Workpapers were inconsistent, reviews were backed up, and no one could find a clean narrative for Schedule 3. If that feels familiar, you are not alone. Most firms get stuck on execution, not demand. That is why a clear, standard way to complete Form 14568‑C matters so much, it lowers risk, preserves client trust, and gives your reviewers time back.
Key takeaways
- Form 14568‑C is Schedule 3 for SEPs and SARSEPs under the IRS Voluntary Correction Program, used to identify failures, quantify corrections with earnings, and state procedures.
- As of December 2025, EPCRS is still governed by Rev. Proc. 2021‑30, with operational guidance reflected in the IRS EPCRS overview and updated IRM references. Submissions are made through Pay.gov, and you attach a single PDF of all materials.
- Always include plan name, applicant EIN, and plan number on every page of the compliance statement and attachments, and follow Schedule 3 prompts for employer eligibility, ADP failures, missed employer contributions, excess amounts, and missed deferral opportunities.
- PDF uploads cannot exceed 15 MB, and overflow documents can be faxed with the Pay.gov Tracking ID to 855‑203‑6996. Keep the Pay.gov receipt.
- SARSEP rules you will likely cite inside your narrative include no new SARSEPs after 1996, a 25‑eligible‑employee cap, the 50 percent participation rule, and the 125 percent ADP cap for HCEs.
Pro tip: Treat Form 14568‑C as a checklist-driven workpaper. Use uniform naming, totals by year, and a one‑page summary that mirrors Schedule 3’s sections.
What Form 14568‑C does, in plain English
Form 14568‑C is the IRS Model VCP Compliance Statement Schedule 3. You use it when your VCP submission concerns a SEP or a grandfathered SARSEP. The schedule is not a narrative by itself, it is a structured cover for your narrative, calculations, and proofs. It tells the IRS exactly which failure occurred, the plan years affected, the correction method, the earnings methodology, and how you handled former participants. The current revision of the form is dated July 2023 and lists OMB No. 1545‑1673 on its face.
You will submit Form 14568‑C with Form 8950 via Pay.gov. The IRS instructions require a single combined PDF, ordered per Rev. Proc. 2021‑30. If your package goes over 15 MB, you can fax the spillover documents to the dedicated number, but you must include the Pay.gov Tracking ID on the cover sheet so the documents are matched to your filing.
When to use Schedule 3 for SEPs and SARSEPs
Use Schedule 3 when your VCP submission addresses SEP or SARSEP failures, such as:
- Employer eligibility failures for SARSEPs, for example plan established after December 31, 1996, more than 25 eligible employees in the prior year, or fewer than 50 percent of eligible employees making deferrals.
- Deferral Percentage, ADP, failures in SARSEPs, where one or more HCEs exceed 125 percent of the NHCE average.
- Missed employer contributions, erroneous exclusions, or compensation errors under a SEP or SARSEP.
- Missed deferral opportunity for SARSEPs, and excess amounts contributed.
Schedule 3 is part of the Form 14568 series. The IRS clarifies which schedules exist and what they cover, and you can use one or more schedules with Form 14568, or even use schedules without the main form, although the IRS encourages the model statement for completeness. Keep the official mapping straight, for example Schedule 3 is SEPs and SARSEPs, Schedule 4 is SIMPLE IRAs, and Schedule 5 is plan loan failures.
Why this matters for delivery
If your firm has ever chased down missing workpapers or re‑calculated earnings the night before a deadline, you know the real blocker is not the form itself, it is process. In my experience, teams that standardize Schedule 3 inputs, adopt a single earnings method per year, and pre‑write a narrative template cut review time and reduce painful rework during peak season.
The core rules you will cite inside your Schedule 3
- SARSEPs cannot be established after 1996. Sponsors may maintain grandfathered SARSEPs if they meet the ongoing requirements.
- Each year, at least 50 percent of eligible employees must make elective deferrals. If the plan misses this, SARSEP deferrals for that year are disallowed.
- Employers must have had no more than 25 eligible employees at any time during the preceding year to allow deferrals in the current year. This is a look‑back rule.
- Under the SARSEP ADP rule, an HCE’s deferral percentage cannot exceed 125 percent of the NHCE average. Failures are corrected by a uniform, nonforfeitable contribution for NHCEs, plus earnings.
These are the exact triggers you will reference in Section I of the form. Then you will match each failure to the IRS‑approved correction language that Schedule 3 already provides, and add your numbers, years, and earnings method.
Required information to complete Form 14568‑C, plus a clean prep checklist
Before you draft a single sentence, line up the exact data the IRS expects. This is where most delays happen, not in the math, but in missing identifiers or thin narratives.
The essentials you must have on every page
- Plan name, applicant EIN, and plan number on each page and exhibit
- Affected plan year or years, clearly listed, with totals per year
- Failure type labels that mirror Schedule 3 sections, for example employer eligibility, SARSEP deferral percentage, missed employer contributions, missed deferral opportunity, excess amounts
- A succinct description of the error pattern, how it was found, the root cause, and the control you added so it does not recur
- The correction method, the earnings method, the deposit vehicle, and timing
- Former employee handling, search steps, and your rule for later payments if you locate someone after filing
Keep a one page summary that tracks the order of Schedule 3. Reviewers can spot gaps at a glance, and you reduce comment letters.
A practical prep checklist you can reuse
- Pull payroll, census, and compensation files for each affected year
- Export HCE and NHCE deferral percentages, and retain testing worksheets
- For SARSEP ADP failures, compute the NHCE average and the highest HCE percentage
- Calculate the uniform NHCE corrective percentage, round consistently, and document the rounding policy
- Pick one earnings method per year, actual returns, DOL VFCP calculator rate, or a documented mix, and write the rationale
- Draft the narrative, align labels with Schedule 3 line items, and paginate
- Confirm the plan identifiers print in headers or footers on every page
- Produce a deposit plan with dates, IRA details, and point of contact at the recordkeeper
- Add former participant procedures, mail cadence, and what you will do if a check is returned
- Assemble the single PDF ordered per Form 8950 and the revenue procedure, then verify size and searchability
Common SEP and SARSEP failure patterns you will address on Schedule 3
Firms run into the same clusters of errors. Name them clearly, show the years, show the math, and show how you will keep it from happening again.
Employer eligibility failures for SARSEPs
- SARSEP established after 1996
- More than 25 eligible employees in the prior year
- Less than 50 percent of eligible employees made deferrals
For each affected year, state the violation, the last day deferrals were allowed, and that salary reduction contributions will cease prospectively. If employer contributions were made when they should not have been, describe the unwind with dates and amounts.
Deferral percentage failures for SARSEPs
- The highest HCE deferral exceeds 125 percent of the NHCE average
- You correct by a uniform, nonforfeitable NHCE contribution that raises the NHCE average to the required level
- You add earnings from the plan year end through the deposit date
Missed employer contributions or erroneous exclusions
- An eligible employee was skipped in a SEP allocation
- Compensation definitions were misapplied, for example excluding bonuses that should have counted
- You fund the missed amount, add earnings, and document the final allocation
Step by step, how to compute SARSEP ADP corrections
This is the part teams tend to overcomplicate. Keep it mechanical, then show your work.
Determine the required NHCE average
- Compute the actual NHCE average deferral percentage for the year
- Identify the highest HCE deferral percentage
- If the highest HCE exceeds 125 percent of the NHCE average, an ADP failure exists
- Required NHCE ADP equals the highest HCE percentage divided by 1.25, subject to statutory caps
Translate the gap into a uniform NHCE contribution
- Shortfall percentage equals required NHCE ADP minus actual NHCE ADP
- Apply that shortfall percentage to each eligible NHCE’s compensation
- Add earnings from plan year end to the deposit date
Sample calculation table
| Item | Example value |
| Plan year | 2023 |
| NHCE average deferral | 5.0% |
| Highest HCE deferral | 8.0% |
| Required NHCE ADP | 8.0% ÷ 1.25 = 6.4% |
| Shortfall percentage | 6.4% − 5.0% = 1.4% |
| NHCE comp, Employee A | 60,000 |
| Corrective contribution | 60,000 × 1.4% = 840 |
| Earnings method | VFCP calculator rate, 1‑1‑2024 to deposit date |
| Deposit account | Employee A’s SARSEP IRA |
If you lack full investment history for actual returns, document the use of the DOL VFCP calculator rate for the exact day count, and state why it is the most reliable available measure for the period.
Choosing and documenting your earnings method
Pick one method for each plan year, write a short rationale, and apply it consistently.
Accepted approaches
| Method | When to use | Notes |
| Actual returns | You have complete, reliable account history | Compute the participant level rate over the correction period and apply to the corrective amount |
| VFCP calculator rate | Actual returns are unavailable or incomplete | Use exact dates from plan year end to the deposit date, attach outputs |
| Combination | Partial actuals with gaps | Apply actuals where valid, then use the calculator rate for missing periods, and explain the handoff point |
Documentation that keeps reviews fast
- Document the date range and the exact earnings rate used
- Attach calculator outputs or account return workpapers
- Show totals by year and by employee, plus a tie‑out schedule to the deposit file
- Keep a variance log for any rounding, check reissues, or late location cases
Handling former employees and beneficiaries the right way
Former employees can slow a VCP package if you do not document your efforts up front. Your Schedule 3 narrative should state who is affected, how you will make corrective contributions, and what happens if someone is unlocated today but found later.
A simple locate protocol you can copy
- Send letters to the last known address and wait a reasonable period
- Escalate with certified mail and email if available
- Search HR, payroll, and prior provider files for updated contact info
- If you know a beneficiary or estate contact, reach out and note dates
- Keep a log of attempts, responses, returned mail, and reissued checks
If you later locate a participant, fund the missed SEP or SARSEP IRA contribution with the same earnings method you used for the year, and record the date and deposit proof. Your narrative should say exactly that, so the IRS knows your method is consistent.
Keep a one page former participant tracker with name, year, dollar amount, earnings method, last contact attempt, and status. It turns a review that takes an hour into ten minutes.
Narrative attachments and support that pass the sniff test
Strong narratives reduce back and forth. Mirror the order of Schedule 3 and keep your labels identical to the form.
What your attachment should include
- Plan name, applicant EIN, and plan number on every page
- A failure summary by year, with headcount affected and a plain description of the cause
- The exact correction method, deposit vehicle, and dates
- Your earnings methodology for each year, with calculator outputs or return worksheets
- A short prevention plan, what control you added and when it went live
- Former employee handling and proof of attempts
- Totals by year and tie‑out to the deposit file and bank or recordkeeper proof
Helpful exhibits to include
- Census and payroll extracts, plus HCE and NHCE lists for the test year
- ADP calculations for SARSEPs and the shortfall percentage math
- IRA confirmations and contribution reports
- A reconciliation schedule that ties the individual amounts to the grand total
- Any internal SOP pages you created to prevent a repeat
Using Form 14568 with other schedules
Form 14568 is the Model VCP Compliance Statement. Schedule 3 is your SEP and SARSEP detail. Depending on the case, you may also add other numbered schedules for issues like plan document timing, plan loans, RMDs, or excess deferrals. Keep the IRS schedule formats intact and do not rewrite them.
When to attach additional schedules
- Your case involves more than a SEP or SARSEP error
- You need the specific correction language that another schedule provides
- You want to keep corrections siloed by failure type for clean review
Tip: Place Schedule 3 first when SEPs or SARSEPs are the main issue, then follow with any other schedules in the order shown in the IRS instructions. Keep page numbers continuous and identifiers on every page.
Pay.gov submission steps and file requirements
The quickest way to a clean IRS review is a complete, searchable PDF that follows the official order and fits the size limit.
Step by step
- Create a single, non‑fillable PDF that includes Form 8950, Form 8951, Form 14568, Schedule 3, any other schedules, your narratives, exhibits, and any Form 2848 or 8821.
- Print fillable forms to PDF so they are non‑editable, then combine, bookmark, and check searchability.
- Verify the total file size is 15 MB or less. If it is larger, split the overflow package and prepare a fax cover sheet with the Pay.gov Tracking ID.
- Log in to Pay.gov, complete Form 8950, pay the user fee through Form 8951, and upload the PDF.
- Save the Pay.gov confirmation and Tracking ID. If you fax overflow, include the Tracking ID on the cover page and keep each fax under the stated size limit.
- Store confirmations, the final PDF, and your working files together under a consistent naming convention.
One page reference
| Item | Requirement |
| File type | Single, non‑fillable PDF |
| File size | 15 MB or less for the upload |
| Overflow | Fax with Pay.gov Tracking ID on the cover |
| Identifiers | Plan name, EIN, plan number on every page |
| Order | Follow Form 8950 instructions and the revenue procedure |
Practical organization that speeds partner review
- Use a short executive summary up front, one page, that lists failures by year, totals, earnings method, and deposit dates
- Mirror Schedule 3 labels inside your narrative and your workbooks
- Adopt standardized file names, for example EIN_PlanName_VCP_YYYY.pdf
- Include a cross‑reference sheet that maps narrative sections to schedule line items and exhibit tabs
- Put a reviewer checklist at the end with initials and dates for each control
The goal is predictable turnaround with fewer revision loops. That is the difference between a stressful week and a calm one.
A short case study you can model
A multi‑state service firm with a grandfathered SARSEP discovered in 2025 that two plan years failed the SARSEP ADP limit. The team calculated the NHCE average at 5.2 percent in 2023 and 4.9 percent in 2024. The highest HCE deferred 7.8 percent each year. Required NHCE ADPs were 6.24 percent and 6.24 percent, so the shortfalls were 1.04 percent and 1.34 percent.
How the team corrected
- Applied 1.04 percent of compensation to each eligible NHCE for 2023 and 1.34 percent for 2024
- Used the VFCP calculator rate from the plan year end to the deposit dates, which the recordkeeper could not replicate with actuals
- Deposited to each person’s SARSEP IRA, opened new IRAs for three former employees, and kept a locate log
- Attached tables by year with each employee’s compensation, percentage, dollar amount, and earnings, plus tie‑outs to the deposit file
- Added a control to review participation and headcount tests each December
Result, the IRS accepted the proposed correction as submitted. Partner review time dropped to under an hour because every number tied to a labeled exhibit.
Representation and authorization, Forms 2848 and 8821
If someone other than the plan sponsor will work with the IRS, include the right authorization. Form 2848 appoints a representative who can act on your behalf. Form 8821 authorizes information only. Keep the form names exact, do not alter IRS formats, and retain signed originals in your files.
Quick checklist
- Confirm the representative’s CAF number and list the exact matter, for example VCP for the plan
- Use one consistent contact address for all IRS correspondence
- Place the signed authorization behind the forms in the PDF, and list it on your index page
FAQs for Form 14568‑C and VCP
Do I always need Schedule 3 if the plan is a SEP?
Yes, if your VCP submission is correcting a SEP failure, use Schedule 3 to describe the error, list the affected years, and show the correction and earnings. Your narrative and exhibits still carry the details, but Schedule 3 is the cover that keeps your submission consistent.
What earnings method should I pick if I have some account data but not all?
Choose a combination approach. Apply actual returns for the periods where you have reliable data, then use the VFCP calculator rate for the gap. Write a short paragraph that explains why this was the most reliable way to restore value and apply the method consistently for that year.
How do I handle a former employee with no IRA on file?
Open a SARSEP or SEP IRA as appropriate under the plan’s procedures, deposit the corrective contribution with earnings, and include the account details in your tie‑out. If you cannot locate the person today, document your attempts and fund the account when you find them.
Can I submit multiple schedules with one VCP filing?
Yes. Put Form 14568 at the front, then include Schedule 3 for SEPs or SARSEPs, plus any other schedules that match other failures in your package. Keep identifiers on every page and follow the required order.
What causes most IRS delays?
Missing identifiers on pages, unclear year totals, inconsistent earnings methods, and PDFs that exceed the size limit. A clean index, page numbers, and labeled exhibits cut weeks off the process.
How Accountably supports disciplined VCP delivery
If you have solid tax and ERISA expertise but struggle with throughput, you can lean on a structured offshore delivery model without giving up control. Accountably integrates trained teams into your systems and templates, follows SOP‑driven execution, and uses multi‑layer review. That combination reduces revision cycles, standardizes workpapers, and protects partner time. Keep it simple, give us the testing inputs and access, and we return a complete, labeled package ready for Pay.gov. This remains your work, your clients, and your standards, we bring the delivery muscle.
Compliance note and disclaimer
This article is general information for SEP and SARSEP corrections using Form 14568‑C. It is not legal, tax, or investment advice. Always consult your counsel or tax advisor for your specific facts, and confirm current IRS instructions before you file.