Complying with 403(b) Regulations

What to Do If You Uncover Plan Violations

The IRS has two programs you can use to correct plan violations you uncover. The programs are part of the IRS’s Employee Plans Compliance Resolution System (EPCRS). Consult your legal counsel for more information about these programs and how they may apply to your specific circumstances. For help keeping your plans in compliance, contact PlanConnect^SM at (800) 923-6669 or email info@planconnect.com. PlanConnect^SM is a third party administrator and a subsidiary of AXA Financial, Inc.

There is a third program, the Audit Closing Agreement Program (Audit CAP), for plan violations discovered during an IRS audit. It is described in What To Do If Your Plan Is Audited.  

Self-Correction Program (SCP)

This program is for operational violations, i.e., mistakes that are made when the plan’s operations do not follow the terms of the plan. Examples include failure to keep contributions within deferral limits, failure to offer the plan to all eligible employees, and failure to pay required minimum distributions.The SCP has no fees and you do not have to contact the IRS.

SCP rules require that corrections to significant operational failures be made by the end of the second plan year following the plan year in which the “failure” occurred. Insignificant operational failures can be corrected at any time.

There are IRS guidelines on how to distinguish significant from insignificant operational failures. See Revenue Procedure 2008-50 or future releases. Using the SCP will not prevent an audit; however, it can reduce the number of violations an audit would uncover.

Voluntary Correction Program (VCP)

VCP is available if your plan is not being audited. Use it if the plan failure is not eligible for relief under the SCP. You will have to identify each failure and its duration, indicate what correction you have made or propose to make, and indicate what specific measures you have taken to ensure that the failure will not happen again.

You will also have to include payment of a pre-established fee based on the number of employees you have. (The fee does not include excise taxes, unpaid FICA taxes, or similar items.) And if the correction involves making changes to your written plan, you may need to simultaneously submit a determination letter application with its applicable fee.

If you use the VCP to correct plan violations, your plan will not be audited until the VCP process is complete. And, if the violation is in the form of your written plan, IRS Announcement 2009-89 provides that, with the adoption of a prototype document when available, written plan form defects are retroactively corrected. AXA Equitable will have a prototype for your use once the approval program has been finalized.

GE44470 (rev 3/09)