(b)lines Ask the Experts – Document Correction for Plans Under Audit

Michael A. Webb, Vice President, Retirement Plan Services, Cammack LaRhette Consulting, answers:  

The revised Employee Plan Compliance Resolution System (EPCRS)for correcting retirement plan defects (see IRS Updates Compliance Resolution System for details) provided welcome relief for 403(b) plan sponsors who failed to adopt a written plan (plan document) prior to 12/31/2009. Previously, there had been no established correction mechanism for failure to adopt a written plan in a timely fashion. Now, according to Section 6(10).3 of the Revised EPCRS, the defect may be corrected under the Voluntary Correction Program, or VCP, and Audit CAP (for defects discovered upon audit). The VCP correction method is particularly attractive, since, if the VCP submission is completed and sent to the IRS prior to 12/31/13, the normal VCP fee that would apply is reduced by 50%.   

However, to answer your question, VCP is not available to plans that are currently under examination (see Section 5.09 of EPCRS for details; the definition extends beyond plans that have received a formal audit notification to include entities under an Exempt Organizations (Form 990) audit, for example). Thus, if a plan is under examination, the defect must be corrected under Audit CAP. However, the IRS has advised that, for 403(b) plan sponsors currently under audit or notified of an audit between now and April 1, 2013, IRS may allow plans correcting under Audit CAP the same compliance fee relief (50% reduction  of standard VCP fee) for failure to adopt a written plan that IRS affords to plans that submit for VCP. It should be noted that this relief ONLY applies to failure to adopt a written plan, and not to any other defects that may be discovered upon audit. Plan sponsors under examination should work with counsel well versed in IRS audits of 403(b) plans to address written plan adoption and any other plan failures.   

As an aside, the IRS has released a helpful Submission Kit for 403(b) plan sponsors to correct a failure to adopt a written plan under VCP.  The kit walks the plan sponsor through the process and provides a sample submission as well.