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How the New EPCRS Revenue Procedure Affects 403(b) Plan Audits

Monika Templeman, Director of EP Examinations, responds to questions and offers insights on retirement plan topics uncovered during audits. You may provide feedback or suggest future topics by emailing her at: RetirementPlanComments@irs.gov.

Now that we’ve issued the new EPCRS Revenue Procedure 2013-12, I’m sure you have questions about its effect on 403(b) plans. I've received many questions on how EP Exam will handle 403(b) written plan issues for plans currently under audit, or for new 403(b) plan audits starting before the revenue procedure’s effective date of April 1, 2013.

EP Exam and Rulings & Agreements work together
I want to assure the retirement plans community that EP R&A and Exam work holistically to help plans stay compliant, protect plan participants and provide practical solutions to correct plan mistakes.

EPCRS changes for 403(b) plans
First, let’s look at how the revenue procedure made changes for 403(b) plans. Generally, 403(b) plan sponsors can now correct:

  • Most plan failures in the same way as qualified plans
  • The failure to comply with the form and operational requirements of the 403(b) final regulations and other guidance
  • The failure of not timely adopting a 403(b) written plan

Plans must use Revenue Procedure 2008-50 definitions for 403(b) plan failures occurring prior to January 1, 2009.

Interim sanction for no written plan prior to new EPCRS revenue procedure
IRS developed an interim approach for Audit Closing Agreement Program (Audit CAP) sanctions for 403(b) plan sponsors that failed to adopt a written plan prior to the issuance of the new EPCRS revenue procedure. In short, we used a Voluntary Correction Program (VCP) or "VC-plus" approach for 403(b) written plan failures. VC-plus means the sanction could be slightly higher than the regular VCP fee under the revenue procedure. Under this approach, sponsors who attempted in good faith to meet the written plan requirement had lower sanctions than those who didn’t. Sanction amounts can also vary depending on whether the plan has met the requirements of Notice 2009-3.

The interim sanction only applied to written plan failures. Agents combined the interim sanction with the regular Audit CAP sanctions for operational failures.

Interim sanction for no written plan after new EPCRS revenue procedure
Now that we have the new revenue procedure, sponsors of 403(b) plans failing the written plan requirement should submit an application under the VCP. This approach is consistent with the IRS Correction Program’s general principle of graduated fees and sanctions as an incentive to correct promptly.

Current audits – sanction for no written plan
What about those 403(b) plans with a written plan failure that are currently under audit or those notified of an audit (which precludes a VCP submission)? IRS doesn’t want to place plan sponsors in a “gotcha” situation. We have developed the following transitional plan relief:

  • For 403(b) plan sponsors currently under audit or notified of an audit between now and April 1, 2013, IRS may allow plans correcting under Audit CAP the same compliance fee relief for failure to adopt a written plan that IRS affords to plans that submit for VCP under Revenue Procedure 2013-12 (considering all facts and circumstances).
  • This relief is only for failure to adopt a 403(b) written plan and does not apply to operational errors.

If you have concerns or other scenarios not covered in this article, please email me at RetirementPlanComments@irs.gov and type “Monika’s 403(b) Article” in the subject line.

Page Last Reviewed or Updated: 03-Jan-2014