For most employers, the Treasury regulations applicable to 403(b) plans that were finalised in 2007 included a requirement that such plans be maintained pursuant to a written plan document adopted by no later than December 31 2009 (or, if later, the date of adoption of the plan). Sponsors of 403(b) plans that missed this deadline were advised to adopt a written plan as soon as possible and await publication of formal Internal Revenue Service (IRS) correction procedures. Those correction procedures became available on December 31 2012 with the release of Revenue Procedure 2013-12 updating the IRS Employee Plans Compliance Resolution System (EPCRS). Effective April 1 2013, all submissions under the EPCRS must be made in accordance with this revenue procedure. This update discusses some of the issues involved when considering a voluntary submission under the EPCRS to correct a failure to adopt timely a written 403(b) plan document.(1)
Availability of reduced fee
The standard EPCRS fee for voluntary submissions ranges from $750 for a 403(b) plan with 20 or fewer participants to $25,000 for one with over 10,000 participants. However, the EPCRS fee for a voluntary submission made on or before December 31 2013 in which the only failure is the failure to adopt timely a written plan document is reduced by 50%.
This reduced fee could offer significant savings to cost-sensitive tax-exempt organisations, particularly when utilised in combination with the kit that the IRS has made available on its website to assist plan sponsors in preparing this type of submission.(2) Nonetheless, the requirement that the submission include only a failure to adopt timely a written plan document raises some important compliance issues.
Timely adoption does not cure other 403(b) failures
The IRS has made clear that the issuance of a compliance statement that a written 403(b) plan has been timely adopted pursuant to a voluntary submission does not constitute a determination as to whether the written plan as drafted complies with the tax rules applicable to 403(b) plans. The EPCRS offers correction procedures for many of the employer eligibility, documentary and operational failures that can occur with respect to a 403(b) plan. Therefore, depending on the specific facts, a combined submission addressing more than one failure may ultimately prove more cost effective than a submission eligible for the reduced fee that leaves other failures uncorrected.
For further information on this topic please contact Ronald G Cluett or Joanne C Youn at Caplin & Drysdale by telephone (+1 212 319 7125), fax (+1 212 644 6755) or email (firstname.lastname@example.org or email@example.com)
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(1) 403(b) plans under audit may also be eligible to adopt timely a written plan document pursuant to the Audit Closing Agreement Programme under the EPCRS. Sponsors of 403(b) plans under audit may wish to discuss their options with benefits counsel.
(2) See Internal Revenue Service, Voluntary Correction Programme Submission Kit For 403(b) Plan Sponsors who Missed the December 31 2009, Deadline to Adopt a Written Plan, available at www.irs.gov/pub/irs-tege/vcp_submission_kit_403b.pdf.