Year-End Deadline Fast Approaching for Non-Profits to Fix their 403(b) Retirement Plans

Time is running out for non-profit organizations maintaining so-called Section 403(b) retirement plans for their employees to bring their plans into compliance with Internal Revenue Service (“IRS”) requirements before the end of the year to avoid stiff penalties.  Review your 403(b) plan as soon as possible to determine whether it is in compliance because waiting until January to fix certain plan issues will double the cost of the corrective IRS filing if any issues exist.

Non-profit organizations which maintain a 403(b) retirement plan for employees were required to have a written plan in place prior to January 1, 2009 setting forth the details of how the plan works and how it will be administered (whether it is administered by the organization itself or by an outside vendor).  The plan document must include certain mandatory provisions and should be entirely consistent with the organization’s actual practices in terms of how the plan is operated.  

If your organization failed to adopt a written plan prior to January 1, 2009, then you will likely need to take corrective action to bring the plan into compliance with IRS requirements.  Failure to do so could ultimately result in the plan being “disqualified,” meaning, among other things, employees’ contributions to the plan will be considered taxable – which is a mess.  Luckily, the IRS has developed a streamlined correction procedure for 403(b) plans under its Employee Plans Compliance Resolution System (aka EPCRS) whereby non-profit organizations whose sole issue is that it failed to timely adopt a written plan can make an IRS filing under EPCRS for a 50% reduced fee if the filing is mailed on or before December 31, 2013.  For example, a non-profit organization with 21-50 employees will pay an IRS filing fee of $500 on or before December 31, 2013 and $1,000 as of January 1, 2014.  

The corrective IRS filing is somewhat straightforward but reviewing your 403(b) plan and its historic operations for compliance can be time consuming, especially if one or more outside vendors is involved.  In order to take advantage of the reduced filing fees being offered by the IRS until the end of the year, you should review your plan documents as soon as possible and get in contact with your professional advisors and third party plan administrators or vendors.  Please feel free to call or email us if you have any questions about the process or encounter any plan issues.

This document is prepared as a service to clients and other friends of Devine, Millimet & Branch, Professional Association to report on recent developments.  The information contained herein is general and should not be relied upon as legal advice.

United States Treasury Regulation Circular 230 requires that we inform you that, unless expressly stated otherwise, any United States federal tax advice contained in these materials is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any tax penalties imposed by the Internal Revenue Code of 1986, as amended.

Post date: November 18, 2013
Topics: Human Resources | Legal

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