Firm Discusses 403(b) Operational Errors Discovered during Audit

June 17, 2011 ( – Accounting firm Eisner Amper says many 403(b) plan sponsors have been confronted with operational errors discovered during their first audit last year, and are now wondering how to correct these errors without jeopardizing the tax favored status of their plans.

The firm notes that 403(b) plan sponsors may currently use the Internal Revenue Service’s Employee Plans Compliance Resolution System (EPCRS) to correct the following types of errors: 

  • Excluding eligible employees from the plan; 
  • Failure to make salary deferrals universally available to employees; 
  • Failure to limit participant salary deferrals to the IRC section 402(g) limit (currently $16,500); 
  • Failure to limit employer matching contributions under IRC section 401(m); 
  • Failure to limit participant compensation for plan purposes to the IRC section 401(a)(17) limit (currently $245,000); 
  • Failure to pay required minimum distributions to plan participants ; 
  • Failure to satisfy distribution restrictions on salary deferrals and employer contributions under IRC sections 403(b)(7) and 403(b)(11); 
  • Problems with direct rollovers of participant distributions; 
  • Failure to meet the general nondiscrimination rules under IRC section 401(a)(4) as applied to 403(b) plans; and 
  • Failure to meet the minimum coverage requirements of IRC section 410(b). 


According to Eisner Amper, the correction of these types of operational failures may be pursued in a manner similar to that outlined in Revenue Procedure 2008-50 (see IRS Issues Corrections Program Update) and may or may not require the plan sponsor to submit the errors to the IRS for review and approval.  Plan sponsors should contact their plan advisers to determine how best to correct an operational failure under the IRS’ correction program and whether the situation requires a formal submission to the IRS to correct the problem.  

The accounting firm reiterated the point that the IRS does not currently offer a program for 403(b) plan sponsors to correct plan document errors; however, they are in the process of updating their current correction programs under Revenue Procedure 2008-50, Employee Plans Compliance Resolutions System (“EPCRS”), to provide 403(b) plans with a correction procedure (see 403(b) Errors Ineligible for IRS Voluntary Correction Program).   

Eisner Amper says what a plan sponsor can do currently if it discovers plan document errors is to contact its plan adviser to discuss a process for correcting the errors in a manner similar to what IRS would require of a plan sponsor that could utilize EPCRS to correct such errors.  If a plan sponsor takes such action and documents the corrections, it has at least demonstrated a good faith effort to correct the error and comply with the law, according to the firm.  

More from Eisner Amper is here.