The IRS’s Retirement News for Employers (Spring 2011) reports the following on compliance by 403(b) plans: A new Employee Plans Compliance Unit (“EPCU”) project focuses on how higher education organizations apply the universal availability rule to their 403(b) plans. Under this rule, if a 403(b) plan permits any employee to make salary deferrals to the plan, then it must offer the same opportunity to all employees (with limited optional exclusions). Higher education organizations include:
–institutes of technology; and
–other college level organizations (e.g. vocational and trade schools) that award academic degrees or professional certifications.
The EPCU began sending compliance check letters in April to a national sample of over 300 higher education organizations. An organization’s failure to respond to the contact letter by providing the requested information could result in further action or examination of the organization’s 403(b) plan.
Organizations that appear to comply with the universal availability rule will receive a closing letter. The EPCU will follow up with organizations that appear non-compliant to help them analyze the problem and make necessary correction. Organizations can self-correct their plan errors. Correction for a universal availability failure generally includes giving each excluded eligible employee the opportunity to participate. The organization must also make employer contributions to restore improperly excluded eligible employees’ lost opportunity to make salary deferrals. An organization’s failure to correct the error could result in the loss of favorable tax benefits for its 403(b) plan and its employees. The IRS intends to report the findings from this project.