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January 13, 2013

IRS Correction Procedures Addresses Correction for Failure to Adopt Written Plan for a 403(b)


By Denise Appleby, CISP, CRC, CRPS, CRSP, APA

The IRS released Revenue Procedure 2013-12 on December 31, 2012, which includes correction procedures for 403(b) Plans. Prior to the release of Revenue Procedure 2013-12, no guidance was available on how to correct certain failures that occur within a 403(b) plan. The following focuses on the correction procedure for failure to adopt a written plan by the deadline, which was included in Revenue Procedure 2013-12. 


According to the final 403(b) regulations[i], a 403(b) contract or account (account) can only be issued pursuant to a ‘written plan’ which, in both form and operation, satisfies the requirements of section 403(b) of the tax code and the final 403(b) regulations.  In general, the existence of a written plan facilitates the allocation of plan responsibilities among the employer, the issuer of the contract/account, and any other parties involved in implementing the 403(b) Plan.  An account cannot be considered a 403(b) account if it was not established under a written plan, if an employer fails to have a written plan, or purchased by an employer that fails to have a written plan. 

Deadline to Adopt Written Plan

Under the final 403(b) regulations, the deadline to adopt a written plan was January 1, 2009. This deadline was extended under IRS Notice 2009-3: Relief From Immediate Compliance With 2009 § 403(b) Written Plan Requirement (Notice 2009-3). Notice 2009-3 provides that the IRS will not treat a 403(b) plan as failing to satisfy the written plan requirement if the following applies: 

1.on or before December 31, 2009, the 403(b) Plan Sponsor has adopted a written 403(b) plan that is intended to satisfy the requirements of code section 403(b), including the final regulations, effective as of January 1, 2009;

2.during 2009, the 403(b) Plan Sponsor operates the plan in accordance with a reasonable interpretation of section 403(b) of the tax code, taking into account the final regulations; and

3.before the end of 2009, the 403(b) Plan Sponsor makes its best efforts to retroactively correct any operational failure during the 2009 calendar year to conform to the terms of the written 403(b) plan, with such correction to be based on the general principles of the IRS’ Employee Plans Compliance Resolution System (EPCRS)

The relief provided under Notice 2009-3 applied only to the 2009 calendar year. The open issue then became, what is the correction procedure for 403(b) Plan Sponsors that did not adopt a written plan by the December 31, 2009 deadline

The Solution

Revenue Procedure 2013-12 included a provision for correction for failure to timely adopt a written 403(b) plan under the IRS’ Voluntary Correction Program (VCP), and Audit Closing Agreement Program (Audit CAP). If the proper procedure is followed, the IRS will issue a compliance statement or closing agreement, and the 403(b) plan will be treated as if the written plan was adopted timely. 

The Audit CAP is used if the IRS identifies the failure during the examination of the 403(b). 

The VCP is used when the Plan Sponsor detects the failure and voluntarily makes the correction according to IRS procedural requirements. 

This following are highlights of the VCP requirements. 

VCP Procedures

When submitting the VCP to the IRS, certain procedures, as defined by the IRS, must be followed in order for the submission to be approved by the IRS. This includes the following: 

Paying The Compliance Fee

A compliance fee must be included with the submission. The fee amount depends on the number of participants under the plan, as indicated in the following table:

Number of Participants


20 or fewer

$ 750

21 to 50

$ 1,000

51 to 100

$ 2,500

101 to 500

$ 5,000

501 to 1,000

$ 8,000

1,001 to 5,000

$ 15,000

5,001 to 10,000

$ 20,000

Over 10,000

$ 25,000

 Reduced Fee: The fee is reduced by 50 percent for a VCP submission for failure to adopt a written 403(b) Plan timely, if the failure is the only failure included in the submission, and the VCP submission is made by December 31, 2013. The check for the fee should be made payable to the United States Treasury and attached to the front of IRS Form 8951-Compliance Fee for Application for Voluntary Correction Program Submission Under the Employee Plans Compliance Resolution System (EPCRS).

 Implement Corrective Action

The Plan Sponsor must implement corrective action to prevent the failure from reoccurring, and meet certain conditions as described in the VCP Submission Compliance Statement[ii].

The IRS will notify Plan Sponsor or the Plan Sponsor’s representative if additional information is required, and the Plan Sponsor will have 21 calendar days from the date of the IRS’ contact to provide the requested information. If the information is not received within 21 days, the matter will be closed, the compliance fee will not be returned, and the case may be referred to Employee Plans Examinations. According to the Revenue Procedure, any request for an extension of the 21-day time period must be made in writing within the 21-day time period and must be approved by the IRS. 

If the IRS determines that the submission is complete under its VCP, they will contact the Plan Sponsor or the Plan Sponsor’s representative to discuss the proposed corrections and the plan’s administrative procedures. 

If the submission meets the IRS’ requirements, the IRS will issue a conditional [iii]compliance statement, which will result in the 403(b) Plan being treated as if it had been adopted timely. This statement should not be considered as any indication of whether the written plan otherwise complies with the 403(b) regulations and tax code.

Additional step-by-step submission procedures are included in Revenue Procedure 2013-12.

Professional Assistance May be Needed

The correction procedures provided in Revenue Procedure 2013-12 can help to resolve compliance issues if followed properly. Failure to follow the procedures can result in avoidable delays and unnecessary costs. Plan sponsors of 403(b) plans for which the ‘written plan’ and other requirements have not been satisfied should seek assistance from a professional who is knowledgeable about the EPCRS requirements.

[i] Published on July 26, 2007

[ii] Revenue Procedure 2013-12 includes a Model Compliance Statement (Appendix C Part I) that can be included in the submission. If the Plan Sponsor includes the Model Compliance Statement with its VCP submission, the IRS will sign and send to the Plan Sponsor the compliance statement specifying the corrective action required. The Service reserves the right to issue an individually drafted compliance statement in appropriate circumstances.

[iii] The compliance statement is conditioned on (i) there being no misstatement or omission of material facts in connection with the submission and (ii) the implementation of the specific corrections and satisfaction of any other conditions in the compliance statement.



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