• New IRS Program for Retroactive Adoption of 403(b) Plan Documents
  • April 4, 2013 | Authors: Ronald G. Cluett; Joanne C. Youn
  • Law Firm: Caplin & Drysdale, Chartered - Washington Office
  • For most employers, the Treasury regulations applicable to 403(b) plans that were finalized in 2007 included a requirement that such plans be maintained pursuant to a written plan document adopted 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 the publication of formal IRS correction procedures. Those correction procedures became available 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 EPCRS must be made in accordance with this Revenue Procedure. This client alert discusses some of the issues involved when considering a voluntary submission ("VCP") under EPCRS to correct a failure to timely adopt a written 403(b) plan document.1

    1. Reduced Fee Available Through December 31, 2013 for Certain Submissions

    The standard EPCRS fee for VCP 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 VCP submission made on or before December 31, 2013 in which the only failure is the failure to timely adopt a written plan document is reduced by 50%.

    This reduced fee could offer significant savings to cost-sensitive tax-exempt organizations, particularly when utilized in combination with the kit the IRS has made available on its website to assist plan sponsors in preparing this type of VCP submission.2 Nonetheless, the requirement that the submission include only a failure to timely adopt a written plan document raises some important compliance issues.

    2. 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 VCP submission does not constitute a determination as to whether the written plan as drafted complies with the tax rules applicable to 403(b) plans. 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 upon 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.


    1 403(b) plans under audit may also be eligible to timely adopt a written plan document pursuant to the Audit Closing Agreement Program ("Audit CAP") under EPCRS. Sponsors of 403(b) plans under audit may wish to discuss their options with benefits counsel.
    2 See Internal Revenue Service, Voluntary Correction Program Submission Kit For 403(b) Plan Sponsors who Missed the December 31, 2009, Deadline to Adopt a Written Plan, available at http://www.irs.gov/pub/irs-tege/vcp-submission-kit-403b.pdf.