Operational Failure Correction Process

We have a 403(b) Plan that restated its document in 2018. The restated document has a discretionary match while the 403(b) Plan has been operating with a 3% Safe Harbor Non-Elective for 8+ years. This restated document is not at all how the plan was being operating at that time, nor how it is currently being operated. The Plan has been failing to follow the plan provisions for an extended period of time, but they would like to continue with the 3% SHNEC. They do not want a discretionary match.

What is the process to correct this error? 

You don't say what the prior document had for that provision, so this might be a forever lack of compliance. However, why would a 403(b) plan have a 3% SHNEC (without a match) when there is no ADP testing? Assuming no matching contributions have been made, having that provision is not the problem. The issue is whether the document, in its current form, supports the 3% contribution. Maybe there is an discretionary QNEC provision that supports this, whether an adoption agreement selection or a plan default option.

If not, I suspect the proper correction is a VCP to ask for retroactive amendment for compliant provisions, or the employer could decide to amend the plan prospectively and hope IRS doesn't look at the past as they struggle to manage their current (8955-SSA) and future (SECURE et al regulations) issues while dealing with a potential government shutdown later in the year.

I would agree with CuseFan to the extent of the current state of the rules for EPCRS. However, I disagree with CuseFan to the extent he posits the option of amending the plan prospectively and hopes that the sponsor does not get caught since the client would be at risk for the period between the date of the plan's restatement and the later of the adoption or effective date of the prospective amendment. The issue is what did the original plan document provide: a 3% SHNEC or matching contributions? If the original provided for the 3% SHNEC, in addition to the question of why the plan even bothers to be treated as safe harbor, since more than 3 years have elapsed since the restatement took effect, you would need to do a VCP to ask for the plan to be retroactively amended for how it has actually been operated. If the plan original plan docuent provided for matching contributions, you would do the VCP filing and ask for the plan to be retroactively back to the original effective date to conform to its actual operation.  Interestingly, one of the SECURE 2.0 Act provisions greatly expands the availability of self-correction. While you could decide to wait until the IRS issues a new EPCRS Rev Proc, you are playing a dangerous game of hoping that the IRS does not knock on your client's door in the interim. Bottom line: do the VCP filing and get it over and done with. 

I wasn't recommending just a prospective fix, merely stating it as an option. There are always a number of options, including those we do not recommend, we need to explain the ramifications of each.

Thank you for the information. The Plan document states that they will do a discretionary match, but the Plan Sponsor has been operating it with a 3% SHNEC for at least the last 8 years. They want to continue providing a 3% SHNEC, so it sounds like a VCP with retroactive amendment is the way to fix it.