Fresh tips for 403(b) compliance

One type of retirement plan that is popular with many nonprofits is the 403(b) plan.

It is popular with many organizations because it is available only to 501(c)(3) organizations and public schools, as well as colleges and universities, even private ones. And, for a while it was the only game in town for nonprofits.

And, like any facet of nonprofit world that is heavily regulated, 403(b) plans are covered by a huge body of rules and requirements that can often cause compliance problems, even when organizations offering them are being scrupulous in their adherence to the rules. These problems are most likely to arise in the area of taxes.

Speaking during the recent American Institute of CPAs (AICPA) Not-for-Profit-Industry Conference, Jeffrey Frank of Deloitte Tax LLP offered advice on preventing compliance issues when offering 403(b) plans. Frank suggested:

  • Establish “compliance practices and procedures” (and follow them);
  • Conduct a “self audit.” A financial statement audit is not sufficient to address tax compliance; and,
  • Take advantage of Employee Plans Compliance Resolution System (EPCRS). This has three different components: a self-correction program (SCP), an audit closing agreement program (Audit CAP) and a voluntary correction program (VCP).

The Internal Revenue Service (IRS) encourages voluntary and timely correction of plan failures. Sanctions on audit could be more significant if the plan sponsor has no process for monitoring compliance or does not correct errors before the IRS discovers them.