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Failure to Adopt a Written 403(b) Plan - Fixing Plan Mistakes

The issue

All 403(b) arrangements must maintain a “written plan” and operate according to the terms of that plan. “Written plan” can mean having several documents that outline all necessary plan terms or a single document.

Generally, you, the 403(b) plan sponsor, had to satisfy the written plan requirement by January 1, 2009. However, you could have taken advantage of the December 31, 2009, extended deadline in Notice 2009-3 to meet the written plan requirements if you:

  • adopted by December 31, 2009, a written 403(b) plan intended to satisfy the requirements of Internal Revenue Code Section 403(b) (including the final regulations) effective as of January 1, 2009;
  • operated the plan during 2009 according to a reasonable interpretation of IRC Section.403(b) (including the final regulations); and
  • made best efforts by the end of 2009 to retroactively correct any failure during the 2009 calendar year ensuring you operated your plan according to its written terms.

If you didn’t meet the deadline for complying with the written plan requirement, you can fix the mistake by completing a Voluntary Correction Program submission.

You get a 50% discount on the regular VCP fee if:

  1. your plan’s only failure is not timely adopting a written plan,
  2. you file a complete VCP submission, and
  3. you mail it to the IRS by December 31, 2013.

The problem

Woz University, a public university, has sponsored a 403(b) plan since 2004. Woz University’s benefits administrator discovered that the 403(b) plan didn’t meet the written plan requirement by December 31, 2009. The plan sponsor otherwise administered the plan according to the 403(b) rules. The plan has 6,400 participants.

Fixing the mistake

Woz University can meet the written plan requirement by adopting a written 403(b) plan, effective January 1, 2009. The plan document terms must conform to the way they operated the plan.

Woz University should prepare a VCP submission including:

  • a statement of its failure to adopt a written plan by the due date, and
  • an explanation of its correction. The correction for this failure is adopting a written plan.

Normally, the fee for a submission for a plan with 6,400 participants is $20,000. However, if the university mails the complete VCP submission to the IRS on or before December 31, 2013, it would only pay a fee of $10,000.

Making sure it doesn’t happen again

While failing to adopt an initial written plan wouldn’t repeat itself, failing to amend the plan to reflect changes in plan operation and changes in law could occur in the future. You should periodically review your plan and operations to ensure that you amend your plan when necessary.

Additional resources


Page Last Reviewed or Updated: 22-Nov-2013