary based on plan assets—ranging from $1,500 for small plans to $3,500 for larger ones—but may be waived in certain cases, such as terminating orphan plans.
To use the form, plan sponsors must:
- Identify the failure years and affected participants.
- Propose a correction method, typically distributing the excess with earnings.
- Implement procedural changes to prevent future issues.
The form was last revised in March 2020 and is available as a fillable PDF on the IRS website.
Breaking Down the Key Sections of Form 14568-G
Form 14568-G is structured into four main sections to streamline the correction process. Plan sponsors must include the plan name, Employer Identification Number (EIN), and plan number on every page.
Section I: Identification of Failure
This section requires detailing:
- The calendar year(s) of the excess deferrals.
- The number of affected participants per year (counted separately for each failure year).
- The total amount of excess deferrals distributed, excluding earnings.
This helps the IRS assess the scope of the issue.
Section II: Description of the Proposed Method of Correction
Here, outline how the plan will correct the failure:
- Distribute excess deferrals plus earnings to participants.
- Report distributions as taxable in the year deferred and the year distributed.
- Adjust for ADP testing impacts (for highly compensated vs. non-highly compensated employees; not applicable to 403(b) plans).
- Handle Roth contributions separately, as they are taxable only in the distribution year.
- Calculate earnings from the end of the failure year through correction, attaching details if needed.
For 403(b) plans, confirm that the sponsor has directed the provider to make the distribution.
Section III: Change in Administrative Procedures
Explain the root cause of the failure and steps taken to prevent recurrence, such as improved tracking systems or employee training. Attach additional pages if necessary, labeled appropriately.
Section IV: Enclosures
Provide calculations for each affected employee or a representative sample, showing the full correction process. This ensures transparency and verifies the method’s effectiveness.
Best Practices for Submitting Form 14568-G
To optimize your VCP submission:
- Use the latest form version (March 2020 revision).
- Do not modify the form’s format or content.
- Include all required enclosures and pay the applicable user fee.
- Submit electronically via Pay.gov.
If the plan is under audit, use Audit CAP instead. For self-correctable minor failures, SCP may suffice without IRS involvement.
Why Compliance Matters: Avoiding Penalties and Plan Disqualification?
Correcting excess deferral failures promptly with tools like Form 14568-G protects participants’ retirement savings and maintains the plan’s tax-qualified status. Non-compliance can result in excise taxes, penalties, or even plan disqualification, leading to taxable distributions for all participants.
Plan sponsors should regularly review deferral limits and administrative processes to stay ahead of issues. For personalized advice, consult a tax professional or visit the IRS Retirement Plans section for more resources.
By understanding and utilizing IRS Form 14568-G effectively, you can navigate VCP submissions with confidence, ensuring your retirement plan remains compliant in 2026 and beyond. For the official form, download it directly from the IRS website.