Employer contributions made to 403(b) plan, but document only allows s

[Felicia]

An employer adopted a non-ERISA 403(B) plan which provides solely for salary deferrals. Upon an internal audit it was discovered that the employer was in fact making employer contributions for eligible participants for about 3 years. How does the employer correct this? Can this be corrected under Section 5.02 (1) of Rev. Proc. 99-13 as an Operational Failure? Operational Failure being defined in Section 3.05: (10) Any other failure to satisfy applicable requirements under Section 403(B) that ....results in the loss of section 403(B) status.... and is not a Demographic Failure, an Eligibility Failure or a failure related to the purchase of annuity contracts.... If this can be corrected using Rev. Proc. 99-13, how is this accomplished operationally? by a letter from the employer to remove the contributions? by a letter signed by the employee and the employer (this seems logical since the employee set up the account)

[Carol V. Calhoun]

I had a conversation on this matter recently with someone at the IRS who was in a position to know (although of course, as usual, he was speaking only for himself, not the IRS). He said that IRS recognizes that amounts cannot be removed from a 403(B) plan the way they can be from, for example, a 401(k) plan. Thus, they are permitting use of the two percent fee described in Section 8.03 of 99-13 to be used instead of having a return of contributions.

Hope this helps!

[IRC401]

How about the arguement that the employer's approval of the contribution was a de facto plan amendment? The rules re: 403(B) documents are looser than for 401(a) plans.