Effective January 1, 2009, sponsors of 403(b) plans were required to have a written plan document. In Notice 2009-03, the IRS gave plan sponsors until December 31, 2009 to adopt a written plan document. Plan sponsors who failed to adopt a written plan document by December 31, 2009 had no official way to correct that failure.
Many plan sponsors of 403 (b) Non Profit Retirement Plans fear they missed the written plan deadline. Missing that document can cause tax trouble for nonprofit organizations and public schools.
It can also mess up payroll providers, employee contributions, and employer match.
The IRS issued Revenue Procedure 2013-12 to let sponsors fix the problem through the Employee Plans Compliance Resolution System, EPCRS. IRS Notice 2009-03 set the December 31, 2009 deadline.
This post will explain the Voluntary Correction Program, the submission steps, and the fee rules, including the 50% fee discount for qualifying filings. You will learn what to file, how to handle Form 5500 and Form W-2 issues, and how to work with annuity contracts and payroll providers to protect retirement savings.
Key Takeaways
- 403(b) sponsors had to adopt written plans by January 1, 2009, and IRS Notice 2009-03 extended the deadline to December 31, 2009.
- Failure to adopt risked plan disqualification and tax consequences for employers and employees, including loss of qualified status and reporting penalties.
- Revenue Procedure 2013-12 updated EPCRS and allowed retroactive correction of missed adoptions through the Voluntary Correction Program (VCP).
- Sponsors must file VCP applications, often using Form 8950, and pay user fees that vary by participant count.
- Filings by December 31, 2013 qualified for a 50% fee discount if records showed no other failures; contact Lisa Womack or Ellis Carter.
Background of 403(b) Plan Requirements
Tax-sheltered annuity 403(b) plans serve nonprofits and tax-exempt organizations and offer investment options for tax-deferred savings. These arrangements differ from 401(k) plans and target churches, schools, and civic leagues as employee benefits.
The Internal Revenue Code requires a universal availability rule, so if one worker gets a salary deferral, the employer must allow others to make salary deferrals. Employer contributions, including matching and catch-up contributions, can change plan status and trigger nondiscrimination testing, ERISA compliance reviews, and altered contribution limits.
Plan sponsors often hire Mutual of America or ADP to handle payroll, file Form 941, and report the employer id number.
Written Plan Document Requirement
After reviewing plan basics, sponsors had to adopt a written plan by January 1, 2009. The IRS required a formal document to set out rules for contributions, designated Roth 403(b) and Roth accounts, distributions, and safe harbor features.
Plan sponsors, including charitable organizations and religious and apostolic associations, faced a compliance failure if they did not adopt the document by that date.
This rule affected eligible deferred compensation plan options and choices tied to mutual funds and other investment funds used to meet retirement goals and retirement readiness. Sponsors could face penalties or correction steps under IRS programs, including EPCRS, if they missed the deadline.
Good record keeping and prompt fixes help protect participants and make Form 1040 reporting cleaner via the electronic federal tax payment system.
IRS Notice 2009-03 and Deadline Extension
Moving from the written plan document requirement, the IRS issued Notice 2009-03 and allowed plan sponsors until December 31, 2009 to adopt a written plan document for 403(b) plans.
The notice gave a temporary extension for compliance with the new documentation rules, and sponsors across the United States, including social welfare organizations and home healthcare providers, used the extra time to update plan documents.
Consequences of Missing the Adoption Deadline
Plan sponsors who did not adopt a written plan document by December 31, 2009 had no official correction method for that failure. That left many plans at risk of disqualification and created tax consequences for both employers and employees.
Employees could lose tax benefits, including the earned income credit and the child tax credit, if a plan lost its qualified status. Employers faced employer-side taxes, reporting headaches, and potential penalties that touched payroll and benefits.
Before Revenue Procedure 2013-12 and the Employee Plans Compliance Resolution System, sponsors had little recourse to resolve the problem.
Introduction to Revenue Procedure 2013-12
After missing the adoption deadline, the IRS stepped in with new guidance. The agency released Revenue Procedure 2013-12 to update the Employee Plans Compliance Resolution System, also called EPCRS.
It specifically addressed retroactive corrections for 403(b) plan documentation failures.
Sponsors could use the Voluntary Correction Program to correct past document defects and keep tax benefits intact. Advisors must follow Circular 230 while helping sponsors submit EPCRS cases.
The update also touched tech and policy topics. Examples include Secure Act 2.0 timing, browser cookie issues, and identity protection PIN handling. It covered questions about crypto payroll, ForUsAll services, AARP outreach, and ACPs and service providers.
Retroactive Correction Through EPCRS
The updated Employee Plans Compliance Resolution System, set out in Revenue Procedure 2013-12, allows retroactive correction for failure to adopt a written plan document for 403(b) plans if the plan was not adopted before December 31, 2009.
Plan sponsors must submit a request through the IRS Voluntary Correction Program, sometimes called VCP, to use this retroactive fix. This rule has human interest for small nonprofits and schools, and it will involve some technical stuff and paperwork, not cookies.
Submission Process for Voluntary Correction Program
Sponsors must file a formal application with the IRS Voluntary Correction Program to correct documentation failures. The application should detail failures tied to non-adoption of written plan documents and state the steps to fix them.
Submit corrective amendments and a proposed correction schedule under the Employee Plans Compliance Resolution System, often using Form 8950. IRS reviews the filing and charges a user fee based on the nature of the failure and plan size.
Fee Structure for the Voluntary Correction Program
Fees for the Voluntary Correction Program vary by the number of participants in a 403(b) plan.
The Internal Revenue Service, under Revenue Procedure 2013-12 and using the Employee Plans Compliance Resolution System, sets a fee scale that rewards timely and accurate correction submissions by plan sponsors.
50% Fee Discount and Eligibility Criteria
Plan sponsors who submit a correction application by December 31, 2013 qualify for a 50% fee discount. The IRS offered this reduction under the Voluntary Correction Program of EPCRS.
Sponsors must show no other plan failures and prove the plan was administered correctly to claim the cut. IRS reviewers may check records, use compliance software, and request supporting documents.
Next, we discuss encouragement for timely compliance and correction.
Encouragement for Timely Compliance and Correction
Sponsors must fix technical errors quickly under the Voluntary Correction Program. Use EPCRS, the Employee Plans Compliance Resolution System, to file corrections with the Internal Revenue Service.
Act fast to preserve eligibility for the 50% fee discount and to reduce the risk of penalties.
Nonprofit employers should review their written plan documents for IRS compliance. Fix any gaps in plan language and follow the submission process if correction is needed. Lisa Womack and Ellis Carter can advise on corrections and timelines.
Contact Information for Assistance
Email Lisa Womack at womack@usbenefitslaw.com or call (602) 604-6255.
Call Ellis Carter at 602-456-0071 or use the website form for help with 403(b) plan corrections under the IRS Voluntary Correction Program and the Employee Plans Compliance Resolution System (EPCRS).
Lisa Womack: Email – womack@usbenefitslaw.com, Phone – (602) 604-6255
Lisa Womack helps plan sponsors fix 403(b) plan compliance and correction issues. She uses the Voluntary Correction Program, Revenue Procedure 2013-12, and the Employee Plans Compliance Resolution System to guide corrections.
Contact her by email at womack@usbenefitslaw.com or by phone at (602) 604-6255. She walks sponsors through submission steps, fee options, and 50% fee discount eligibility.
Ellis Carter: Phone – 602-456-0071, Contact via website form
Ellis Carter is a nonprofit lawyer at Caritas Law Group, P.C. He is licensed in Washington and Arizona and advises nonprofits nationwide on 403(b) plans, federal tax, corporate law, and fundraising regulations.
Call 602-456-0071 or use the website contact form to request help with plan corrections, EPCRS submissions, or donor gift guidance. He also advises donors on major gifts and on IRS guidance such as Revenue Procedure 2013-12.
Conclusion
You learned that 403(b) plans needed a written plan by January 1, 2009. IRS Notice 2009-03 gave sponsors until December 31, 2009 to adopt a written plan. Revenue Procedure 2013-12 updated EPCRS and lets sponsors fix missed adoptions through the Voluntary Correction Program.
The fee uses participant count, and sponsors who filed by December 31, 2013 paid a half-price fee if their records were clean. Call Lisa Womack at womack@usbenefitslaw.com or use the website form to reach Ellis Carter for fast, clear help.
FAQs
1. What is the Voluntary Correction Program updated and expanded for 403(b) Plans?
The voluntary correction program updated and expanded gives a clear way to fix errors in 403(b) Plans. The tax agency added new options and clearer rules, so employers can correct mistakes and protect participant savings. Think of it as a repair plan for retirement rules.
2. Who can use the updated and expanded program?
Any employer who runs a 403(b) Plan can use the voluntary correction program. Nonprofit groups, education groups, and other plan sponsors can ask the tax agency to approve a fix. I once helped a nonprofit manager use the program and we fixed a deferral mistake fast.
3. What kinds of errors does the program cover?
The program covers common errors, like wrong contribution limits, missed employee deferrals, and plan document faults. It also helps with testing failures and distribution mistakes. The program does not cover fraud or criminal acts.
4. How do I start the correction process?
Find the error and gather records first. Then talk to your service provider or a tax adviser and prepare a request under the voluntary correction program. Send the request to the tax agency and follow their steps, pay any fee, and meet their timeline.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations. Ellis is licensed to practice in Washington and Arizona and advises nonprofits on federal tax and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.