The Internal Revenue Service (IRS) maintains the Employee Plans Compliance Resolution System (EPCRS) as a mechanism for sponsors of qualified retirement plans to correct plan errors and to maintain their plans’ tax-favored status. EPCRS was recently updated by the IRS and many of the updates are directed at 403(b) plans, including 403(b) plans sponsored by school districts. Earlier versions of EPCRS offered school districts and other sponsors of 403(b) plans limited opportunities to correct plan operational failures and, more importantly, no opportunity to correct documentary failures. When new 403(b) plan regulations took effect in 2009 and required that 403(b) plans be maintained pursuant to a written plan document, it became more important for the IRS to provide sponsors of 403(b) plans the same means for correcting document failures that are currently offered to sponsors of 401(k) plans and other qualified retirement plans. The newly updated EPCRS guidance now provides 403(b) plan sponsors with those needed correction tools.

There are three general correction regimes under EPCRS:

  1. The self-correction program (or SCP) is generally available for operational failures (i.e., a failure to follow the plan’s terms).
  2. Voluntary correction by plan sponsors with IRS approval (or VCP) is available for all qualification failures, including document failures
  3. Correction on audit (or Audit CAP) involves failures discovered by the IRS during an examination that have not been corrected through SCP or VCP.

There is no IRS fee associated with SCP. The IRS VCP fee ranges, with certain exceptions, from $750 to $25,000 depending on the number of plan participants. Meanwhile, in the case of a 403(b) plan, the Audit CAP fee generally is a negotiated percentage of the tax benefits derived by plan participants as a result of the plan’s tax-favored status.

Under the updated EPCRS guidance, the VCP fee is reduced by 50 percent for VCP submissions made by December 31, 2022 that relate solely to the failure to timely adopt a written 403(b) plan document. In other respects, 403(b) plans with qualification failures may be corrected under EPCRS in the same manner as qualified plans with similar failures. The IRS published a 403(b) “fix-it guide” that helps to identify potential plan errors and correction methods.

EPCRS guidance still provides that submissions relating to governmental Section 457(b) deferred compensation plans will be accepted by the IRS outside of EPCRS, although correction standards similar to those under EPCRS will be applied.

Pre-Approved 403(b) Plan Program. Following the recent issuance of updated EPCRS guidelines, the IRS also announced a pre-approved 403(b) plan document program. Under this program, school districts will be able to adopt a 403(b) plan document that has received an IRS opinion or advisory letter stating the terms of the written plan document conform to the requirements of Section 403(b). School districts may soon see their brokers, insurance companies and third-party record keepers begin to offer a pre-approved plan document product to use in complying with the written plan document requirement. Of course, to maintain its tax-favored status, a 403(b) plan must still be operated in accordance with its written terms—if operational errors arise, EPCRS may offer a corrective solution. It is expected that the first round of IRS 403(b) opinion and advisory letters for pre-approved 403(b) plans will be issued in approximately two years. The IRS still has not announced a program for an employer to obtain an individual IRS determination letter with respect to a 403(b) plan.


Ryan Murphy is a senior associate in the Employee Benefits Practice at Hodgson Russ LLP. You can reach him at .