Mistake Find the mistake Fix the mistake Avoid the mistake 1) Your organization isn’t eligible to sponsor a 403(b) plan. Determine if your organization fits one of the eligible employer groups - public educational institutions or IRC Section 501(c)(3) charitable organizations. Stop all contributions. Make a submission under the Voluntary Correction Program. Understand what makes an organization eligible to sponsor a 403(b) plan and know if your organization meets one of the requirements. 2) You didn’t adopt a written plan intended to satisfy the law by December 31, 2009. Check your records to see if your organization adopted a written plan intended to satisfy the final 403(b) regulations by December 31, 2009. Put the plan operations into a written plan that complies with the final 403(b) regulations and adopt it. Make a submission under the Voluntary Correction Program. Make sure that your 403(b) plan is in writing. 3) You didn’t follow the terms of your 403(b) written plan. Compare your written plan to its operation. You may retroactively: adopt plan amendments that match the 403(b) plan to its prior operation, or correct plan operation to match the 403(b) written plan terms. Convey any changes made to your written plan or to the operation of your 403(b) plan to your plan service providers. 4) You didn’t give all employees of the organization the opportunity to make a salary deferral. Perform a review of the plan and its operation. Review employees who received a W-2 but didn’t participate. Determine if you excluded any class of employees such as janitors, cafeteria workers, bus drivers or union employees. Provide improperly excluded employees the opportunity to participate in the plan in current and future years. Make a corrective contribution to the plan for the employees that compensates for their missed deferral opportunity. Understand which employees you may exclude from the 403(b) plan. Provide proper notification to employees of their eligibility to participate in the 403(b) plan at least annually. 5) Your 403(b) plan doesn’t limit the total employer and employee contributions to not exceed the IRC Section 415(c) limits. Determine types of contributions allowed in the plan and total employee and employer contributions per participant. Compare with the current year’s dollar limit. Transfer excess to a separate 403(c) account or distribute to the affected participants. Understand that it’s the employer’s responsibility to limit contributions and issue correct W-2s. With vendors, establish procedures to limit contributions. Educate employees. Conduct year-end review of employer and employee contributions and compare with current legal limits. 6) For plans that offer “15-years of service catch-up” contributions, an employee making these contributions doesn’t have the required 15 years of full-time service with the same employer. Review total deferrals for each participant. If over the basic 402(g) limit, determine if it’s because of a catch-up. If it’s a 15-year catch-up, determine if the employer employed the employee for 15 years. Determine the level of the participant’s 15-year catch-up. Refund excess deferrals plus earnings. Report corrections on Form 1099-R. Verify employees are eligible for the catch-up by ensuring that they have 15-years of service with the 403(b) plan sponsor, have unused amounts available for catch-up and have not exceeded the $15,000 lifetime limit. Before allowing participants to make 15-years of service catch-up contributions, ensure that the written program contains the proper language. 7) Your 403(b) plan didn’t limit elective deferrals, including catch-up and designated Roth contributions, to the amounts specified under the law in a calendar year. Track deferrals for each employee. Conduct a year-end review of deferrals for each participant and compare to 402(g) limits for that year. If over the basic 402(g) limit, determine if the excess is based on a properly administered 15-years of service or age 50 catch-up program. Refund excess deferrals plus earnings. Report corrections on Form 1099-R. Understand that it’s the employer’s responsibility to limit deferrals and issue correct W-2s. With vendors, establish procedures to limit deferrals. Educate employees. Conduct year-end review of deferrals and refund any excesses prior to April 15. 8) For a 403(b) plan offering a 5-year post severance provision, elective deferrals are permitted under the provision. Understand how this feature works and seek the help of a retirement plan professional, if needed. Distribute excess 415(c) contributions. Report corrections on Form 1099-R. Consider using the services of a retirement plan professional. Know how the feature works and keep good records. 9) You haven’t limited loan amounts and enforced repayments as required under IRC Section 72(p). Review the plan and all outstanding loans to ensure that the loans comply with the plan terms and the employees are repaying their loans timely. You may correct some failures by corrective repayment and/or modification of loan terms, if you make a submission under the Voluntary Correction Program. Review and follow the plan provisions for making loans, including the amount of loan, loan terms and repayment terms. Make sure that there are loan procedures in place. 10) You don’t have documentation ensuring that hardship distributions meet the definitions and requirements for hardship distributions. Review all in-service distributions and determine that hardship distributions met the plan requirements. Amend your plan retroactively to allow for hardship distributions. Be familiar with your plan hardship provisions. Implement procedures to ensure that you follow the provisions in operation. Ensure that your plan administrators and payroll offices share the plan hardship distribution information. 403(b) Plan Overview EPCRS Overview 403(b) Plan Checklist PDF Additional Resources
