403(b) Plans: The IRS Changes the User Fees for Voluntary Compliance


On January 2 of this year, the IRS published Revenue Procedure 2018-4 (Procedure), which outlined new fees for Voluntary Compliance Program (VCP) submissions to correct plan errors.

Prior to the new Procedure, fees were based on participant count, with a scale ranging from $750 for plans with less than twenty participants, to $25,000 for plans covering over ten thousand employees. In addition, there have been reduced fees for correcting common errors relating to participant loans, missed plan amendments, and required minimum distributions.

Without explanation, the new Procedure changes the basis of the fees from participant count to asset size, effectively creating a flat three-tiered schedule as follows:

Assets User Fee
$500,000 or less $1,500
$500,001 – 10,000,000 $3,000
Over $10,000,000 $3,500

Besides this radical change in the user fee basis, the Procedure also eliminated the discounts for the common errors mentioned above. The new fees are retroactive to the beginning of the year and allowed no time for public comment or for submissions in process to qualify under the old fees.

The effect of the new fee structure is to provide a dramatic reduction for large plans, while increasing the cost of compliance for most small plans. This may serve as a disincentive to some plan sponsors to voluntarily correct plan issues that are not eligible for self-correction. With the elimination of the determination letter program, the IRS will likely shift more resources to plan examinations, so employers are cautioned against ignoring plan compliance issues. The cost of correcting an issue through an audit still greatly outweighs the user fees detailed above.

Section 403(b) plans also have a unique opportunity to correct plan compliance issues through a plan amendment and restatement, which is required to be completed by 2020. As we have reported previously, the IRS announced a window for plans to restate their 403(b) plans to an IRS-approved document no later than March 31, 2020. These new documents will replace the “good faith” documents that were required to be adopted by 2009.

Many of the plan document or operational issues that would otherwise need to be corrected through a VCP application can be corrected through the plan restatement. The restated documents will be effective back to January 1, 2010, and the sponsor can correct any plan provisions that caused compliance issues and receive retroactive qualification back to that date. Plan sponsors are encouraged to engage in a thorough administrative review of their plans to take advantage of this unique opportunity to correct any errors that may have occurred over the last eight years.

Please contact us with any questions about your plan’s compliance. The following is a link to the IRS announcement of the new Procedure:

https://www.irs.gov/retirement-plans/voluntary-correction-program-user-fees-changes

If you have any concerns about your plan’s compliance with these requirements, please contact Richard Green at rgreen@windes.com or toll free at 844.4WINDES (844.494.6337).