Correction of Defects in Governmental 403(b) Plans

[Guest CVCalhoun]

As noted by Dave Baker on the 403(B) Plans message board, "The IRS National Office has published IRS Revenue Procedure 99-13. Excerpt:

This revenue procedure provides a comprehensive system of correction programs and procedures for an employer that offers a plan that is intended to satisfy the requirements of section 403(B) of the Internal Revenue Code (the "Code"), but that has failed to satisfy those requirements because of Operational, Demographic, or Eligibility Failures. This system permits an employer to correct these failures, and thereby provide its employees with retirement benefits on a tax-favored basis. This revenue procedure modifies and amplifies the Employee Plans Compliance Resolution System (EPCRS), set forth in Rev. Proc. 98-22, 1998-12 I.R.B. 11, to include specific programs and procedures relating to 403(B) Plans. In addition, this revenue procedure replaces the program described in Rev. Proc. 95-24, 1995-1 C.B. 694, which established the Tax Sheltered Annuity Voluntary Correction (TVC) program, and which was extended by Rev. Proc. 96-50, 1996-2 C.B. 370. Except as otherwise indicated in this revenue procedure, the specific provisions of EPCRS apply to 403(B) Plans.

Here's a link: http://www.benefitslink.com/IRS/revproc99-13.shtml (click)"

Historically, few governmental plans appear to have taken advantage of the VCR program for correcting defects in qualified plans, in part because of the financial costs of doing so and the historically low level of audits of governmental plans. However, the IRS has clearly been more active lately in auditing public 403(B) plans, particularly those of public hospitals and universities. Anyone have any thoughts on how attractive the TVC program is likely to be to governmental employers which maintain 403(B) plans?

[Guest PeterGulia]

Remember that an employer uses a voluntary correction program to compromise a liability that it "confesses". It is difficult for a local government unit to budget an appropriation for a liability that has not been asserted.

------------------