IRS Issues 403(b) Plan Fix-It Guide

March 12, 2013

On February 21, 2013, the Internal Revenue Service (IRS) added to its “self-help” resources a new “403(b) Plan Fix-It Guide
to provide guidance more specifically directed at 403(b) plan sponsors
that identify qualification or operational plan failures under their
403(b) plans.  Additionally, the IRS issued as a companion piece a
booklet entitled “Voluntary Correction Program Submission Kit,”
which provides more detailed directions to 403(b) plan sponsors on how
to complete and file a correction filing with the IRS specifically
relating to the failure to adopt a written 403(b) plan document.

This new “fix-it” tool addresses 10 potential errors (likely the most
common 403(b) plan errors), including, but not limited to, ineligible
organizations offering 403(b) plans, failure to adopt a written plan
document as required by the final 403(b) regulations, violation of the
universal availability rule, failure to appropriately limit elective
deferrals and failure to follow the underlying terms of the plan
document.  Although these types of failures are not necessarily new (i.e.,
they could have occurred in prior years), the IRS is slowly bringing
403(b) plans under more scrutiny as the dollars being contributed to
these types of plans continue to increase.  The IRS is developing more
expertise in this area and is training more agents to be able to
identify the particular differences between 401(k) plans and 403(b)
plans, and the specific nuances and legal requirements of operating
403(b) plans.  Since the 403(b) regulations were issued in 2007, this is
the first step in which the IRS is taking a more active role to ensure
compliance under these types of plans.
Revenue Procedures 2013-12 (Employee Plans Compliance Resolution
System, or EPCRS) may be used with respect to any 403(b) plan
corrections going forward.  It incorporates in greater detail the
“403(b) Plan Fix-It Guide.”  Although prior EPCRS guidance such as
Revenue Procedure 2008-50 was often applied to 403(b) plans by analogy
for correcting errors, new Revenue Procedure 2013-12 is drafted to be
directly applicable to 403(b) plans.  Consequently, given the IRS
movement toward greater scrutiny of 403(b) plans, tax-exempt
organizations that have not recently conducted any type of internal
compliance review are encouraged to review, at a minimum, the mistakes
highlighted in the “403(b) Plan Fix-It Guide” to determine whether
greater analysis is required with respect the compliance and operation
of their 403(b) plans.