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403(b) Fix-It Guide - You didn’t adopt a written plan intended to satisfy the law by December 31, 2009

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2) You didn’t adopt a written plan intended to satisfy the law by December 31, 2009.

 

Check your records to see if your organization adopted a written plan intended to satisfy the final 403(b) regulations by December 31, 2009. Memorialize the plan’s operations into a written plan that complies with the final 403(b) regulations and adopt it. Make a submission under the Voluntary Correction Program. Make sure that your
403(b) plan document is in writing.

A 403(b) plan must have had a written plan in place by January 1, 2009. The written plan doesn’t need to be in a single plan document, but may bundle several documents that detail all the provisions of how the plan works. The 403(b) plan sponsor should ensure that there is no conflict among the documents. There must be a single plan document coordinating administration among the plan’s 403(b) vendors. The plan should then operate according to the terms, conditions and provisions contained in the written plan or program, in addition to the rules and regulations of the Internal Revenue Code. For example, if a 403(b) plan sponsor decides to offer participant loans and distributions because of financial hardship, then the written plan or program must explain the participant’s ability to take loans or hardship distributions, and how the plan will manage the loan program and determine financial hardships.

The IRS released Model Plan Language for Public Schools to use to adopt or amend their 403(b) plans to meet the requirements of the final 403(b) regulations. Other types of eligible employers may also tailor the model language to use for their 403(b) plans. IRS released draft Sample Plan Provisions to assist in the drafting of 403(b) prototype plans.

Notice 2009-3 extended the deadline for a written plan to December 31, 2009, if the plan sponsor:

  • adopted a written plan intended to satisfy the requirements of Section 403(b) (including the final regulations) effective as of January 1, 2009;
  • operated the plan according to a reasonable interpretation of Section 403(b), considering the final regulations during 2009; and
  • corrected the plan operation to match the written program before the end of 2009, placing the participants in the same position they would have been if the program had been adopted on January 1. The correction should have been based on the general principles in section 6 of Revenue Procedure 2008-50 and completed by December 31, 2009.

A 403(b) written plan must contain mandatory provisions and may contain optional provisions.

How to find the mistake:

Check your records to ensure that you have a written plan that was intended to comply with the 403(b) final regulations and it was adopted by your organization by December 31, 2009.

The plan sponsor/employer is responsible for keeping the plan in compliance with applicable tax laws; however, there may be vendors and tax professionals servicing your plan who may have a copy of your timely adopted written 403(b) plan.

How to fix the mistake:

Corrective action:
If you aren't operating your 403(b) based on a written plan after December 31, 2009, there are several steps you may take to fix your plan. You can only resolve this failure if you apply for correction under Revenue Procedure 2013-12 and the correction only applies to 2009 and subsequent plan years. You can’t use Revenue Procedure 2008-50 to resolve this failure.

Example:
T Public School has a 403(b) plan with 300 participants. After attending a presentation on the requirements of the 403(b) final regulations, TPS’s financial officer noted that their 403(b) plan was not based on a written plan adopted by December 31, 2009.

Correction programs available:

Self-Correction Program:
Because T Public School didn’t adopt a written plan by December 31, 2009, it can’t correct this mistake under SCP.

Voluntary Correction Program:
TPS must put the plan’s operations into a written plan. All mandatory provisions must be included, together with any optional provisions. This written plan must be adopted by TPS and be effective January 1, 2009. In addition, TPS must file a VCP submission and pay the proper fee, which based on 350 employees is $5,000. Plan sponsors are encouraged to make their VCP submission using the model documents in Appendix C, including Schedule 2 when preparing the submission. They must include Forms 8950 and 8951.

Audit Closing Agreement Program:
Under Audit CAP, correction of this mistake is the same as described above. The plan sponsor and the IRS enter into a closing agreement outlining the corrective action and negotiate a sanction based on the maximum payment amount.

How to avoid the mistake:

Make sure that your 403(b) plan is in writing.

403(b) Plan Fix-It Guide
EPCRS Overview
403(b) Plan Fix-It Guide (.pdf)
403(b) Plan Checklist (.pdf)
Additional Resources

IRS.gov / Retirement Plans / Correcting Plan Errors / Fix-It Guides / Potential Mistake

Page Last Reviewed or Updated: 05-Jun-2014