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Part III.---Administrative, Procedural and Miscellaneous
26 CFR 601.202: Closing agreements.
Rev. Proc. 2000-16
TABLE OF CONTENTS
PART I. INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION
SYSTEM
SECTION 1. PURPOSE AND OVERVIEW
.01 Purpose
. ......................................... p.
.02 Revisions
. ....................................... p.
.03 General principles underlying EPCRS
. ............. p.
.04 Overview
. ........................................ p.
.05 Future enhancements
. ............................. p.
SECTION 2. EFFECT ON PROGRAMS
.01 Effect on programs
. .............................. p.
.02 Effect on specific programs
. ..................... p.
PART II. PROGRAM EFFECT AND ELIGIBILITY
SECTION 3. EFFECT OF EPCRS; RELIANCE
.01 Effect of EPCRS on Qualified Plans
. .............. p.
.02 Effect of EPCRS on 403(b) Plans
. ................. p.
.03 Other taxes and penalties
. ....................... p.
.04 Reliance
. ........................................ p.
SECTION 4. PROGRAM ELIGIBILITY
.01 Program eligibility for Qualified Plans
. ......... p.
.02 Program eligibility for 403(b) Plans
. ............ p.
.03 Effect of examination
. ........................... p.
.04 Favorable Letter requirement
. .................... p.
.05 Established practices and procedures
. ............ p.
.06 Qualified Plan amendments
. ....................... p.
.07 Egregious failures
. .............................. p.
.08 Diversion or misuse of plan assets
. .............. p.
PART III. DEFINITIONS, CORRECTION PRINCIPLES, AND RULES OF GENERAL
APPLICABILITY
SECTION 5. DEFINITIONS
.01 Definitions for Qualified Plans
. ................ p.
.02 Definitions for 403(b) Plans
. ................... p.
.03 Under Examination
. .............................. p.

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SECTION 6. CORRECTION PRINCIPLES AND RULES OF GENERAL APPLICABILITY
.01 Correction principles; rules of general applicability
. . p.
.02 Correction
. ..................................... p.
.03 Correction under statute or regulations
. ........ p.
.04 Matters subject to excise taxes
. ................ p.
.05 Confidentiality and disclosure
. ................. p.
.06 No effect on other law
. ......................... p.
PART IV. SELF-CORRECTION (APRSC)
SECTION 7. IN GENERAL
SECTION 8. SELF-CORRECTION OF INSIGNIFICANT OPERATIONAL FAILURES
.01 Requirements
. ................................... p.
.02 Factors
. ........................................ p.
.03 Multiple failures
. .............................. p.
.04 Examples
. ....................................... p.
SECTION 9. SELF-CORRECTION OF SIGNIFICANT OPERATIONAL FAILURES
.01 Requirements
. ................................... p.
.02 Correction period
. .............................. p.
.03 Substantial completion of correction
. ........... p.
.04 Example
. ........................................ p.
PART V. VOLUNTARY CORRECTION WITH SERVICE APPROVAL (VCR, WALK-IN CAP
AND TVC)
SECTION 10. VCR PROGRAM
.01 VCR requirements
. ................................ p.
.02 Identification of failures
. ...................... p.
.03 No concurrent examination activity
. .............. p.
.04 Insufficient information
. ........................ p.
.05 Initial processing
. .............................. p.
.06 Processing of acceptable submission
. ............. p.
.07 Failures discovered after initial submission
. .... p.
.08 Conference right
. ................................ p.
.09 Failure to reach resolution
. ..................... p.
.10 Concurrent processing of determination
letter applications. ............................. p.
.11 Special rules relating to SVP
. ................... p.
.12 General description of compliance statement
. ..... p.
.13 Compliance statement conditioned upon timely correction
..
p.
.14 Compliance statement for new plans conditioned
upon timely amendment. ........................... p.
.15 Acknowledgement letter
. .......................... p.
.16 Verification
. .................................... p.
SECTION 11. WALK-IN CAP AND TVC
.01 Walk-in CAP requirements
. ....................... p.
.02 Failures discovered after initial submission
. ... p.

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.03 Failure to reach resolution. .................... p.
.04 Effect of closing agreement
. .................... p.
.05 TVC
. ............................................ p.
SECTION 12. APPLICATION PROCEDURES FOR VCR, WALK-IN CAP AND TVC
.01 General rules
. .................................. p.
.02 Multiemployer and multiple employer plans
. ...... p.
.03 Submission requirements
. ........................ p.
.04 Required documents
. ............................. p.
.05 Fee
. ............................................ p.
.06 Signed submission
. .............................. p.
.07 Power of attorney requirements
. ................. p.
.08 Penalty of perjury statement
. ................... p.
.09 Checklist.
...................................... p.
.10 Designation
. .................................... p.
.11 VCR/SVP mailing address
. ........................ p.
.12 Walk-in CAP mailing address
. .................... p.
.13 Maintenance of copies of submissions
. ........... p.
SECTION 13. FEES
.01 Rev. Proc. 2000-8 modified
. ..................... p.
.02 VCR fee
. ........................................ p.
.03 Establishing number of plan participants
. ....... p.
.04 SVP fee
. ........................................ p.
.05 Walk-in CAP compliance correction fee
. .......... p.
.06 TVC fee
. ........................................ p.
PART VI. CORRECTION ON AUDIT (AUDIT CAP)
SECTION 14. DESCRIPTION OF AUDIT CAP
.01 Audit CAP requirements
. ......................... p.
.02 Payment of sanction
. ............................ p.
.03 Additional requirements
. ........................ p.
.04 Failure to reach resolution
. .................... p.
.05 Effect of closing agreement
. .................... p.
.06 Other procedural rules
. ......................... p.
SECTION 15. AUDIT CAP SANCTION
.01 Determination of sanction
. ...................... p.
.02 Factors considered
. ............................. p.
PART VII. EFFECT ON OTHER DOCUMENTS, AND EFFECTIVE DATE
SECTION 16. EFFECT ON OTHER DOCUMENTS
.01 Revenue procedures modified and superseded
. ..... p.
.02 Rev. Proc. 2000-8 modified
. ..................... p.
SECTION 17. EFFECTIVE DATE ................................ p.
SECTION 18. PAPERWORK REDUCTION ACT ....................... p.

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DRAFTING INFORMATION
APPENDIX A: OPERATIONAL FAILURES AND CORRECTIONS UNDER SVP . p.
APPENDIX B: CORRECTION METHODS AND EXAMPLES AND EARNINGS
ADJUSTMENT METHODS AND EXAMPLES ................ p.
APPENDIX C: VCR/SVP/WALK-IN CAP/TVC CHECKLIST .............. p.
PART I. INTRODUCTION TO EMPLOYEE PLANS COMPLIANCE RESOLUTION
SYSTEM
SECTION 1. PURPOSE AND OVERVIEW
.01 Purpose
. This revenue procedure updates and consolidates
the comprehensive system of correction programs for sponsors of
retirement plans that are intended to satisfy the requirements of
§ 401(a), § 403(a) or § 403(b) of the Internal Revenue Code (the
"Code"), but that have not met these requirements for a period of
time. This system, the Employee Plans Compliance Resolution System
("EPCRS"), permits plan sponsors to correct these Qualification or
§ 403(b) Failures and thereby continue to provide their employees
with retirement benefits on a tax-favored basis. The components of
EPCRS are the Administrative Policy Regarding Self-Correction
("APRSC"), the Voluntary Compliance Resolution ("VCR") program, the
Walk-in Closing Agreement Program ("Walk-in CAP"), the Audit Closing
Agreement Program ("Audit CAP") and the Tax Sheltered Annuity
Voluntary Correction ("TVC") program.
.02 Revisions
. This revenue procedure modifies Rev. Proc. 98-
22, 1998-12 I.R.B. 11, which consolidated the correction programs
into EPCRS. The modifications to Rev. Proc. 98-22 include:
(1) incorporating Rev. Proc. 99-13, 1999-5 I.R.B. 52,
which applies EPCRS to 403(b) Plans;
(2) adding a new Appendix B which incorporates the
correction methods described and illustrated in Rev. Proc. 99-31
1999-34 I.R.B. 280;
(3) redesignating Appendix B of Rev. Proc. 98-22 as
Appendix C; and
(4) reflecting the new Tax Exempt and Government Entities
Division (TE/GE) of the IRS.
.03 General principles underlying EPCRS
. EPCRS is based on the
following general principles:
CSponsors of tax-qualified retirement plans or 403(b) Plans
should be encouraged to establish administrative practices

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and procedures that ensure that plans are operated
properly in accordance with the tax qualification or
403(b) requirements.
CSponsors of tax-qualified retirement plans should maintain
plan documents satisfying the tax qualification
requirements.
CPlan sponsors should make voluntary and timely correction
of any Qualification or 403(b) Failures, whether involving
discrimination in favor of highly compensated employees,
plan operations, or the terms of the plan document.
Timely and efficient correction protects participating
employees by providing them with their expected retirement
benefits, including favorable tax treatment.
CVoluntary compliance is promoted by providing for limited
fees for voluntary corrections approved by the Service,
thereby reducing employers’ uncertainty regarding their
potential tax liability and participants’ potential income
tax liability.
CSanctions for Qualification or 403(b) Failures identified
on audit should be reasonable in light of the nature,
extent, and severity of the violation.
CAdministration of EPCRS should be consistent and uniform.
CTaxpayers should be able to rely on the availability of
EPCRS in taking corrective actions to maintain the
qualified or 403(b) status of their plans.

.04 Overview
. EPCRS includes the following basic elements:
CSelf-correction. A plan sponsor that has established
compliance practices and procedures may, at any time,
correct insignificant Operational Failures without paying
any fee or sanction. In addition, in the case of a
Qualified Plan that is the subject of a favorable
determination letter from the Service or of a 403(b) Plan,
the plan sponsor generally may correct even significant
Operational Failures within a two-year period without
payment of any fee or sanction. (APRSC)
CVoluntary correction with Service approval. In the case
of any other Qualification or 403(b) Failure, a plan
sponsor, at any time before audit, may pay a limited fee
and receive the Service's approval for the correction.
(VCR, Walk-in CAP, and TVC)
CCorrection on audit. If a Qualification or 403(b) Failure
(other than a failure corrected as described above) is
identified on audit and corrected, the sanction imposed

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will bear a reasonable relationship to the nature, extent
and severity of the failure, taking into account the
extent to which correction occurred before audit. (Audit
CAP)
.05 Future enhancements
. The primary purpose of this revenue
procedure is to consolidate in a single document, for ease of use and
reference, the guidance previously published with respect to EPCRS.
Certain clarifications and revisions, discussed below, that do not
involve significant substantive modification of EPCRS and that
generally reflect the current practice under EPCRS, are included in
this revenue procedure.
The Service and Treasury are actively reviewing the comments
that have been received on EPCRS that are not reflected in this
revenue procedure. These additional enhancements will be
incorporated into upcoming guidance on EPCRS. In addition to that
guidance, it is anticipated that the consolidated EPCRS revenue
procedure will be updated on an annual basis to reflect changes
published during the preceding calendar year.
SECTION 2. EFFECT ON PROGRAMS
.01 Effect on programs
. This revenue procedure
affects the programs as follows:
Cconsolidates and coordinates guidance issued in 1998 and
1999 into a unified EPCRS procedure;
Cclarifies the application of FICA and FUTA taxes (and
corresponding withholding obligations) to corrected
Qualified Plans and 403(b) Plans; and
Cclarifies that the statute of limitations for purposes of
redetermining taxes for a closed taxable year will not be
reopened solely because of correction of a failure that
occurred in such year.
.02 Effect on specific programs
. This revenue procedure
affects the specific programs as follows:
(1) APRSC
. APRSC enables a sponsor of a Qualified Plan
or a 403(b) Plan to self-correct Operational Failures it discovers in
its plans. The provisions of APRSC are modified and restated to:
Cclarify and confirm, under the eligibility requirements
for APRSC, that the program is available to correct
insignificant defects in plans of all sizes.
(2) VCR
. The VCR program enables a sponsor of a
Qualified Plan to voluntarily disclose to the Service Operational
Failures it has discovered in its plans and to pay a fixed fee to the
Service. The provisions of VCR are modified to:

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Cgrant, in appropriate cases, a waiver of the excise tax
under §4974 for minimum required distribution failures
that are corrected by the Plan Sponsor under VCR;
Camplify the permissible correction methods under the
Standardized VCR Program (SVP) (see Appendix A and
Appendix B of this revenue procedure); and
Cclarify that sponsors may use Walk-in CAP for interrelated
VCR and Walk-in CAP failures.
(3) Walk-in CAP
. Walk-in CAP enables a sponsor of a
Qualified Plan to voluntarily disclose to the Service Qualification
Failures it has discovered in its plan and to pay a compliance
correction fee. The provisions of Walk-in CAP are modified to:
Cgrant, in appropriate cases, a waiver of the excise tax
under § 4974 for minimum distribution failures that are
corrected by the Plan Sponsor under Walk-in CAP.
(4) TVC
. Similar to Walk-in CAP, TVC enables an employer that
offers a 403(b) Plan to voluntarily disclose to the Service 403(b)
Failures it has discovered in its plan and to pay a compliance
correction fee. The provisions of TVC are modified to:
Cgrant, in appropriate cases, a waiver of the excise tax
under § 4974 for minimum distribution failures that are
corrected by the Plan Sponsor under TVC.
Cclarify the types of failures that may be corrected under
TVC.
PART II. PROGRAM EFFECT AND ELIGIBILITY
SECTION 3. EFFECT OF EPCRS; RELIANCE
.01 Effect of EPCRS on Qualified Plans
. If the eligibility
requirements of section 4 are satisfied and the Plan Sponsor corrects
a Qualification Failure in accordance with the requirements of APRSC
in section 7, the VCR program in section 10, Walk-in CAP in section
11, or Audit CAP in section 14, the Service will not treat the
Qualified Plan as disqualified on account of the Qualification
Failure. If the Plan Sponsor corrects the failures in accordance
with the requirements of this revenue procedure the plan will be
treated as a qualified plan for purposes of applying § 3121(a)(5)
(FICA taxes) and for purposes of applying § 3306(a)(5) (FUTA taxes).
.02 Effect of EPCRS on 403(b) Plans
. If the applicable
eligibility requirements are satisfied and the employer corrects a
failure in accordance with the requirements of APRSC, TVC, or Audit
CAP for 403(b) Plans, the Service will not pursue income inclusion

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for affected participants, or liability for income tax withholding,
on account of the failure. However, the correction of a failure may
result in income tax consequences to participants (for example,
participants may be required to include in gross income distributions
of Excess Amounts in the year of distribution). In addition, if
these requirements are met and correction is made under this revenue
procedure, the annuity contracts or custodial accounts under a 403(b)
Plan will be treated as annuity contracts described in § 403(b) for
purposes of applying § 3121(a)(5) (FICA taxes) and for purposes of
applying § 3306(a)(5) (FUTA taxes). However, contributions or
allocations of Excess Amounts are generally treated as wages for
purposes of FICA and FUTA taxes.
.03 Other taxes and penalties
. See section 6.04 for rules
relating to other taxes and penalties.
.04 Reliance
. Taxpayers may rely on this revenue procedure,
including the relief described in sections 3.01 and 3.02.
SECTION 4. PROGRAM ELIGIBILITY
.01 Program eligibility for Qualified Plans
. EPCRS includes
three specific voluntary correction programs and an audit correction
program for Qualified Plans. The voluntary correction programs are
APRSC and VCR, both of which are available for Operational Failures,
and Walk-in CAP, which applies to Plan Document and Demographic
Failures and to Operational Failures that are not eligible for APRSC
and VCR. APRSC is a voluntary employer-initiated procedure that
generally does not involve Service approval, whereas VCR and Walk-in
CAP are voluntary employer-initiated procedures that involve Service
approval. The audit correction program is Audit CAP, which is
available for all types of Qualification Failures found on
examination that cannot be corrected under APRSC.
.02 Program eligibility for 403(b) Plans
. EPCRS includes two
specific voluntary correction programs and an audit correction
program for 403(b) Plans. The voluntary correction programs are
APRSC and TVC. APRSC is available only for Operational Failures, and
is not available to correct Eligibility or Demographic Failures.
APRSC is available to correct Excess Amounts using the method
described in section 6.02(4)(b)(i) below, but not the method
described in section 6.02(4)(b)(ii) below. There is no requirement
that an employer obtain a private letter ruling from the Service
covering its 403(b) Plan in order to be eligible for APRSC. TVC is a
voluntary program that involves Service approval. TVC applies to
Eligibility, Demographic, and Operational Failures that are within
the jurisdiction of Employee Plans, including Plans of Ineligible
Employers. The audit correction program is Audit CAP, which is also
available for Eligibility, Demographic, and Operational Failures
found on examination that cannot be corrected under APRSC.
.03 Effect of examination
. If the plan or Plan Sponsor is
Under Examination, the VCR, Walk-in CAP, and TVC programs are not

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available; insignificant Operational Failures can be corrected under
APRSC; and significant Operational Failures can be corrected under
APRSC in limited circumstances. See section 9.
.04 Favorable Letter requirement
. The VCR program and the
provisions of APRSC relating to significant Operational Failures (see
section 9) of a Qualified Plan are available only for a plan that is
the subject of a Favorable Letter.
.05 Established practices and procedures
. In order to be
eligible for APRSC, the Plan Sponsor or administrator of a plan must
have established practices and procedures (formal or informal)
reasonably designed to promote and facilitate overall compliance with
the requirements of § 401(a) or § 403(b). For example, the plan
administrator of a Qualified Plan might use a check sheet for
tracking allocations and indicate on that check sheet whether a
particular employee was a key employee for top-heavy purposes. A
plan document alone will not constitute evidence of established
procedures. These established procedures must have been in place and
routinely followed, but through an oversight or mistake in applying
them, or because of an inadequacy in the procedures, an Operational
Failure occurred. A 403(b) plan document is neither necessary nor
sufficient to demonstrate that the employer, plan administrator,
insurer or account custodian has in place established practices and
procedures reasonably designed to facilitate overall compliance.
.06 Qualified Plan amendments
. (1) Correction by plan
amendment not permitted in APRSC or VCR. Neither APRSC nor the VCR
program is available for a Plan Sponsor to correct an Operational
Failure by a plan amendment that conforms the terms of the plan to
the plan's prior operations. Thus, if loans were made to
participants, but the plan document did not permit loans to be made
to participants, the failure cannot be corrected under VCR by
retroactively amending the plan to provide for the loans.
Nevertheless, if a Plan Sponsor corrects under APRSC or VCR, it may
amend the plan to the extent necessary to reflect operational
correction. For example, if the plan failed to satisfy the ADP test
required under § 401(k)(3) and the employer must make qualified
nonelective contributions not already provided for under the plan,
the plan may be amended to provide for qualified nonelective
contributions. The issuance of a compliance statement does not
constitute a determination as to the effect of any plan amendment on
the qualification of the plan.
(2) Availability of correction by plan amendment in Walk-
in CAP. A Plan Sponsor may use Walk-in CAP for a Qualified Plan to
correct an Operational Failure by a plan amendment to conform the
terms of the plan to the plan's prior operations, provided that the
amendment complies with the requirements of § 401(a), including the
requirements of §§ 401(a)(4), 410(b), and 411(d)(6).
.07 Egregious failures
. Neither APRSC nor the VCR program is
available to correct Operational Failures that are egregious. For

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example, if an employer has consistently and improperly covered only
highly compensated employees or if a contribution to a defined
contribution plan for a highly compensated individual is several
times greater than the dollar limit set forth in § 415, the failure
would be considered egregious. Walk-In CAP and TVC are available to
correct egregious failures; however, these failures are subject to
the fees described in sections 13.05(3) and 13.06(6).
.08 Diversion or misuse of plan assets
. The APRSC, VCR, Walk-
in CAP, TVC and Audit CAP programs are not available for correcting
Qualification or 403(b) Failures relating to the diversion or misuse
of plan assets.
PART III. DEFINITIONS, CORRECTION PRINCIPLES, AND RULES OF
GENERAL APPLICABILITY
SECTION 5. DEFINITIONS
The following definitions apply for purposes of this revenue
procedure:
.01 Definitions for Qualified Plans
. The definitions in this
section 5.01 apply to Qualified Plans.
(1) Qualified Plan
. The term "Qualified Plan" means a
plan intended to satisfy the requirements of § 401(a) or § 403(a).
(2) Qualification Failure
. A Qualification Failure is
any failure that adversely affects the qualification of a plan.
There are three types of Qualification Failures: (a) Plan Document
Failures, (b) Operational Failures, and (c) Demographic Failures.
(a) Plan Document Failure
. The term "Plan Document
Failure" means a plan provision (or the absence of a plan provision)
that, on its face, violates the requirements of § 401(a) or § 403(a).
Thus, for example, the failure of a plan to be amended to reflect a
new qualification requirement within the plan's applicable remedial
amendment period under § 401(b) is a Plan Document Failure. For
purposes of this revenue procedure, a Plan Document Failure includes
any Qualification Failure that is a violation of the requirements of
§ 401(a) or § 403(a) and that is neither an Operational Failure nor a
Demographic Failure.
(b) Operational Failure
. The term "Operational
Failure" means a Qualification Failure that arises solely from the
failure to follow plan provisions.
A failure to follow the terms of the plan providing for the
satisfaction of the requirements of § 401(k) and § 401(m) is
considered to be an Operational Failure. A plan does not have an
Operational Failure to the extent the plan is permitted to be amended

- 11 -
retroactively pursuant to § 401(b) or another statutory provision to
reflect the plan's operations. However, if within an applicable
remedial amendment period under § 401(b), a plan has been properly
amended for statutory or regulatory changes, and, on or after the
later of the date the amendment is effective or is adopted, the
amended provisions are not followed, then the plan is considered to
have an Operational Failure.
(c) Demographic Failure
. The term "Demographic
Failure" means a failure to satisfy the requirements of § 401(a)(4),
§ 401(a)(26), or § 410(b) that is not an Operational Failure.
The correction of a Demographic Failure generally requires a
substantive corrective amendment to the plan adding more benefits or
increasing existing benefits (cf., § 1.401(a)(4)-11(g) of the Income
Tax Regulations).
(3) Excess Amount
. The term "Excess Amount" means (a)
an Overpayment, (b) an elective deferral or employee after-tax
contribution returned to satisfy § 415,(c) an elective deferral in
excess of the limitation of § 402(g) that is distributed,(d) an
excess contribution or excess aggregate contribution that is
distributed to satisfy § 401(k) or § 401(m), or (e) any similar
amount required to be distributed in order to maintain plan
qualification.
(4) Favorable Letter
. The term "Favorable Letter" means
a current favorable determination letter for an individually designed
plan (including a volume submitter plan), a current favorable opinion
letter for a Plan Sponsor that has adopted a master or prototype
plan, or a current favorable notification letter for a Plan Sponsor
that has adopted a regional prototype plan. A plan has a current
favorable determination letter, opinion letter, or notification
letter if either (a), (b), or (c) below is satisfied:
(a) The plan has a favorable determination, opinion,
or notification letter that considers the Tax Reform Act of 1986
("TRA '86").
(b) The plan is a governmental plan or non-electing
church plan described in Rev. Proc. 99-23, 1999-16 I.R.B. 5, and has
a favorable determination, opinion, or notification letter that
considers the Tax Equity and Fiscal Responsibility Act of 1982
("TEFRA"), the Deficit Reduction Act of 1984 ("DEFRA"), and the
Retirement Equity Act of 1984 ("REA"), and the § 401(b) remedial
amendment period for TRA ‘86 has not yet expired.
(c) The plan is initially adopted or effective after
December 7, 1994, and the Plan Sponsor timely submits an application
for a determination, opinion, or notification letter within the
plan’s remedial amendment period under § 401(b).
(5) Maximum Payment Amount
. The term "Maximum Payment

- 12 -
Amount" means a monetary amount that is approximately equal to the
tax the Service could collect upon plan disqualification and is the
sum for the open taxable years of the:
(a) tax on the trust (Form 1041),
(b) additional income tax resulting from the loss of
employer deductions for plan contributions (and any interest or
penalties applicable to the Plan Sponsor’s return), and
(c) additional income tax resulting from income
inclusion for participants in the plan (Form 1040).
For purposes of determining the maximum compliance correction
fee applicable under section 13.05(3), relating to egregious failures
under Walk-in CAP, paragraph (b) above is modified to exclude
interest or penalties applicable to the Plan Sponsor’s return, and
paragraph (c) above is modified to include only the additional income
tax resulting from income inclusion for highly compensated employees,
as defined in § 414(q).
(6) Overpayment
. The term "Overpayment" means a
distribution to an employee or beneficiary that exceeds the
employee's or beneficiary's benefit under the terms of the plan
because of a failure to comply with plan terms that implement
§ 401(a)(17), 401(m) (but only with respect to the forfeiture of
nonvested matching contributions that are excess aggregate
contributions), 411(a)(3)(G), or 415. An Overpayment does not
include a distribution of an Excess Amount described in section
5.01(3) (b), (c), (d), or (e).
(7) Plan Sponsor
. The term "Plan Sponsor" means the
employer that establishes or maintains a qualified retirement plan
for its employees.
.02 Definitions for 403(b) Plans
. The definitions in this
section 5.02 apply to 403(b) Plans.
(1) 403(b) Plan
. The term "403(b) Plan" means a plan or
program intended to satisfy the requirements of § 403(b), including a
Plan of an Ineligible Employer.
(2) 403(b) Failure
. A 403(b) Failure is any Operational,
Eligibility or Demographic Failure as defined below.
(a) Demographic Failure
. The term "Demographic
Failure" means a failure to satisfy the requirements of § 401(a)(4),
§ 401(a)(26), or § 410(b) (as applied to 403(b) Plans pursuant to
§ 403(b)(12)(A)(i)).
(b) Eligibility Failure
. The term "Eligibility
Failure" means any of the following :

- 13 -
(i) A Plan of an Ineligible Employer;
(ii) A failure to satisfy the nontransferability
requirement of § 401(g);
(iii) A failure to initially establish or maintain a
custodial account as required by § 403(b)(7); or
(iv) A failure to purchase (initially or
subsequently) either an annuity contract from an insurance company
(unless grandfathered under Rev. Rul. 82-102, 1982-1 C.B. 62) or a
custodial account from a regulated investment company utilizing a
bank or an approved non-bank trustee/custodian.
(c) Operational Failure
. The term "Operational
Failure" means, with respect to a 403(b) Plan, any of the following:
(i) A failure to satisfy the requirements of
§ 403(b)(12)(A)(ii) (relating to the availability of salary reduction
contributions);
(ii) A failure to satisfy the requirements of
§ 401(m) (as applied to 403(b) Plans pursuant to § 403(b)(12)(A)(i));
(iii) A failure to satisfy the requirements of
§ 401(a)(17) (as applied to 403(b) Plans pursuant to
§ 403(b)(12)(A)(i));
(iv) A failure to satisfy the distribution
restrictions of § 403(b)(7) or § 403(b)(11);
(v) A failure to satisfy the incidental death benefit
rules of § 403(b)(10);
(vi) A failure to pay minimum required distributions
under § 403(b)(10);
(vii) A failure to give employees the right to elect
a direct rollover under § 403(b)(10), including the failure to give
meaningful notice of such right;
(viii) A failure of the annuity contract or custodial
agreement to provide participants with a right to elect a direct
rollover under §§ 403(b)(10) and 401(a)(31);
(ix) A failure to satisfy the limit on elective
deferrals under § 403(b)(1)(E);
(x) A failure of the annuity contract or custodial
agreement to provide the limit on elective deferrals under
§§ 403(b)(1)(E) and 401(a)(30);
(xi) A failure involving contributions or allocations
of Excess Amounts; or
(xii) Any other failure to satisfy applicable
requirements under § 403(b) that (i) results in the loss of § 403(b)
status for the plan or the loss of § 403(b) status for one or more
custodial account(s) or annuity contract(s) under the plan and (ii)
is not a Demographic Failure, an Eligibility Failure, or a failure
related to the purchase of annuity contracts, or contributions to
custodial accounts, on behalf of individuals who are not employees of
the employer.
(3) Excess Amount
. The term "Excess Amount" means, in
the case of a 403(b) Plan, any contributions or allocations that are
in excess of the limits under § 415 or § 403(b)(2)(the exclusion
allowance limit) for the year.

- 14 -
(4) Plan of an Ineligible Employer. The term "Plan of an
Ineligible Employer" means a plan intended to satisfy the
requirements of § 403(b) but which is not eligible for favorable tax
treatment under § 403(b) because the employer is not a tax-exempt
organization described in § 501(c)(3) or a public educational
organization described in § 170(b)(1)(A)(ii).
(5) Plan Sponsor
. The term "Plan Sponsor" means the
employer that offers a 403(b) Plan to its employees.
(6) Total Sanction Amount
. The term "Total Sanction
Amount" means a monetary amount that is approximately equal to the
income tax the Service could collect as a result of the failure.
.03 Under Examination
. This definition applies to Qualified
Plans and 403(b) Plans. The term "Under Examination" means: (1) a
plan that is under an Employee Plans examination (that is, an
examination of a Form 5500 series or other Employee Plans
examination), or (2) a Plan Sponsor that is under an Exempt
Organizations examination (that is, an examination of a Form 990
series or other Exempt Organizations examination).
A plan that is under an Employee Plans examination includes any
plan for which the Plan Sponsor, or a representative, has received
verbal or written notification from Employee Plans of an impending
Employee Plans examination, or of an impending referral for an
Employee Plans examination, and also includes any plan that has been
under an Employee Plans examination and is now in Appeals or in
litigation for issues raised in an Employee Plans examination. A
plan is considered to be Under Examination if it is aggregated for
purposes of satisfying the nondiscrimination requirements of
§ 401(a)(4), the minimum participation requirements of § 401(a)(26),
the minimum coverage requirements of § 410(b), or the requirements of
§ 403(b)(12), with a plan(s) that is Under Examination. In addition,
a plan is considered to be Under Examination with respect to a
failure of a qualification requirement (other than those described in
the preceding sentence) if the plan is aggregated with another plan
for purposes of satisfying that qualification requirement (for
example, § 402(g), § 415, or § 416) and that other plan is Under
Examination. For example, assume Plan A has a § 415 failure, Plan A
is aggregated with Plan B only for purposes of § 415, and Plan B is
Under Examination. In this case, Plan A is considered to be Under
Examination with respect to the § 415 failure. However, if Plan A
has a failure relating to the spousal consent rules under § 417 or
the vesting rules of § 411, Plan A is not considered to be Under
Examination with respect to the § 417 or § 411 failure. For purposes
of this revenue procedure, the term aggregation does not include
consideration of benefits provided by various plans for purposes of
the average benefits test set forth in § 410(b)(2).
An Employee Plans examination also includes a case in which a
Plan Sponsor has submitted a Form 5310, Application for Determination
of Qualification Upon Termination, and the Employee Plans agent

- 15 -
notifies the Plan Sponsor, or a representative, of possible
Qualification Failures, whether or not the Plan Sponsor is officially
notified of an "examination." This would include a case where, for
example, a Plan Sponsor has applied for a determination letter on
plan termination, and an Employee Plans agent notifies the Plan
Sponsor that there are partial termination concerns.
A Plan Sponsor that is under an Exempt Organizations
examination includes any Plan Sponsor that has received (or whose
representative has received) verbal or written notification from
Exempt Organizations of an impending Exempt Organizations examination
or of an impending referral for an Exempt Organizations examination
and also includes any Plan Sponsor that has been under an Exempt
Organizations examination and is now in Appeals or in litigation for
issues raised in an Exempt Organizations examination.
SECTION 6. CORRECTION PRINCIPLES AND RULES OF GENERAL APPLICABILITY
.01 Correction principles; rules of general applicability
. The
following general correction principles and rules of general
applicability apply for purposes of this revenue procedure.
.02 Correction
. Generally, a Qualification or 403(b) Failure
is not corrected unless full correction is made with respect to all
participants and beneficiaries, and for all taxable years (whether or
not the taxable year is closed). Even if correction is made for a
closed taxable year, the tax liability associated with that year will
not be redetermined because of the correction. In the case of a
Qualified Plan with an Operational Failure, correction is determined
taking into account the terms of the plan at the time of the failure.
Correction should be accomplished taking into account the following
principles:
(1) Restoration of benefits
. The correction method should
restore the plan to the position it would have been in had the
Qualification or 403(b) Failure not occurred, including restoration
of current and former participants and beneficiaries to the benefits
and rights they would have had if the Qualification or 403(b) Failure
had not occurred.
(2) Reasonable and appropriate correction
. The correction
should be reasonable and appropriate for the Qualification or 403(b)
Failure. Depending on the nature of the Qualification or 403(b)
Failure, there may be more than one reasonable and appropriate
correction for the failure. Any correction method permitted under
Appendix A or Appendix B is deemed to be a reasonable and appropriate
method of correcting the related Qualification Failure. Any
correction method permitted under Appendix A applicable to a 403(b)
Plan is deemed to be a reasonable and appropriate method of
correcting the related 403(b) Failure. Whether any other particular
correction method is reasonable and appropriate is determined taking
into account the applicable facts and circumstances and the following
principles:

- 16 -
(a) The correction method should, to the extent
possible, resemble one already provided for in the Code, Income Tax
Regulations, or other guidance of general applicability. For
example, for Qualified Plans, the defined contribution plan
correction methods set forth in § 1.415-6(b)(6) would be the typical
means of correcting a failure under § 415. Likewise, the correction
method set forth in § 1.402(g)-1(e)(2) would be the typical means of
correcting a failure under § 402(g).
(b) The correction method for Qualification or
403(b) Failures relating to nondiscrimination should provide benefits
for nonhighly compensated employees. For example, for Qualified
Plans, the correction method set forth in § 1.401(a)(4)-11(g)
(rather than methods making use of the special testing provisions set
forth in § 1.401(a)(4)-8 or § 1.401(a)(4)-9) would be the typical
means of correcting a failure to satisfy nondiscrimination
requirements. Similarly, the correction of a failure to satisfy the
requirements of § 401(k)(3), 401(m)(2), or 401(m)(9) (relating to
nondiscrimination) solely by distributing excess amounts to highly
compensated employees would not be the typical means of correcting
such a failure.
(c) The correction method should keep plan assets in
the plan, except to the extent the Code, regulations, or other
guidance of general applicability provide for correction by
distribution to participants or beneficiaries or return of assets to
the employer or Plan Sponsor. For example, if an excess allocation
(not in excess of the § 415 limits) made under a Qualified Plan was
made for a participant under a plan (other than a cash or deferred
arrangement), the excess should be reallocated to other participants
or, depending on the facts and circumstances, used to reduce future
employer contributions.
(d) The correction method should not violate another
applicable specific requirement of § 401(a) or § 403(b) (for example,
§ 401(a)(4), 411(d)(6) or 403(b)(12), as applicable). If an
additional failure is created as a result of the use of a correction
method in this revenue procedure, then that failure also must be
corrected in conjunction with the use of that correction method and
in accordance with the requirements of this revenue procedure.
(3) Consistency Requirement
. Generally, where more than
one correction method is available to correct a type of Operational
Failure for a plan year (or where there are alternative ways to apply
a correction method), the correction method (or one of the
alternative ways to apply the correction method) should be applied
consistently in correcting all Operational Failures of that type for
that plan year. Similarly, earnings adjustment methods generally
should be applied consistently with respect to corrective
contributions or allocations for a particular type of Operational
Failure for a plan year.

- 17 -
(4) Treatment of Excess Amounts. The following provisions
apply for purposes of treating Excess Amounts under Qualified Plans
and 403(b) Plans.
(a) Treatment of Excess Amounts under Qualified
Plans. A distribution of an Excess Amount is not eligible for the
favorable tax treatment accorded to distributions from Qualified
Plans (such as eligibility for rollover under § 402(c)). To the
extent that a current or prior distribution was a distribution of an
Excess Amount, distribution of that Excess Amount is not an eligible
rollover distribution. Thus, for example, if such a distribution was
contributed to an individual retirement arrangement ("IRA"), the
contribution is not a valid rollover contribution for purposes of
determining the amount of excess contributions (within the meaning of
§ 4973) to the individual's IRAs. Where an Excess Amount has been
distributed the employer must notify the recipient that (i) the
Excess Amount was distributed and (ii) the Excess Amount was not
eligible for favorable tax treatment accorded to distributions from
Qualified Plans (and, specifically, was not eligible for tax-free
rollover).
(b) Treatment of Excess Amounts under 403(b) Plans
.
(i) Distribution of Excess Amounts. Excess Amounts for a year,
adjusted for earnings through the date of distribution, must be
distributed to affected participants and beneficiaries and are
includible in their gross income in the year of distribution. The
distribution of Excess Amounts is not an eligible rollover
distribution within the meaning of § 403(b)(8). A distribution of
Excess Amounts is generally treated in the manner described in
section 3 of Rev. Proc. 92-93, 1992-2 C.B. 505, relating to the
corrective disbursement of elective deferrals. The distribution must
be reported on Forms 1099-R for the year of distribution with respect
to each participant or beneficiary receiving such a distribution. In
addition, the employer must inform affected participants and
beneficiaries that the distribution of Excess Amounts is not eligible
for rollover. Excess Amounts distributed pursuant to this
subparagraph (4)(b)(i) are not treated as amounts previously
excludable under § 403(b)(2)(A)(ii) for purposes of calculating the
maximum exclusion allowance for the taxable year of the distribution
and for subsequent taxable years.
(ii) Retention of Excess Amounts. Under TVC and
Audit CAP, Excess Amounts will be treated as corrected (even though
the Excess Amounts are retained in the 403(b) Plan) if the following
requirements are satisfied. Excess Amounts arising from a § 415
failure, adjusted for earnings through the date of correction, must
reduce affected participants’ applicable § 415 limit for the year
following the year of correction (or for the year of correction if
the employer so chooses), and subsequent years, until the excess is
eliminated. Excess Amounts (whether arising from a § 415 failure or a
§ 403(b)(2) failure), adjusted for earnings through the date of
correction, must also reduce participants’ exclusion allowances by
being treated as amounts previously excludable under

- 18 -
§ 403(b)(2)(A)(ii) beginning with the year following the year of
correction (or the year of correction if the employer so chooses).
This correction must generally be used for all participants who have
Excess Amounts.
(5) Principles regarding corrective allocations and
corrective distributions. The following principles apply where an
appropriate correction method includes the use of corrective
allocations or corrective distributions. Corrective allocations are
generally not made with respect to a 403(b) Plan.
(a) Corrective allocations under a defined
contribution plan should be based upon the terms of the plan and
other applicable information at the time of the Qualification Failure
(including the compensation that would have been used under the plan
for the period with respect to which a corrective allocation is being
made) and should be adjusted for earnings and forfeitures that would
have been allocated to the participant's account if the failure had
not occurred. The corrective allocation need not be adjusted for
losses. For administrative convenience, in the case of corrective
allocations, if the plan permitted directed investments for the years
at issue, and thus had more than one fund, the plan would be
permitted to use the highest rate earned in the plan for the period
of the failure as the rate used for all corrective allocations,
provided that most of the employees receiving the corrective
allocations are nonhighly compensated employees.
(b) A corrective allocation to a participant's
account because of a failure to make a required allocation in a prior
limitation year will not be considered an annual addition with
respect to the participant for the limitation year in which the
correction is made, but will be considered an annual addition for the
limitation year to which the corrective allocation relates. However,
the normal rules of § 404, regarding deductions, apply.
(c) Corrective allocations should come only from
employer contributions (including forfeitures if the plan permits
their use to reduce employer contributions).
(d) In the case of a defined benefit plan, a
corrective distribution for an individual should be increased to take
into account the delayed payment, consistent with the plan's
actuarial adjustments.
(6) Special exceptions to full correction
. In general, a
Qualification or 403(b) Failure must be fully corrected. Although
the mere fact that correction is inconvenient or burdensome is not
enough to relieve a Plan Sponsor of the need to make full correction,
full correction may not be required in certain situations because it
is unreasonable or not feasible. Even in these situations, the
correction method adopted must be one that does not have significant
adverse effects on participants and beneficiaries or the plan, and
that does not discriminate significantly in favor of highly

- 19 -
compensated employees. The exceptions described below specify those
situations in which full correction is not required.
(a) Reasonable estimates
. If it is not possible to
make a precise calculation, or the probable difference between the
approximate and the precise restoration of a participant’s benefits
is insignificant and the administrative cost of determining precise
restoration would significantly exceed the probable difference,
reasonable estimates may be used in calculating appropriate
correction.
(b) Delivery of very small benefits
. If the total
corrective distribution due a participant or beneficiary is $20 or
less, the Plan Sponsor is not required to make the corrective
distribution if the reasonable direct costs of processing and
delivering the distribution to the participant or beneficiary would
exceed the amount of the distribution.
(c) Locating lost participants
. Reasonable actions
must be taken to find all current and former participants and
beneficiaries to whom additional benefits are due, but who have not
been located after a mailing to the last known address. In general,
such actions include use of the Internal Revenue Service Letter
Forwarding Program (see Rev. Proc. 94-22, 1994-1 C.B. 608) or the
Social Security Administration Reporting Service. A plan will not be
considered to have failed to correct a failure due to the inability
to locate an individual if either of these programs is used; provided
that, if the individual is later located, the additional benefits
must be provided to the individual at that time.
(7) Correction of a Plan of an Ineligible Employer
. The
permitted correction of a Plan of an Ineligible Employer under TVC is
the cessation of all contributions (including salary reduction and
after-tax contributions) beginning no later than the date the
application under TVC is filed. Pursuant to TVC correction, the
assets in such a plan are to remain in the annuity contract or
custodial account and are to be distributed no earlier than the
occurrence of one of the distribution events described in
§ 403(b)(7)(to the extent the assets are held in custodial accounts)
or § 403(b)(11) (for those assets invested in annuity contracts that
would be subject to § 403(b)(11) restrictions if the employer were
eligible). A Plan of an Ineligible Employer that is corrected
through TVC will be treated as subject to all of the requirements and
provisions of § 403(b), including the provisions of
§ 403(b)(8)(relating to rollovers). Because a Plan of an Ineligible
Employer will be treated as subject to all of the requirements of
403(b), the plan must, as part of TVC correction, also correct all
other Operational, Demographic, and Eligibility Failures in
accordance with this revenue procedure. The correction of a Plan of
an Ineligible Employer is subject to the fee described in section
13.06(4) below (or, with respect to the correction of multiple
failures, section 13.06(5)).

- 20 -
(8) Reporting. Any distributions from the plan should be
properly reported.
.03 Correction under statute or regulations
. Generally, none
of the correction programs are available to correct failures that can
be corrected under the Code and related regulations. For example, as
a general rule, a Plan Document Failure that is a disqualifying
provision for which the remedial amendment period under § 401(b) has
not expired can be corrected by operation of the Code through
retroactive remedial amendment.
.04 Matters subject to excise taxes
. (1) Except as provided
in paragraph (3) below, excise taxes and additional taxes, to the
extent applicable, are not waived merely because the underlying
failure has been corrected or because the taxes result from the
correction. Thus, for example, the excise tax on certain excess
contributions under § 4979 is not waived under these correction
programs.
(2) Except as provided in paragraph (3) below, for
Qualified Plans, the correction programs are not available for events
for which the Code provides tax consequences other than plan
disqualification (such as the imposition of an excise tax or
additional income tax). For example, funding deficiencies (failures
to make the required contributions to a plan subject to § 412),
prohibited transactions, and failures to file the Form 5500 cannot be
corrected under the correction programs. However, if the event is
also an Operational Failure (for example, if the terms of the plan
document relating to plan loans to participants were not followed and
loans made under the plan did not satisfy § 72(p)(2)), the correction
programs will be available to correct the Operational Failure, even
though the excise or income taxes generally still will apply.
(3) For Qualified Plans and 403(b) Plans, as part of the
VCR, Walk-in CAP, or TVC programs, if the failure involves the
failure to satisfy the minimum required distribution requirements of
§ 401(a)(9), in appropriate cases, the Service will waive the excise
tax under § 4974 applicable to plan participants.
.05 Confidentiality and disclosure
. Because each correction
program relates directly to the enforcement of the qualification or
403(b)requirements, the information received or generated by the
Service under the program is subject to the confidentiality
requirements of § 6103, and is not a written determination within the
meaning of § 6110.
.06 No effect on other law
. Correction under these programs
has no effect on the rights of any party under any other law,
including Title I of the Employee Retirement Income Security Act of
1974.
PART IV. SELF-CORRECTION (APRSC)

- 21 -
SECTION 7. IN GENERAL
The requirements of this section are satisfied with respect to
an Operational Failure if the Plan Sponsor satisfies the requirements
of section 8 (relating to insignificant Operational Failures), or
section 9 (relating to significant Operational Failures).
SECTION 8. SELF-CORRECTION OF INSIGNIFICANT OPERATIONAL FAILURES
.01 Requirements
. The requirements of this section are
satisfied with respect to an Operational Failure if the Operational
Failure is corrected and, given all the facts and circumstances, the
Operational Failure is insignificant. This section is available for
correcting an insignificant Operational Failure even if the plan or
Plan Sponsor is Under Examination.
.02 Factors
. The factors to be considered in determining
whether or not an Operational Failure under a plan is insignificant
include, but are not limited to: (1) whether other failures occurred
during the period being examined (for this purpose, a failure is not
considered to have occurred more than once merely because more than
one participant is affected by the failure); (2) the percentage of
plan assets and contributions involved in the failure; (3) the number
of years the failure occurred; (4) the number of participants
affected relative to the total number of participants in the plan;
(5) the number of participants affected as a result of the failure
relative to the number of participants who could have been affected
by the failure; (6) whether correction was made within a reasonable
time after discovery of the failure; and (7) the reason for the
failure (for example, data errors such as errors in the transcription
of data, the transposition of numbers, or minor arithmetic errors).
No single factor is determinative. Additionally, factors (4) and (5)
should not be interpreted to exclude small businesses.
.03 Multiple failures
. In the case of a plan with more than
one Operational Failure in a single year, or Operational Failures
that occur in more than one year, the Operational Failures are
eligible for correction under this section only if all of the
Operational Failures are insignificant in the aggregate. Operational
Failures that have been corrected under APRSC in section 9, the VCR
program in section 10, Walk-in CAP in section 11 or TVC in section 11
are not taken into account for purposes of determining if Operational
Failures are insignificant in the aggregate.
.04 Examples
. The following examples illustrate the
application of this section. It is assumed, in each example, that
the eligibility requirements of section 4 relating to APRSC have been
satisfied and that no Operational Failures occurred other than the
Operational Failures identified below.
Example 1
: In 1984, Employer X established Plan A, a profit-
sharing plan that satisfies the requirements of § 401(a) in form. In
1999, the benefits of 50 of the 250 participants in Plan A were

- 22 -
limited by § 415(c). However, when the Service examined Plan A in
2002, it discovered that, during the 1999 limitation year, the annual
additions allocated to the accounts of 3 of these employees exceeded
the maximum limitations under § 415(c). Employer X contributed
$3,500,000 to the plan for the plan year. The amount of the excesses
totaled $4,550. Under these facts, because the number of
participants affected by the failure relative to the total number of
participants who could have been affected by the failure, and the
monetary amount of the failure relative to the total employer
contribution to the plan for the 1999 plan year, are insignificant,
the § 415(c) failure in Plan A that occurred in 1999 would be
eligible for correction under this section.
Example 2
: The facts are the same as in Example 1, except that
the failure to satisfy § 415 occurred during each of the 1998, 1999,
and 2000 limitation years. In addition, the three participants
affected by the § 415 failure were not identical each year. The fact
that the § 415 failures occurred during more than one limitation year
did not cause the failures to be significant; accordingly, the
failures are still eligible for correction under this section.
Example 3
: The facts are the same as in Example 1, except that
the annual additions of 18 of the 50 employees whose benefits were
limited by § 415(c) nevertheless exceeded the maximum limitations
under § 415(c) during the 1999 limitation year, and the amount of the
excesses ranged from $1,000 to $9,000, and totaled $150,000. Under
these facts, taking into account the number of participants affected
by the failure relative to the total number of participants who could
have been affected by the failure for the 1999 limitation year (and
the monetary amount of the failure relative to the total employer
contribution), the failure is significant. Accordingly, the § 415(c)
failure in Plan A that occurred in 1999 is ineligible for correction
under this section as an insignificant failure.
Example 4
: Employer J maintains Plan C, a money purchase
pension plan established in 1992. The plan document satisfies the
requirements of § 401(a) of the Code. The formula under the plan
provides for an employer contribution equal to 10% of compensation,
as defined in the plan. During its examination of the plan for the
1999 plan year, the Service discovered that the employee responsible
for entering data into the employer's computer made minor arithmetic
errors in transcribing the compensation data with respect to 6 of the
plan's 40 participants, resulting in excess allocations to those 6
participants' accounts. Under these facts, the number of
participants affected by the failure relative to the number of
participants that could have been affected is insignificant, and the
failure is due to minor data errors. Thus, the failure occurring in
1999 would be insignificant and therefore eligible for correction
under this section.
Example 5
: Public School maintains for its 200 employees a
salary reduction 403(b) plan (the "Plan") which satisfies the
requirements of § 403(b). The business manager has primary

- 23 -
responsibility for administering the Plan, in addition to other
administrative functions within Public School. During the 1998 plan
year, a former employee should have received an additional minimum
required distribution of $278 under § 403(b)(10). Another
participant received an impermissible hardship withdrawal of $2,500.
Another participant made elective deferrals of $11,000, $1,000 of
which was in excess of the § 402(g) limit. Under these facts, even
though multiple failures occurred in a single plan year, the failures
will be eligible for correction under this section because in the
aggregate the failures are insignificant.
SECTION 9. SELF-CORRECTION OF SIGNIFICANT OPERATIONAL FAILURES
.01 Requirements
. The requirements of this section are
satisfied with respect to an Operational Failure (even if
significant) if the Operational Failure is corrected and the
correction is either completed or substantially completed (in
accordance with section 9.03) by the last day of the correction
period described in section 9.02.
.02 Correction period
. The last day of the correction period
for an Operational Failure is the last day of the second plan year
following the plan year for which the failure occurred. However, in
the case of a failure to satisfy the requirements of § 401(k)(3),
401(m)(2), or 401(m)(9), the plan year that includes the last day of
the additional period for correction permitted under § 401(k)(8) or
401(m)(6) is treated, for this purpose, as the plan year for which
the Operational Failure occurs. The correction period for an
Operational Failure that occurs for any plan year ends, in any event,
on the first date the plan or Plan Sponsor is Under Examination for
that plan year (determined without regard to the exception in the
preceding sentence). (But see section 9.03 for special rules
permitting completion of correction after the end of the correction
period.) If a 403(b) Plan does not have a plan year, the calendar
year is considered to be the plan year for purposes of this section.
.03 Substantial completion of correction
. Correction of an
Operational Failure is substantially completed by the last day of the
correction period only if the requirements of either paragraph (1) or
(2) are satisfied.
(1) The requirements of this paragraph (1) are satisfied
if:
(a) during the correction period, the Plan Sponsor
is reasonably prompt in identifying the Operational Failure,
formulating a correction method, and initiating correction in a
manner that demonstrates a commitment to completing correction of the
Operational Failure as expeditiously as practicable, and
(b) within 90 days after the last day of the
correction period, the Plan Sponsor completes correction of the
Operational Failure.

- 24 -
(2) The requirements of this paragraph (2) are satisfied
if:
(a) during the correction period, correction is
completed with respect to 85% of all participants affected by the
Operational Failure, and
(b) thereafter, the Plan Sponsor completes
correction of the Operational Failure with respect to the remaining
affected participants in a diligent manner.
.04 Example
. The following example illustrates the application
of this section. Assume that the eligibility requirements of section
4 relating to APRSC have been met.
Employer Z established a qualified defined contribution plan in
1986 and received a favorable determination letter for TRA ’86.
During 1999, while doing a self-audit of the operation of the plan
for the 1998 plan year, the plan administrator discovered that,
despite the practices and procedures established by Employer Z with
respect to the plan, several employees eligible to participate in the
plan were excluded from participation. The administrator also found
that for 1998 the elective deferrals of additional employees exceeded
the § 402(g) limit and discovered Operational Failures in 1998 with
respect to the top-heavy provisions of the plan. During the 1999
plan year, the Plan Sponsor made corrective contributions on behalf
of the excluded employees, distributed the excess deferrals to the
affected participants, and made a top-heavy minimum contribution to
all participants entitled to that contribution for the 1999 plan
year. Each corrective contribution and distribution was credited
with earnings at a rate appropriate for the plan from the date the
corrective contribution or distribution should have been made to the
date of correction. Under these facts, the Plan Sponsor has
corrected the Operational Failures for the 1998 plan year within the
correction period and thus satisfied the requirements of this
section.
PART V. VOLUNTARY CORRECTION WITH SERVICE APPROVAL (VCR, WALK-IN
CAP AND TVC)
SECTION 10. VCR PROGRAM
.01 VCR requirements
. The requirements of this section are
satisfied with respect to an Operational Failure if the submission
requirements of section 12 below are satisfied and the Plan Sponsor
corrects the failures identified in accordance with the compliance
statement described in section 10.13.
.02 Identification of failures
. The VCR program is not based
upon an examination of the plan by the Service. The Service will not
make any investigation or finding under the VCR program concerning
whether there are Operational Failures. Only the Operational

- 25 -
Failures raised by the Plan Sponsor or Operational Failures
identified by the Service in processing the application will be
addressed under the program, and only those failures will be covered
by the program. However, because the VCR program does not arise out
of an examination, consideration under the VCR program does not
preclude or impede (under § 7605(b) or any administrative provisions
adopted by the Service) a subsequent examination of the Plan Sponsor
or the plan by the Service with respect to the taxable year (or
years) involved with respect to matters that are outside the
compliance statement. A Plan Sponsor's statements describing
Operational Failures are made only for purposes of the VCR program
and will not be regarded by the Service as an admission of a failure
for purposes of any subsequent examination. If the plan failures
include failures correctable under VCR and failures correctable under
Walk-in CAP, (e.g., interrelated Operational and Document Failures),
the Plan Sponsor may include all such failures in a submission under
Walk-in CAP.
.03 No concurrent examination activity
. Except in unusual
circumstances, a plan that has been properly submitted under the VCR
program will not be examined while the submission is pending. This
practice regarding concurrent examinations does not extend to other
plans of the Plan Sponsor. Thus, any plan of the Plan Sponsor that
is not pending under the VCR program could be subject to examination.
.04 Insufficient information
. Where it is not possible to
obtain sufficient information to properly determine the nature or
extent of a failure or there is insufficient information to effect
proper correction, or in other special circumstances where the
application of the VCR program would be inappropriate or impractical,
the failure cannot be corrected under the VCR program.
.05 Initial processing
. (1) The Service will review whether
the eligibility requirements of section 4 and the submission
requirements of section 12 are satisfied.
(2) If the plan is not the subject of a Favorable Letter
or the failure is not an Operational Failure, the compliance fee will
be returned to the Plan Sponsor, and the Plan Sponsor will be
informed of the option to voluntarily request consideration under
Walk-in CAP.
(3) If a Plan Sponsor requests a compliance statement
under the VCR program for a plan with egregious failures described in
section 4.07, the compliance fee will be returned and the Plan
Sponsor will be given 60 days to voluntarily request consideration
under Walk-in CAP. If by the end of the 60-day period, a request for
consideration under Walk-in CAP has not been received, the VCR
request will be forwarded to Employee Plans Examinations (see section
12.12 of this revenue procedure)for examination consideration.
(4) If the Service determines that a submission is
seriously deficient, the Service reserves the right to return the

- 26 -
submission and the compliance fee without contacting the Plan
Sponsor.
(5) If a request for consideration under the VCR program
is not described in paragraph (2), (3), or (4) above, but
nevertheless fails to comply with the provisions of this revenue
procedure or if additional information is required, a Service
representative will generally contact the Plan Sponsor or the Plan
Sponsor’s representative and explain what is needed to complete the
submission. The Plan Sponsor will have 21 calendar days from the
date of this contact to provide the requested information. If the
information is not received within 21 days, the matter will be
closed, the compliance fee will not be returned, and the case may be
referred to Employee Plans Examinations in accordance with section
10.05(3). Any request for an extension of the 21-day time period
must be made in writing within the 21-day time period and must be
approved by the Service.
.06 Processing of acceptable submission
. Once the Service
determines that a request for consideration under the VCR program is
acceptable, the Service will consult with the Plan Sponsor or the
Plan Sponsor’s representative to discuss the proposed corrections and
the plan’s administrative procedures. If agreement is reached, the
Service will issue a compliance statement with an enclosed
acknowledgment letter for signature by the Plan Sponsor. The case
will not be closed favorably until the Service has received the
signed acknowledgement letter from the Plan Sponsor. The Service
will discuss the appropriateness of the plan’s existing
administrative procedures with the Plan Sponsor. Where current
procedures are inadequate for operating the plan in conformance with
the qualification requirements of the Code, the compliance statement
will be conditioned upon the implementation of stated procedures
within the stated time period. The Service may prescribe appropriate
administrative procedures in the compliance statement.
.07 Failures discovered after initial submission
.
(1) A Plan Sponsor that discovers additional, unrelated
Operational Failures after its initial submission may request that
such failures be added to its submission. The Service retains the
discretion to reject the inclusion of such failures if the request is
not timely, for example, if the Plan Sponsor makes its request when
processing of the VCR submission is substantially complete.
(2) If the Service discovers an unrelated Operational
Failure while the request is pending under the VCR program, the
failure generally will be added to the failures under consideration
in the submission. The Service retains the discretion to determine
that a failure is outside the scope of the voluntary request for
consideration because it was not voluntarily brought forward by the
Plan Sponsor. In this case, the plan may be forwarded to Employee
Plans Examinations for consideration on examination, but forwarding
to Employee Plans Examinations will occur only in rare or unusual

- 27 -
circumstances.
.08 Conference right
. If the Service initially determines that
it cannot issue a compliance statement because the parties cannot
agree upon correction or a change in administrative procedures, the
Plan Sponsor or the Plan Sponsor’s representative will be contacted
by the Service representative and offered a conference with the
Service. The conference can be held either in person or by
telephone, and must be held within 21 calendar days of the date of
contact. The Plan Sponsor will have 21 calendar days after the date
of the conference to submit additional information in support of the
submission. Any request for an extension of the 21-day time period
must be made in writing within the 21-day time period and must be
approved by the Service. Additional conferences may be held at the
discretion of the Service.
.09 Failure to reach resolution
. If resolution cannot be
reached (for example, where information is not timely provided to the
Service or because agreement cannot be reached on correction or a
change in administrative procedures), the compliance fee will not be
returned, and the case may be referred to Employee Plans Examinations
for examination consideration.
.10 Concurrent processing of determination letter applications
.
The Service may process a determination letter application (including
an application requested on Form 5310, Application for Determination
of Qualification Upon Termination) concurrently with a VCR submission
for the same plan. However, issuance of the determination letter in
response to an application made on a Form 5310 will be suspended
pending the closure of the VCR submission.
.11 Special rules relating to SVP
. (1) Under the VCR program,
certain Operational Failures may be corrected under the Standardized
VCR Procedure ("SVP") rules in this section. SVP is available if the
plan’s only identified Operational Failure or Failures are listed in
Appendix A or Appendix B of this revenue procedure and the failures
are corrected in accordance with an applicable correction method set
forth in Appendix A or Appendix B. Appropriate correction must be
made for any Qualification Failure that results from the application
of an SVP correction. The Plan Sponsor must request an SVP
compliance statement and pay the reduced compliance fee set forth in
section 13.04.
(2) The correction methods set forth in Appendix A and
Appendix B are strictly construed and are the only acceptable
correction methods for failures corrected under SVP. If the Plan
Sponsor wishes to modify a correction method provided in Appendix A
or Appendix B or to propose another method, the Plan Sponsor may not
use SVP, but may request a compliance statement under the regular VCR
procedures.
(3) SVP is not available if the Plan Sponsor has
identified more than two SVP failures in a single SVP request. If

- 28 -
there are one or two failures that can be corrected under SVP and
other failures that cannot be corrected under SVP, SVP is not
available. The Service reserves the right to shift requests for
consideration under SVP into the regular VCR program if the Plan
Sponsor submits a second SVP request with respect to the same plan
while the first SVP request is being considered or during the 12
months after the first SVP compliance statement is issued. Both SVP
requests may be shifted into the regular VCR program if the first SVP
request is still being considered.
(4) The Service will review an SVP request within 120
days of the date the submission is received and determined to be
complete. If the Service determines that the request is acceptable,
the Service will issue a compliance statement on the Plan Sponsor’s
proposed correction.
.12 General description of compliance statement
. Under the VCR
program, a Plan Sponsor receives a compliance statement from the
Service. The compliance statement addresses the failures identified,
the terms of correction, and any revision of administrative
procedures, and provides that the Service will not treat the plan as
disqualified on account of the Operational Failures described in the
compliance statement. In addition, the time period within which
proposed corrections and changes in administrative procedures must be
implemented are set forth in the compliance statement. The
compliance statement is conditioned on the accuracy and acceptability
of any calculations or other material submitted in connection with
the request.
.13 Compliance statement conditioned upon timely correction
.
The compliance statement is conditioned upon the implementation of
the specific corrections and administrative changes set forth in the
compliance statement within 150 days of the date of the compliance
statement. Any request for an extension of this time period must be
made in advance and in writing and must be approved by the Service.
.14 Compliance statement for new plans conditioned upon timely
amendment. Reliance on any compliance statement issued for a plan
initially adopted or effective after December 7, 1994, other than an
adoption of a master or prototype or regional prototype plan, is
conditioned upon the plan being timely submitted for a determination
letter within the plan's remedial amendment period under § 401(b).
.15 Acknowledgement letter
. Within 30 calendar days after the
compliance statement is issued, a Plan Sponsor that wishes to agree
to the terms of the compliance statement must send a signed
acknowledgement letter to the Service, agreeing to the terms of the
compliance statement. If the Plan Sponsor does not send the Service
a signed acknowledgement letter within 30 calendar days, the plan may
be referred to Employee Plans Examinations for examination
consideration. Once the compliance statement has been issued (based
on the information provided), the Plan Sponsor cannot request a
modification of the compliance terms except by a new request for a

- 29 -
compliance statement. However, if the requested modification is
minor and is postmarked no later than 30 days after the compliance
statement is issued, the VCR compliance fee for the modification will
be the lesser of the original compliance fee or $1,250.
.16 Verification
. Once the compliance statement has been
issued, the Service may require verification that the corrections
have been made and that any plan administrative procedures required
by the statement have been implemented. This verification does not
constitute an examination of the books and records of the employer or
the plan (within the meaning of § 7605(b)). If the Service
determines that the Plan Sponsor did not implement the corrections
and procedures within the stated time period, the Service may
consider the issues in an examination.
SECTION 11. WALK-IN CAP AND TVC
.01 Walk-in CAP requirements
. (1) The requirements of this
section are satisfied with respect to a Plan Document, Operational,
or a Demographic Failure if the submission requirements of section 12
are satisfied, the Plan Sponsor pays the compliance correction fee,
and the Plan Sponsor corrects the failures identified in accordance
with a closing agreement entered into by the Service and the Plan
Sponsor. Payment of the compliance correction fee is generally
required at the time the closing agreement is signed.
(2) A determination letter application does not satisfy
the submission requirements under Walk-in CAP.
(3) Depending on the nature of the failure, the Service
will discuss the appropriateness of the plan's existing
administrative procedures with the Plan Sponsor. Where current
administrative procedures are inadequate for operating the plan in
conformance with the qualification requirements of the Code, the
closing agreement may be conditioned upon the implementation of
stated administrative procedures.
(4) In addition, the Plan Sponsor is required to obtain a
Favorable Letter before the closing agreement is signed unless the
Service determines that it is unnecessary based on the facts and
circumstances (for example, because the plan already has a Favorable
Letter and no significant amendments are adopted). If a Favorable
Letter is required, the Plan Sponsor would be required to pay the
applicable user fee for obtaining the letter.
.02 Failures discovered after initial submission
. (1) A Plan
Sponsor that discovers additional, unrelated failures after its
initial submission may request that such failures be added to its
submission. However, the Service retains the discretion to reject
the inclusion of such failures if the request is not timely, for
example, if the Plan Sponsor makes its request when processing of the
submission is substantially complete.
(2) If the Service discovers an unrelated plan failure

- 30 -
while the request is pending, the failure generally will be added to
the failures under consideration. However, the Service retains the
discretion to determine that a failure is outside the scope of the
voluntary request for consideration because it was not voluntarily
brought forward by the Plan Sponsor. In this case, if the additional
failure is significant, all aspects of the plan will be examined, and
the rules pertaining to Audit CAP will apply.
.03 Failure to reach resolution
. If the Service and the Plan
Sponsor cannot reach agreement with respect to the submission, all
aspects of the plan may be examined, and the rules pertaining to
Audit CAP will apply.
.04 Effect of closing agreement
. The closing agreement is
binding upon both the Service and the Plan Sponsor with respect to
the specific tax matters identified therein for the periods
specified, but does not preclude or impede an examination of the plan
by the Service relating to matters outside the closing agreement,
even with respect to the same taxable year or years to which the
closing agreement relates.
.05 TVC
. The provisions in section 11.01 through .04 above
apply to TVC except that TVC applies to Operational, Demographic, and
Eligibility Failures with respect to a 403(b) Plan. In addition,
there is no requirement that the employer obtain a private letter
ruling from the Service covering its 403(b) Plan.
SECTION 12. APPLICATION PROCEDURES FOR VCR, WALK-IN CAP AND TVC
.01 General rules
. This section sets forth the procedures for
requesting a compliance statement from the Service under the VCR
program (including SVP) and for requesting a closing agreement under
Walk-in CAP and TVC. In general, a request under the VCR program,
Walk-in CAP or TVC consists of a letter from the Plan Sponsor or the
Plan Sponsor’s representative to the Service that contains a
description of the failures, a description of the proposed methods of
correction, and other procedural items, and includes supporting
information and documentation as described below.
.02 Multiemployer and multiple employer plans
. In the case of
a multiemployer or multiple employer plan, the plan administrator
(rather than any contributing or adopting employer) must request
consideration of the plan under the programs. The request must be
with respect to the plan, rather than a portion of the plan affecting
any particular employer.
.03 Submission requirements
. The letter from the Plan Sponsor
or the Plan Sponsor’s representative must contain the following:
(1) A complete description of the failures and the years
in which the failures occurred, including closed years (that is,
years for which the statutory period has expired).

- 31 -
(2) A description of the administrative procedures in
effect at the time the failures occurred.
(3) An explanation of how and why the failures arose.
(4) A detailed description of the method for correcting
the failures that the Plan Sponsor has implemented or proposes to
implement. Each step of the correction method must be described in
narrative form. The description must include the specific
information needed to support the suggested correction method. This
information includes, for example, the number of employees affected
and the expected cost of correction (both of which may be
approximated if the exact number cannot be determined at the time of
the request), the years involved, and calculations or assumptions the
Plan Sponsor used to determine the amounts needed for correction.
See section 10.11 for special procedures regarding SVP.
(5) A description of the methodology that will be used to
calculate earnings or actuarial adjustments on any corrective
contributions or distributions (indicating the computation periods
and the basis for determining earnings or actuarial adjustments, in
accordance with section 6.02(5)).
(6) Specific calculations for each affected employee or a
representative sample of affected employees. The sample calculations
must be sufficient to demonstrate each aspect of the correction
method proposed. For example, if a Plan Sponsor requests a
compliance statement with respect to a failure to satisfy the
contribution limits of § 415(c) and proposes a correction method that
involves elective contributions (both matched and unmatched) and
matching contributions, the Plan Sponsor must submit calculations
illustrating the correction method proposed with respect to each type
of contribution. As another example, with respect to a failure to
satisfy the actual deferral percentage ("ADP") test in § 401(k)(3),
the Plan Sponsor must submit the ADP test results both before the
correction and after the correction.
(7) The method that will be used to locate and notify
former employees and beneficiaries, or an affirmative statement that
no former employees or beneficiaries were affected by the failures.
(8) A description of the measures that have been or will
be implemented to ensure that the same failures will not recur.
(9) A statement that, to the best of the Plan Sponsor's
knowledge, neither the plan nor the Plan Sponsor is Under
Examination.
(10) In the case of a VCR submission, a statement (if
applicable) that the plan is currently being considered in a
determination letter application. If the request for a determination
letter is made while a request for consideration under VCR is
pending, the Plan Sponsor must update the VCR request to add this

- 32 -
information.
(11) In the case of an SVP submission, a statement that
it is an SVP request, a description of the applicable correction in
accordance with Appendix A or Appendix B, and a statement that the
Plan Sponsor proposes to implement (or has implemented) the
correction(s).
(12) In the case of a TVC submission, an application under
TVC must contain a statement that the employer has contacted all
other entities involved with the plan and has been assured of
cooperation in implementing the applicable correction, to the extent
necessary. For example, if the plan’s failure is the failure to
satisfy the requirements of § 403(b)(1)(E) on elective deferrals, the
employer must, prior to making the TVC application, contact the
insurance company or custodian with control over the plans’s assets
to assure cooperation in effecting a distribution of the excess
deferrals and the earnings thereon.
.04 Required documents
. The submission must be accompanied by
the following documents:
(1) In the case of a VCR submission, a copy of the first
page and a copy of the page containing employee census information
(currently, line 7f of the 1998 Form 5500) and a copy of the page
containing the total amount of plan assets (currently, line 31f of
the 1998 Form 5500) of the most recently filed Form 5500 series
return, or in the case of a Walk-in CAP submission, a copy of the
most recently filed Form 5500 series return.
(2) Under TVC, the first two pages of the most recently
filed Form 5500, or if inapplicable, the information generally
included on the first two pages, including the name and number of the
plan, and the employer’s Employer Identification Number.
(3) A copy of the relevant portions of the plan document.
For example, in a case involving improper exclusion of eligible
employees from a profit-sharing plan with a cash or deferred
arrangement, relevant portions of the plan document include the
eligibility, allocation, and cash or deferred arrangement provisions
of the basic plan document (and the adoption agreement, if
applicable), along with applicable definitions in the plan. If the
plan is a 403(b) Plan and a plan document is not available, written
descriptions of the plan, and sample salary reduction agreements if
relevant.
(4) In the case of a VCR submission, a copy of the
determination letter, opinion letter, or notification letter that
considered TRA '86, except:
(a) a governmental plan, or a non-electing church
plan described in Rev. Proc. 99-23 for which the TRA '86 remedial
amendment period has not yet expired should submit a copy of the

- 33 -
determination, opinion, or notification letter that considered TEFRA,
DEFRA, and REA and a statement that explains the reason why the
period has not yet expired, and
(b) plans initially adopted or effective after
December 7, 1994, should submit a statement that the plan will be
submitted timely for a determination, opinion, or notification letter
within the plan's remedial amendment period under § 401(b).
(5) In the case of a TVC submission, a statement as to the
type of employer (e.g., a tax-exempt organization described in
§ 501(c)(3)) submitting the TVC application.
.05 Fee
. The VCR submission must include the appropriate fee
described in section 13.02 or 13.04 below. The Walk-in CAP or TVC
compliance correction fee described in section 13.05 or 13.06 below
is due at the time the closing agreement is signed.
.06 Signed submission
. The submission must be signed by the
Plan Sponsor or the sponsor's representative.
.07 Power of attorney requirements
. To sign the submission or
to appear before the Service in connection with the submission, the
Plan Sponsor's representative must comply with the requirements of
section 9.02(11) and (12) of Rev. Proc. 2000-4, 2000-1 I.R.B. 115.
.08 Penalty of perjury statement
. The following declaration
must accompany a request and any factual information or change in the
submission at a later time: "Under penalties of perjury, I declare
that I have examined this submission, including accompanying
documents, and, to the best of my knowledge and belief, the facts
presented in support of this submission are true, correct, and
complete." The declaration must be signed by the Plan Sponsor, not
the Plan Sponsor's representative.
.09 Checklist.
The Service will be able to respond more
quickly to a VCR, Walk-in CAP or TVC request if the request is
carefully prepared and complete. The checklist in Appendix C is
designed to assist Plan Sponsors and their representatives in
preparing a submission that contains the information and documents
required under this revenue procedure. The checklist in Appendix C
must be completed, signed, and dated by the Plan Sponsor or the Plan
Sponsor's representative, and should be placed on top of the
submission. A photocopy of this checklist may be used.
.10 Designation
. The letter to the Service should be
designated "VCR PROGRAM," "SVP/VCR PROGRAM," "WALK-IN CAP PROGRAM,"
or "TVC PROGRAM" as appropriate, in the upper right hand corner of
the letter.
.11 VCR/SVP mailing address
. VCR/SVP submissions should be
mailed to:

- 34 -
Internal Revenue Service
Attention: T:EP:RA:VC
P.O. Box 14073
Ben Franklin Station
Washington, D.C. 20044
.12 Walk-in CAP and TVC mailing address.
Walk-in CAP and TVC
submissions should be mailed to the appropriate Closing Agreement
Coordinator at the address provided below:
If the entity is in:
Walk-in CAP and TVC
applications should be sent
to:
Connecticut, Maine, Employee Plans Walk-in CAP
Massachusetts, Michigan, Internal Revenue Service
New Hampshire, New Jersey, 10 Metro Tech Center
New York, Ohio, Pennsylvania, 625 Fulton Street
Rhode Island, Vermont Brooklyn, NY 11201
Phone (718) 488-2372
FAX (718) 488-2405
Alabama, Delaware, District of Employee Plans Walk-in CAP
Columbia, Florida, Georgia, Internal Revenue Service
Indiana, Kentucky, Louisiana, Room 1550
Maryland, Mississippi, North P.O. Box 13163
Carolina, South Carolina, Baltimore, MD 21203
Tennessee, Virginia, West Phone (410) 962-3499
Virginia, any U.S. possession FAX (410) 962-0882
or foreign country
Arkansas, Illinois, Iowa, Employee Plans Walk-in CAP
Kansas, Minnesota, Missouri, Internal Revenue Service
Nebraska, North Dakota, 230 S. Dearborn
Oklahoma, South Dakota, Texas, MC 4913 Chi
Wisconsin Chicago, IL 60604
Phone (312) 886-1277
FAX (312) 886-2386

Alaska, Arizona, California, Employee Plans Walk-in CAP
Colorado, Hawaii, Idaho, Internal Revenue Service
Montana, Nevada, New Mexico, 2 Cupania Circle
Oregon, Utah, Washington, Monterey Park, CA 91755-7431
Wyoming Phone (323) 869-3905
FAX (323) 869-3949

.13 Maintenance of copies of submissions
. Plan Sponsors and
their representatives should maintain copies of all correspondence
submitted to the Service with respect to their VCR, Walk-in CAP and
TVC requests.
SECTION 13. FEES

- 35 -
.01 Rev. Proc. 2000-8 modified. The VCR compliance fee is
processed under the user fee program described in Rev. Proc. 2000-8,
2000-1 I.R.B. 229.
.02 VCR fee
. Unless SVP is applicable, the VCR compliance fee
depends on the assets of the plan and the number of plan
participants.
(1) The fee for a plan with assets of less than $500,000,
and no more than 1,000 plan participants, is $500.
(2) The fee for a plan with assets of at least $500,000,
and no more than 1,000 plan participants, is $1,250.
(3) The fee for a plan with more than 1,000 plan
participants but less than 10,000 plan participants is $5,000.
(4) The fee for a plan with 10,000 or more plan
participants is $10,000.
.03 Establishing number of plan participants
. The compliance
fee is calculated by the Plan Sponsor using the numbers from the most
recently filed Form 5500 series to establish the fee. Thus, with
respect to the 1999 Form 5500, the Plan Sponsor would use the number
shown on line 7(f) (or the equivalent line on the Form 5500 C/R or
EZ) to establish the number of plan participants and would use line
31(f) (or the equivalent line on the Form 5500 C/R or EZ) to
establish the amount of plan assets.
.04 SVP fee
. The SVP compliance fee is $350.
.05 Walk-in CAP compliance correction fee
. (1) Compliance
correction fee chart. The compliance correction fee for a Walk-in
CAP application is determined in accordance with the chart below.
The chart contains a graduated range of fees based on the size of the
plan (with the number of participants determined as provided in
section 13.03). Each range includes a minimum amount, a maximum
amount, and a presumptive amount. In each case, the minimum amount
is the applicable VCR fee in section 13.02. It is expected that in
most instances the compliance correction fee imposed will be at or
near the presumptive amount in each range; however, the fee may be a
higher or lower amount within the range, depending on the factors in
paragraph (2) below.
WALK-IN CAP COMPLIANCE CORRECTION FEES
# of participants Fee range Presumptive Amount
10 or fewer VCR fee* to $4,000 $2,000
11 to 50 VCR fee* to $8,000 $4,000

- 36 -
51 to 100 VCR fee* to $12,000 $6,000
101 to 300 VCR fee* to $16,000
$8,000
301 to 1,000 VCR fee* to $30,000 $15,000
over 1,000 VCR fee* to $70,000 $35,000
* Items marked by asterisk refer to the VCR compliance fee that would
apply under section 13.02 if the plan had been submitted under the
VCR program.
(2) Factors considered
. Consideration of whether the
compliance correction fee should be equal to, greater than, or less
than the presumptive amount will depend on factors relating to the
nature, extent, and severity of the failure. These factors include:
(a) whether the failure is a failure to satisfy the requirements of
§ 401(a)(4), § 401(a)(26), or § 410(b), (b) whether the plan has both
Operational and Plan Document Failures, (c) the period over which the
violation occurred (for example, the time that has elapsed since the
end of the applicable remedial amendment period under § 401(b) for a
Plan Document Failure), and (d) whether the plan has a Favorable
Letter.
(3) Egregious failures
. In cases involving failures that
are egregious (as described in section 4.07), (a) the maximum
compliance correction fee applicable to the plan under the chart in
13.05(1) is increased to 40 percent of the Maximum Payment Amount,
and (b) no presumptive amount applies.
.06 TVC Fee
. (1) TVC Compliance correction fee. The
applicable TVC compliance correction fee depends on the type of
failure and, generally, the number of employees of the employer.
(2) Fee for Operational Failures
. Subject to section
13.06(5) below, the compliance correction fees for Operational
Failures are as follows:
(a) The fee for an employer with fewer than 25
employees is $500.
(b) The fee for an employer with at least 25 and no
more than 1,000 employees is $1,250.
(c) The fee for an employer with more than 1,000
employees but less than 10,000 is $5,000.
(d) The fee for an employer with 10,000 or more
employees is $10,000.
(3) Fee for certain Excess Amounts
. Subject to section
13.06(5) below, the compliance correction fee for Excess Amounts that
are corrected pursuant to section 6.02(4)(b)(i)above is equal to the
sum of (1) the applicable fee described in section 13.06(2) above and
(2) two percent of the Excess Amounts, adjusted for earnings through
the date of the TVC application, contributed or allocated in the

- 37 -
calendar year of the TVC application and in the three calendar years
prior thereto. For purposes of determining the fee described in this
section 13.06(3), where there is a failure to satisfy both the
§ 403(b)(2) and § 415 limits with respect to a single employee for a
year, the fee will take into account only the greater Excess Amount.
(4) Fee for Demographic and Eligibility Failures.
(a)
Subject to section 13.06(5) below, the compliance correction fee for
a 403(b) Plan with failures that include Demographic or Eligibility
Failures is determined in accordance with the table set forth above
in section 13.05 with respect to Walk-In CAP, except that (i) the
reference to the “VCR fee” is changed to refer to the TVC compliance
correction fee for Operational Failures set forth in section 13.06(2)
above, and (ii) the fee is determined with reference to the number of
employees rather than participants.
(b) Factors considered in determining the compliance
correction fee for failures that include Demographic and Eligibility
Failures under TVC include: (i) whether the failure is a Demographic
Failure; (ii) whether the plan is a Plan of an Ineligible Employer;
(iii) whether the 403(b) Plan has a combination of Operational,
Demographic, and Eligibility failures; and (iv) the period of time
over which the failure occurred.
(5) Fee for multiple failures.
If correction is
requested for multiple failures, the compliance correction fee will
be determined in accordance with the table set forth below.
Multiple Operational Failures Fee described in section 13.06(2)
Multiple Demographic/Eligibility Fee described in section 13.06(4)
Failures
Combination of Operational and Fee described in section 13.06(4)
Demographic/Eligibility Failures
Operational Failure(s) with Fee described in section 13.06(3)
section 6.02(4)(b)(i) correction
of Excess Amounts
Demographic/Eligibility Failures Fee described in section
and Operational Failures 13.06(3), substituting section
including section 6.02(4)(b)(i) 13.06(4) fee for section 13.06(2)
correction of Excess Amounts fee
(6) Fee for egregious failures.
In cases involving
failures that are egregious, the maximum compliance correction fee
applicable to the plan is increased to 40 percent of the Total
Sanction Amount and no presumptive amount applies.
PART VI. CORRECTION ON AUDIT (AUDIT CAP)

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SECTION 14. DESCRIPTION OF AUDIT CAP
.01 Audit CAP requirements
. In the event the Service
identifies a Qualification or 403(b)Failure (other than a failure
that is not treated as resulting in disqualification of the plan
under APRSC, VCR, Walk-in CAP, or TVC) upon an Employee Plans or
Exempt Organizations examination of a Qualified Plan or a 403(b)
Plan, the requirements of this section are satisfied with respect to
the failure if the Plan Sponsor corrects the failure, pays a sanction
in accordance with section 14.02, satisfies any additional
requirements of section 14.03, and enters into a closing agreement
with the Service.
.02 Payment of sanction
. Under Audit CAP, the Plan Sponsor is
subject to a sanction determined in accordance with section 15.
Payment of the sanction generally will be required at the time the
closing agreement is signed.
.03 Additional requirements
. Depending on the nature of the
failure, the Service will discuss the appropriateness of the plan’s
existing administrative procedures with the Plan Sponsor. Where
existing administrative procedures are inadequate for operating the
plan in conformance with the qualification requirements of the Code,
the closing agreement may be conditioned upon the implementation of
stated procedures. In addition, for Qualified Plans, the Plan
Sponsor may be required to obtain a Favorable Letter before the
closing agreement is signed unless the Service determines that it is
unnecessary based on the facts and circumstances (for example,
because the plan already has a Favorable Letter and no significant
amendments are adopted). If a Favorable Letter is required, the Plan
Sponsor would be required to pay the applicable user fee for
obtaining the letter.
.04 Failure to reach resolution
. If the Service and the Plan
Sponsor cannot reach an agreement with respect to the correction of
the failure(s) or the amount of the sanction, the plan will be
disqualified or, in the case of a 403(b) Plan, would not have
reliance on this revenue procedure.
.05 Effect of closing agreement
. A closing agreement
constitutes an agreement between the Service and the Plan Sponsor
that is binding with respect to the tax matters identified therein
for the periods specified.
.06 Other procedural rules
. The procedural rules for Audit CAP
are set forth in Internal Revenue Manual ("IRM") 7.9.2, EPCRS.
SECTION 15. AUDIT CAP SANCTION
.01 Determination of sanction
. The sanction under Audit CAP is
a negotiated percentage of the Maximum Payment Amount. For 403(b)
Plans, the sanction is a negotiated percentage of the Total Sanction
Amount. Sanctions will not be excessive and will bear a reasonable

- 39 -
relationship to the nature, extent, and severity of the failures.
.02 Factors considered
. The amount of the sanction will depend
on factors relating to the nature, extent, and severity of the
failures, including the extent to which correction had progressed
before the examination was initiated. For both Qualified Plans and
403(b) Plans, other factors relating to the nature, extent, and
severity of the failures include: (1) the number and type of
employees affected by the failure, (2) the number of nonhighly
compensated employees who would be adversely affected if the plan was
not treated as qualified or as satisfying the requirements of
§ 403(b), (3) whether the failure is a failure to satisfy the
requirements of § 401(a)(4), § 401(a)(26), or § 410(b), either
directly or through § 403(b)(12), (4) the period over which the
failure occurred (for example, the time that has elapsed since the
end of the applicable remedial amendment period under § 410(b) for a
Plan Document Failure), and (5) the reason for the failure (for
example, data errors such as errors in transcription of data, the
transposition of numbers, or minor arithmetic errors). Factors
relating to Qualified Plans also include: (1) whether the plan is the
subject of a Favorable Letter, and (2) whether the plan has both
Operational and Plan Document Failures. Additional factors relating
to 403(b) Plans include: (1) whether the plan has a combination of
Operational, Demographic, or Eligibility Failures, (2) the extent to
which the failure relates to Excess Amounts, and (3) whether the plan
is a Plan of an Ineligible Employer.
PART VII. EFFECT ON OTHER DOCUMENTS, AND EFFECTIVE DATE
SECTION 16. EFFECT ON OTHER DOCUMENTS
.01 Revenue procedures modified and superseded
. Rev. Procs.
98-22, 99-13, and 99-31 are modified and superseded by this revenue
procedure.
.02 Rev. Proc. 2000-8 modified
. Rev. Proc. 2000-8 is modified
as provided in section 12.
SECTION 17. EFFECTIVE DATE
This revenue procedure is generally effective May 1, 2000. In
addition, employers are permitted, at their option, to apply the
provisions of this revenue procedure on or after March 9, 1998 (the
release date of Rev. Proc. 98-22). Unless an employer applies this
revenue procedure earlier, this revenue procedure is effective:
(1) with respect to VCR, Walk-in CAP and TVC, for
applications submitted on or after May 1, 2000;
(2) with respect to Audit CAP, for examinations begun on
or after May 1, 2000; and

- 40 -
(3) with respect to APRSC, for failures for which
correction is not complete before May 1, 2000.
SECTION 18. PAPERWORK REDUCTION ACT
The collection of information contained in this revenue
procedure has been reviewed and approved by the Office of Management
and Budget in accordance with the Paperwork Reduction Act (44 U.S.C.
3507) under control number 1545-1673.
An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless the
collection of information displays a valid control number.
The collection of information in this revenue procedure is in
sections 4.06, 6.02(4), 6.02(6)(c), 10.01, 10.02, 10.05-10.08, 10.11,
10.15, 11.01-11.03, 11.05, 12.01-12.04, 12.06-12.12, 14.01, section
2.01-2.07 of Appendix B, and Appendix C. This information is
required to enable the Commissioner, Tax Exempt and Government
Entities Division of the Internal Revenue Service to make
determinations regarding the issuance of various types of closing
agreements and compliance statements. This information will be used
to issue closing agreements and compliance statements to allow
individual plans to continue to maintain their tax qualified and tax-
deferred status. As a result, favorable tax treatment of the
benefits of the eligible employees is retained. The likely
respondents are individuals, state or local governments, business or
other for-profit institutions, nonprofit institutions, and small
businesses or organizations.
The estimated total annual reporting and/or recordkeeping burden
is 61,697 hours.
The estimated annual burden per respondent/recordkeeper varies
from .5 to 42.5 hours, depending on individual circumstances, with an
estimated average of 14.54 hours. The estimated number of
respondents and/or recordkeepers is 4,242.
The estimated frequency of responses is occasionally.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally tax returns
and tax return information are confidential, as required by 26 U.S.C.
§ 6103.
DRAFTING INFORMATION
The principal authors of this revenue procedure are Maxine Terry
and Carlton Watkins of the Tax Exempt and Government Entities
Division. For further information concerning this revenue procedure,
please contact Employee Plans’ taxpayer assistance telephone service

- 41 -
between 1:30 and 3:30 p.m., Eastern Time, Monday through Thursday at
(202) 622-6074/6075. (These telephone numbers are not toll-free
numbers.) Ms. Terry and Mr. Watkins may be reached at (202) 622-6214
(also not a toll-free number).

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APPENDIX A
OPERATIONAL FAILURES AND CORRECTIONS UNDER SVP
.01 General rule
. This appendix sets forth Operational
Failures relating to Qualified Plans and corrections under SVP in
accordance with section 10.11. In each case, the method described
corrects the Operational Failure identified in the headings below.
Corrective allocations and distributions should reflect earnings and
actuarial adjustments in accordance with section 6.02(5)(a). The
correction methods in this appendix are acceptable under APRSC.
Additionally, the correction methods (other than correction by plan
amendment under Walk-in CAP) and the earnings adjustment methods in
Appendix B are acceptable under SVP.
.02 Failure to properly provide the minimum top-heavy benefit
under § 416 of the Code to non-key employees. In a defined
contribution plan, the permitted correction method is to properly
contribute and allocate the required top-heavy minimums to the plan
in the manner provided for in the plan on behalf of the non-key
employees (and any other employees required to receive top-heavy
allocations under the plan). In a defined benefit plan, the minimum
required benefit must be accrued in the manner provided in the plan.
.03 Failure to satisfy the ADP test set forth in § 401(k)(3),
the ACP test set forth in § 401(m)(2), or the multiple use test of
§ 401(m)(9). The permitted correction method is to make qualified
nonelective contributions (QNCs) (as defined in
§ 1.401(k)-1(g)(13)(ii)) on behalf of the nonhighly compensated
employees to the extent necessary to raise the actual deferral
percentage or actual contribution percentage of the nonhighly
compensated employees to the percentage needed to pass the test or
tests. The contributions must be made on behalf of all eligible
nonhighly compensated employees (to the extent permitted under § 415)
and must either be the same flat dollar amount or the same percentage
of compensation. QNCs contributed to satisfy the ADP test need not
be matched. Employees who would have been eligible for a matching
contribution had they made elective contributions must be counted as
eligible employees for the ACP test, and the plan must satisfy the
ACP test. Under this SVP correction method, a plan may not be
treated as two separate plans, one covering otherwise excludable
employees and the other covering all other employees (as permitted in
§ 1.410(b)-6(b)(3)) in order to reduce the number of employees
eligible to receive QNCs. Likewise, under this SVP correction
method, the plan may not be restructured into component plans (as
permitted in § 1.401(k)-1(h)(3)(iii) for plan years before January 1,
1992) in order to reduce the number of employees eligible to receive
QNCs.
.04 Failure to distribute elective deferrals in excess of the
§ 402(g) limit (in contravention of § 401(a)(30)). The permitted
correction method is to distribute the excess deferral to the

- 43 -
employee and to report the amount as taxable in the year of deferral
and in the year distributed. In accordance with
§ 1.402(g)-1(e)(1)(ii), a distribution to a highly compensated
employee is included in the ADP test; a distribution to a nonhighly
compensated employee is not included in the ADP test.
.05 Exclusion of an eligible employee from all contributions or
accruals under the plan for one or more plan years. The permitted
correction method is to make a contribution to the plan on behalf of
the employees excluded from a defined contribution plan or to provide
benefit accruals for the employees excluded from a defined benefit
plan. If the employee should have been eligible to make an elective
contribution under a cash or deferred arrangement, the employer must
make a QNC to the plan on behalf of the employee that is equal to the
actual deferral percentage for the employee's group (either highly
compensated or nonhighly compensated). If the employee should have
been eligible to make employee contributions or for matching
contributions (on either elective contributions or employee
contributions), the employer must make a QNC to the plan on behalf of
the employee that is equal to the actual contribution percentage for
the employee's group (either highly compensated or nonhighly
compensated). Contributing the actual deferral or contribution
percentage for such employees eliminates the need to rerun the ADP or
ACP test to account for the previously excluded employees. Under
this SVP correction method, a plan may not be treated as two separate
plans, one covering otherwise excludable employees and the other
covering all other employees (as permitted in § 1.410(b)-6(b)(3)) in
order to reduce the amount of QNCs. Likewise, restructuring the plan
into component plans under § 1.401(k)-1(h)(3)(iii) is not permitted
in order to reduce the amount of QNCs.
.06 Failure to timely pay the minimum distribution required
under § 401(a)(9). In a defined contribution plan, the permitted
correction method is to distribute the required minimum
distributions. The amount to be distributed for each year in which
the failure occurred should be determined by dividing the adjusted
account balance on the applicable valuation date by the applicable
divisor. For this purpose, adjusted account balance means the actual
account balance, determined in accordance with § 1.401(a)(9)-1 Q&A
F-5 of the proposed regulations, reduced by the amount of the total
missed minimum distributions for prior years. In a defined benefit
plan, the permitted correction method is to distribute the required
minimum distributions, plus an interest payment representing the loss
of use of such amounts.
.07 Failure to obtain participant and/or spousal consent for a
distribution subject to the participant and spousal consent rules
under §§ 401(a)(11), 411(a)(11) and 417. The permitted correction
method is to give each affected participant a choice between
providing informed consent for the distribution actually made or
receiving a qualified joint and survivor annuity. In order to use
this SVP correction method, the Plan Sponsor must have contacted each
affected participant and spouse (to whom the participant was married

- 44 -
at the annuity starting date) and received responses from each such
individual before requesting consideration under SVP. In the event
that participant and/or spousal consent is required but cannot be
obtained, the participant must receive a qualified joint and survivor
annuity based on the monthly amount that would have been provided
under the plan at his or her retirement date. This annuity may be
actuarially reduced to take into account distributions already
received by the participant. However, the portion of the qualified
joint and survivor annuity payable to the spouse upon the death of
the participant may not be actuarially reduced to take into account
prior distributions to the participant. Thus, for example, if in
accordance with the automatic qualified joint and survivor annuity
option under a plan, a married participant who retired would have
received a qualified joint and survivor annuity of $600 per month
payable for life with $300 per month payable to the spouse upon the
participant’s death but instead received a single-sum distribution
equal to the actuarial present value of the participant’s accrued
benefit under the plan, then the $600 monthly annuity payable during
the participant’s lifetime may be actuarially reduced to take the
single-sum distribution into account. However, the spouse must be
entitled to receive an annuity of $300 per month payable for life
beginning at the participant’s death.
.08 Failure to satisfy the § 415 limits in a defined
contribution plan. The permitted correction for failure to limit
annual additions (other than elective deferrals and employee
contributions) allocated to participants in a defined contribution
plan as required in § 415 (even if the excess did not result from the
allocation of forfeitures or from a reasonable error in estimating
compensation) is to place the excess annual additions into an
unallocated account, similar to the suspense account described in
§ 1.415-6(b)(6)(iii), to be used as an employer contribution in the
succeeding year(s). While such amounts remain in the unallocated
account, the employer is not permitted to make additional
contributions to the plan. The permitted SVP correction for failure
to limit annual additions that are elective deferrals or employee
contributions (even if the excess did not result from a reasonable
error in determining the amount of elective deferrals or employee
contributions that could be made with respect to an individual under
the § 415 limits) is to distribute the elective deferrals or employee
contributions using a method similar to that described under
§ 1.415-6(b)(6)(iv). Elective deferrals and employee contributions
that are matched may be returned, provided that the matching
contributions relating to such contributions are forfeited (which
will also reduce excess annual additions for the affected
individuals). The forfeited matching contributions are to be placed
into an unallocated account to be used as an employer contribution in
succeeding periods.

- 45 -
APPENDIX B
CORRECTION METHODS AND EXAMPLES
AND
EARNINGS ADJUSTMENT METHODS AND EXAMPLES
SECTION 1. PURPOSE, ASSUMPTIONS FOR EXAMPLES AND SECTION REFERENCES
.01 Purpose
. (1) This appendix sets forth correction methods
relating to Operational Failures under Qualified Plans. This appendix
also sets forth earnings adjustment methods. The correction methods
and earnings adjustment methods described in this appendix are
acceptable under SVP and APRSC.
(2) This appendix does not apply to 403(b) Plans.
Accordingly, sponsors of 403(b) Plans cannot rely on the correction
methods and the earnings adjustment methods.
.02 Assumptions for Examples
. Unless otherwise specified, for
ease of presentation, the examples assume that:
(1) the plan year and the § 415 limitation year are the
calendar year;
(2) the employer maintains a single plan intended to
satisfy § 401(a) and has never maintained any other plan;
(3) in a defined contribution plan, the plan provides
that forfeitures are used to reduce future employer contributions;
(4) the Qualification Failures are Operational Failures
and the eligibility and other requirements for APRSC, VCR, Walk-in
CAP, or Audit CAP, whichever applies, are satisfied; and
(5) there are no Qualification Failures other than the
described Operational Failures, and if a corrective action would
result in any additional Qualification Failure, appropriate
corrective action is taken for that additional Qualification Failure
in accordance with EPCRS.
.03 Section References
. References to section 2 and section 3
are references to the section 2 and 3 of this appendix.
SECTION 2. CORRECTION METHODS AND EXAMPLES
.01 ADP/ACP Failures
.
(1) Correction Methods. (a) SVP Correction Method.
Appendix A, section .03 sets forth the SVP correction method for a
failure to satisfy the actual deferral percentage ("ADP"), actual
contribution percentage ("ACP"), or multiple use test set forth in
§§ 401(k)(3), 401(m)(2), and 401(m)(9), respectively.
(b) One-to-One Correction Method. (i) General. In
addition to the SVP correction method, a failure to satisfy the ADP,
ACP, or multiple use test may be corrected using the one-to-one
correction method set forth in this section 2.01(1)(b). Under the

- 46 -
one-to-one correction method, an excess contribution amount is
determined and assigned to highly compensated employees as provided
in paragraph (1)(b)(ii) below. That excess contribution amount
(adjusted for earnings) is either distributed to the highly
compensated employees or forfeited from the highly compensated
employees’ accounts as provided in paragraph (1)(b)(iii) below. That
same dollar amount (i.e., the excess contribution amount, adjusted
for earnings) is contributed to the plan and allocated to nonhighly
compensated employees as provided in paragraph (1)(b)(iv) below.
(ii) Determination of the Excess Contribution Amount. The excess
contribution amount for the year is equal to the excess of (A) the
sum of the excess contributions (as defined in § 401(k)(8)(B)), the
excess aggregate contributions (as defined in § 401(m)(6)(B)), and
the amount treated as excess contributions or excess aggregate
contributions under the multiple use test pursuant to § 401(m)(9) and
§ 1.401(m)-2(c) of the Income Tax Regulations for the year, as
assigned to each highly compensated employee in accordance with
§ 401(k)(8)(C) and (m)(6)(C), over (B) previous corrections that
complied with § 401(k)(8), (m)(6), and (m)(9). See Notice 97-2,
1997-1 C.B. 348.
(iii) Distributions and Forfeitures of the Excess Contribution
Amount. (A) The portion of the excess contribution amount assigned to
a particular highly compensated employee under paragraph (1)(b)(ii)
is adjusted for earnings through the date of correction. The amount
assigned to a particular highly compensated employee, as adjusted, is
distributed or, to the extent the amount was forfeitable as of the
close of the plan year of the failure, is forfeited. If the amount
is forfeited, it is used in accordance with the plan provisions
relating to forfeitures that were in effect for the year of the
failure. If the amount so assigned to a particular highly
compensated employee has been previously distributed, the amount is
an Excess Amount within the meaning of section 5.01(3). Thus,
pursuant to section 6.02(4)(a), the employer must notify the employee
that the Excess Amount was not eligible for favorable tax treatment
accorded to distributions from qualified plans (and, specifically,
was not eligible for tax-free rollover).
(B) If any matching contributions (adjusted for earnings) are
forfeited in accordance with § 411(a)(3)(G), the forfeited amount is
used in accordance with the plan provisions relating to forfeitures
that were in effect for the year of the failure.
(C) If a payment was made to an employee and that payment is a
forfeitable match described in either paragraph (1)(b)(iii)(A) or
(B), then it is an Overpayment defined in section 2.05(2) that must
be corrected (see section 2.05(1)).
(iv) Contribution and Allocation of Equivalent Amount. (A) The
employer makes a contribution to the plan that is equal to the
aggregate amounts distributed and forfeited under paragraph
(1)(b)(iii)(A) (i.e., the excess contribution amount adjusted for

- 47 -
earnings, as provided in paragraph (1)(b)(iii)(A), which does not
include any matching contributions forfeited in accordance with
§ 411(a)(3)(G) as provided in paragraph (1)(b)(iii)(B)). The
contribution must satisfy the vesting requirements and distribution
limitations of § 401(k)(2)(B) and (C).
(B)(1
) This paragraph (1)(b)(iv)(B)(1) applies to a plan that uses
the current year testing method described in Notice 98-1, 1998-3
I.R.B. 42. The contribution made under paragraph (1)(b)(iv)(A) is
allocated to the account balances of those individuals who were
either (I) the eligible employees for the year of the failure who
were not highly compensated employees for that year or (II) the
eligible employees for the year of the failure who were not highly
compensated employees for that year and who also are not highly
compensated employees for the year of correction. Alternatively, the
contribution is allocated to account balances of eligible employees
described in (I) or (II) of the preceding sentence, except that the
allocation is made only to the account balances of those employees
who are employees on a date during the year of the correction that is
no later than the date of correction. Regardless of which of these
four options (described in the two preceding sentences) the employer
selects, the contribution is allocated to each such employee either
as the same percentage of the employee's compensation for the year of
the failure or as the same dollar amount for each employee. (See
Examples 1, 2 and 3.) Under the one-to-one correction method, the
amount allocated to the account balance of an employee (i.e, the
employee's share of the total amount contributed under paragraph
(1)(b)(iv)(A)) is not further adjusted for earnings and is treated as
an annual addition under § 415 for the year of the failure for the
employee for whom it is allocated.
(2
) This paragraph (1)(b)(iv)(B)(2) applies to a plan that uses
the prior year testing method described in Notice 98-1. Paragraph
(1)(b)(iv)(B)(1
) is applied by substituting "the year prior to the
year of the failure" for "the year of the failure".
(2) Examples.

Example 1
:
Employer A maintains a profit-sharing plan with a cash or
deferred arrangement that is intended to satisfy § 401(k)
("401(k) plan") using the current year testing method described
in Notice 98-1. The plan does not provide for matching
contributions or employee after-tax contributions. In 1999, it
was discovered that the ADP test for 1997 was not performed
correctly. When the ADP test was performed correctly, the test
was not satisfied for 1997. For 1997, the ADP for highly
compensated employees was 9% and the ADP for nonhighly
compensated employees was 4%. Accordingly, the ADP for highly
compensated employees exceeded the ADP for nonhighly compensated
employees by more than two percentage points (in violation of
§ 401(k)(3)). (The ADP for nonhighly compensated employees for

- 48 -
1996 also was 4%, so the ADP test for 1997 would not have been
satisfied even if the plan had used the prior year testing
method described in Notice 98-1.) There were two highly
compensated employees eligible under the 401(k) plan during
1997, Employee P and Employee Q. Employee P made elective
deferrals of $8,000, which is equal to 10% of Employee P’s
compensation of $80,000 for 1997. Employee Q made elective
deferrals of $9,500, which is equal to 8% of Employee Q’s
compensation of $118,750 for 1997.
Correction
:
On June 30, 1999, Employer A uses the one-to-one correction
method to correct the failure to satisfy the ADP test for 1997.
Accordingly, Employer A calculates the dollar amount of the
excess contributions for the two highly compensated employees in
the manner described in § 401(k)(8)(B). The amount of the
excess contribution for Employee P is $3,200 (4% of $80,000) and
the amount of the excess contribution for Employee Q is $2,375
(2% of $118,750), or a total of $5,575. In accordance with
§ 401(k)(8)(C), $5,575, the excess contribution amount, is
assigned $2,037.50 to Employee P and $3,537.50 to Employee Q.
It is determined that the earnings on the assigned amounts
through June 30, 1999 are $407 and $707 for Employees P and Q,
respectively. The assigned amounts and the earnings are
distributed to Employees P and Q. Therefore, Employee P
receives $2,444.50 ($2,037.50 + $407) and Employee Q receives
$4,244.50 ($3,537.50 + $707). In addition, on the same date, a
corrective contribution is made to the 401(k) plan equal to
$6,689 (the sum of the $2,444.50 distributed to Employee P and
the $4,244.50 distributed to Employee Q). The corrective
contribution is allocated to the account balances of eligible
nonhighly compensated employees for 1997, pro rata based on
their compensation for 1997 (subject to § 415 for 1997).
Example 2
:
The facts are the same as in Example 1.

Correction
:
The correction is the same as in Example 1, except that the
corrective contribution of $6,689 is allocated in an equal
dollar amount to the account balances of eligible nonhighly
compensated employees for 1997 who are employees on June 30,
1999 and who are nonhighly compensated employees for 1999
(subject to § 415 for 1997).
Example 3
:
The facts are the same as in Example 1, except that for 1997 the
plan also provides (1) for employee after-tax contributions and
(2) for matching contributions equal to 50% of the sum of an

- 49 -
employee’s elective deferrals and employee after-tax
contributions that do not exceed 10% of the employee’s
compensation. The plan provides that matching contributions are
subject to the plan’s 5-year graded vesting schedule and that
matching contributions are forfeited and used to reduce employer
contributions if associated elective deferrals or employee
after-tax contributions are distributed to correct an ADP, ACP
or multiple use test failure. For 1997, nonhighly compensated
employees made employee after-tax contributions and no highly
compensated employee made any employee after-tax contributions.
Employee P received a matching contribution of $4,000 (50% of
$8,000) and Employee Q received a matching contribution of
$4,750 (50% of $9,500). Employees P and Q were 100% vested in
1997. It is determined that, for 1997, the ACP for highly
compensated employees was not more than 125% of the ACP for
nonhighly compensated employees, so that the ACP and multiple
use tests would have been satisfied for 1997 without any
corrective action.
Correction:
The same corrective actions are taken as in Example 1. In
addition, in accordance with the plan’s terms, corrective action
is taken to forfeit Employee P’s and Employee Q’s matching
contributions associated with their distributed excess
contributions. Employee P’s distributed excess contributions and
associated matching contributions are $2,037.50 and $1,018.75,
respectively. Employee Q’s distributed excess contributions and
associated matching contributions are $3,537.50 and $1,768.75,
respectively. Thus, $1,018.75 is forfeited from Employee P’s
account and $1,768.75 is forfeited from Employee Q’s account.
In addition, the earnings on the forfeited amounts are also
forfeited. It is determined that the respective earnings on the
forfeited amount for Employee P is $150 and for Employee Q is
$204. The total amount of the forfeitures of $3,141.50
(Employee P’s $1,018.75 + $150 and Employee Q’s $1,768.75 +
$204) is used to reduce contributions for 1999 and subsequent
years.
.02 Exclusion of Eligible Employees
.
(1) Exclusion of Eligible Employees in a 401(k) or (m)
Plan. (a) Correction Method. (i) SVP Correction Method for Full
Year Exclusion. Appendix A, section .05 sets forth the SVP
correction method for the exclusion of an eligible employee from all
contributions under a 401(k) or (m) plan for one or more full plan
years. (See Example 4.) In section 2.02(1)(a)(ii) below, the SVP
correction method for the exclusion of an eligible employee from all
contributions under a 401(k) or (m) plan for a full year is expanded
to include correction for the exclusion of an eligible employee from
all contributions under a 401(k) or (m) plan for a partial plan year.
This correction for a partial year exclusion may be used in
conjunction with the correction for a full year exclusion.

- 50 -

(ii) Expansion of SVP Correction Method to Partial Year Exclusion.
(A) In General. The correction method in Appendix A, section .05 is
expanded to cover an employee who was improperly excluded from making
elective deferrals or employee after-tax contributions for a portion
of a plan year or from receiving matching contributions (on either
elective deferrals or employee after-tax contributions) for a portion
of a plan year. In such case, a permitted correction method for the
failure is for the employer to satisfy this section 2.02(1)(a)(ii).
The employer makes a corrective contribution on behalf of the
excluded employee that satisfies the vesting requirements and
distribution limitations of § 401(k)(2)(B) and (C).

(B) Elective Deferral Failures. The appropriate corrective
contribution for the failure to allow employees to make elective
deferrals for a portion of the plan year is equal to the ADP of the
employee's group (either highly or nonhighly compensated), determined
prior to correction under this section 2.02(1)(a)(ii), multiplied by
the employee's plan compensation for the portion of the year during
which the employee was improperly excluded. The corrective
contribution for the portion of the plan year during which the
employee was improperly excluded from being eligible to make elective
deferrals is reduced to the extent that (1
) the sum of that
contribution and any elective deferrals actually made by the employee
for that year would exceed (2
) the maximum elective deferrals
permitted under the plan for the employee for that plan year
(including the § 402(g) limit). The corrective contribution is
adjusted for earnings. (See Examples 5 and 6.)
(C) Employee After-tax and Matching Contribution Failures.
The appropriate corrective contribution for the failure to allow
employees to make employee after-tax contributions or to receive
matching contributions because the employee was precluded from making
employee after-tax contributions or elective deferrals for a portion
of the plan year is equal to the ACP of the employee's group (either
highly or nonhighly compensated), determined prior to correction
under this section 2.02(1)(a)(ii), multiplied by the employee's plan
compensation for the portion of the year during which the employee
was improperly excluded. The corrective contribution is reduced to
the extent that (1
) the sum of that contribution and the actual total
employee after-tax and matching contributions made by and for the
employee for the plan year would exceed (2
) the sum of the maximum
employee after-tax contributions permitted under the plan for the
employee for the plan year and the matching contributions that would
have been made if the employee had made the maximum matchable
contributions permitted under the plan for the employee for that plan
year. The corrective contribution is adjusted for earnings.
(D) Use of Prorated Compensation. For purposes of this paragraph
(1)(a)(ii), for administrative convenience, in lieu of using the
employee's actual plan compensation for the portion of the year
during which the employee was improperly excluded, a pro rata portion
of the employee's plan compensation that would have been taken into

- 51 -
account for the plan year, if the employee had not been improperly
excluded, may be used.
(E) Special Rule for Brief Exclusion from Elective Deferrals. An
employer is not required to make a corrective contribution with
respect to elective deferrals, as provided in section
2.02(1)(a)(ii)(B), (but is required to make a corrective contribution
with respect to any employee after-tax and matching contributions, as
provided in section 2.02(1)(a)(ii)(C)) for an employee for a plan
year if the employee has been provided the opportunity to make
elective deferrals under the plan for a period of at least the last 9
months in that plan year and during that period the employee had the
opportunity to make elective deferrals in an amount not less than the
maximum amount that would have been permitted if no failure had
occurred. (See Example 7.)
(b) Examples.
Example 4
:
Employer B maintains a 401(k) plan. The plan provides for
matching contributions for eligible employees equal to 100% of
elective deferrals that do not exceed 3% of an employee’s
compensation. The plan provides that employees who complete one
year of service are eligible to participate in the plan on the
next January 1 or July 1 entry date. Twelve employees (8
nonhighly compensated employees and 4 highly compensated
employees) who had met the one year eligibility requirement
after July 1, 1995 and before January 1, 1996 were inadvertently
excluded from participating in the plan beginning on January 1,
1996. These employees were offered the opportunity to begin
participating in the plan on January 1, 1997. For 1996, the ADP
for the highly compensated employees was 8% and the ADP for the
nonhighly compensated employees was 6%. In addition, for 1996,
the ACP for the highly compensated employees was 2.5% and the
ACP for the nonhighly compensated employees was 2%. The failure
to include the 12 employees was discovered during 1998.
Correction
:
Employer B uses the SVP correction method for full year
exclusions to correct the failure to include the 12 eligible
employees in the plan for the full plan year beginning January
1, 1996. Thus, Employer B makes a corrective contribution (that
satisfies the vesting requirements and distribution limitations
of § 401(k)(2)(B) and (C)) for each of the excluded employees.
The contribution for each of the improperly excluded highly
compensated employees is 10.5% (the highly compensated
employees’ ADP of 8% plus ACP of 2.5%) of the employee's plan
compensation for the 1996 plan year (adjusted for earnings).
The contribution for each of the improperly excluded nonhighly
compensated employees is 8% (the nonhighly compensated
employee’s ADP of 6% plus ACP of 2%) of the employee’s plan

- 52 -
compensation for the 1996 plan year (adjusted for earnings).
Example 5
:
Employer C maintains a 401(k) plan. The plan provides for
matching contributions for each payroll period that are equal to
100% of an employee’s elective deferrals that do not exceed 2%
of the eligible employee’s plan compensation during the payroll
period. The plan does not provide for employee after-tax
contributions. The plan provides that employees who complete
one year of service are eligible to participate in the plan on
the next January 1 or July 1 entry date. A nonhighly
compensated employee who met the eligibility requirements and
should have entered the plan on January 1, 1996 was not offered
the opportunity to participate in the plan. In August of 1996,
the error was discovered and Employer C offered the employee an
election opportunity as of September 1, 1996. The employee made
elective deferrals equal to 4% of the employee’s plan
compensation for each payroll period from September 1, 1996
through December 31, 1996 (resulting in elective deferrals of
$500). The employee’s plan compensation for 1996 was $36,000
($23,500 for the first eight months and $12,500 for the last
four months). Employer C made matching contributions equal to
$250 for the excluded employee, which is 2% of the employee’s
plan compensation for each payroll period from September 1, 1996
through December 31, 1996 ($12,500). The ADP for nonhighly
compensated employees for 1996 was 3% and the ACP for nonhighly
compensated employees for 1996 was 1.8%.
Correction
:
Employer C uses the SVP correction method for partial year
exclusions to correct the failure to include the eligible
employee in the plan. Thus, Employer C makes a corrective
contribution (that satisfies the vesting requirements and
distribution limitations of § 401(k)(2)(B) and (C)) for the
excluded employee. In determining the amount of corrective
contributions (both for the elective deferral and for the
matching contribution), for administrative convenience, in lieu
of using actual plan compensation of $23,500 for the period the
employee was excluded, the employee's annual plan compensation
is pro rated for the eight-month period that the employee was
excluded from participating in the plan. The failure to
provide the excluded employee the right to make elective
deferrals is corrected by the employer making a corrective
contribution on behalf of the employee that is equal to $720
(the 3% ADP percentage for nonhighly compensated employees
multiplied by $24,000, which is 8/12ths of the employee's 1996
plan compensation of $36,000), adjusted for earnings. In
addition, to correct for the failure to receive the plan's
matching contribution, a corrective contribution is made on
behalf of the employee that is equal to $432 (the 1.8% ACP for
the nonhighly compensated group multiplied by $24,000, which is

- 53 -
8/12ths of the employee’s 1996 plan compensation of $36,000),
adjusted for earnings. Employer C determines that $682, the sum
of the actual matching contribution received by the employee for
the plan year ($250) and the corrective contribution to correct
the matching contribution failure ($432), does not exceed $720,
the maximum matching contribution available to the employee
under the plan (2% of $36,000) determined as if the employee had
made the maximum matchable contributions. In addition to
correcting the failure to include the eligible employee in the
plan, Employer C reruns the ADP and ACP tests for 1996 (taking
into account the corrective contribution and plan compensation
for 1996 for the excluded employee) and determines that the
tests were satisfied.
Example 6
:
The facts are the same as in Example 5, except that the plan
provides for matching contributions that are equal to 100% of an
eligible employee’s elective deferrals that do not exceed 2% of
the employee’s plan compensation for the plan year.
Accordingly, the actual matching contribution made by Employer C
for the excluded employee for the last four months of 1996 is
$500 (which is equal to 100% of the $500 of elective deferrals
made by the employee for the last four months of 1996).
Correction
:
The correction is the same as in Example 5, except that the
corrective contribution made for the first 8 months of 1996 to
correct the failure to make matching contributions is equal to
$220 (adjusted for earnings), instead of the $432 (adjusted for
earnings) in Example 5, because the corrective contribution is
limited to the maximum matching contributions available under
the plan for the employee for the plan year, $720 (2% of
$36,000), reduced by the actual matching contributions made for
the employee for the plan year, $500.
Example 7
:
The facts are the same as in Example 5, except that the error is
discovered in March of 1996 and the employee was given the
opportunity to make elective deferrals beginning on April 1,
1996. The amount of elective deferrals that the employee was
given the opportunity to make during 1996 was not less than the
maximum elective deferrals that the employee could have made if
the employee had been given the opportunity to make elective
deferrals beginning on January 1, 1996. The employee made
elective deferrals equal to 4% of the employee’s plan
compensation for each payroll period from April 1, 1996 through
December 31, 1996 of $28,000 (resulting in elective deferrals of
$1,120). Employer C made a matching contribution equal to $560,
which is 2% of the employee’s plan compensation for each payroll
period from April 1, 1996 through December 31, 1996 ($28,000).

- 54 -
The employee’s plan compensation for 1996 was $36,000 ($8,000
for the first three months and $28,000 for the last nine
months).
Correction
:
Employer C uses the SVP correction method for partial year
exclusions to correct the failure to include an eligible
employee in the plan. Because the employee was given an
opportunity to make elective deferrals to the plan for at least
the last 9 months of the plan year (and the amount of the
elective deferrals that the employee had the opportunity to make
was not less than the maximum elective deferrals that the
employee could have made if the employee had been given the
opportunity to make elective deferrals beginning on January 1,
1996), under the special rule set forth in section
2.02(1)(a)(ii)(E), Employer C is not required to make a
corrective contribution for the failure to allow the employee to
make elective deferrals. In determining the amount of
corrective contribution with respect to the failure to allow the
employee to receive matching contributions, in lieu of using
actual plan compensation of $8,000 for the period the employee
was excluded, the employee’s annual plan compensation is pro
rated for the three-month period that the employee was excluded
from participating in the plan. Accordingly, a corrective
contribution is made on behalf of the employee that is equal to
$160, which is the lesser of (i) $162 (a matching contribution
of 1.8% of $9,000, which is 3/12ths of the employee’s 1996 plan
compensation of $36,000), and (ii) $160 (the excess of the
maximum matching contribution for the entire plan year, which is
equal to 2% of $36,000, or $720, over the matching contributions
made after March 31, 1996, $560). The contribution is adjusted
for earnings.
(2) Exclusion of Eligible Employees In a Profit-Sharing Plan.
(a) Correction Methods. (i) SVP Correction Method. Appendix A,
section .05 sets forth the SVP correction method for correcting the
exclusion of an eligible employee. In the case of a defined
contribution plan, the SVP correction method is to make a
contribution on behalf of the excluded employee. Section
2.02(2)(a)(ii) below clarifies the SVP correction method in the case
of a profit-sharing or stock bonus plan that provides for nonelective
contributions (within the meaning of § 1.401(k)-1(g)(10)).
(ii) Clarification of SVP Correction Method for Profit-Sharing
Plans. To correct for the exclusion of an eligible employee from
nonelective contributions in a profit-sharing or stock bonus plan
under the SVP correction method, an allocation amount is determined
for each excluded employee on the same basis as the allocation
amounts were determined for the other employees under the plan's
allocation formula (e.g., the same ratio of allocation to
compensation), taking into account all of the employee's relevant

- 55 -
factors (e.g., compensation) under that formula for that year. The
employer makes a corrective contribution on behalf of the excluded
employee that is equal to the allocation amount for the excluded
employee. The corrective contribution is adjusted for earnings. If,
as a result of excluding an employee, an amount was improperly
allocated to the account balance of an eligible employee who shared
in the original allocation of the nonelective contribution, no
reduction is made to the account balance of the employee who shared
in the original allocation on account of the improper allocation.
(See Example 8.)
(iii) Reallocation Correction Method. (A) In General. Subject to
the limitations set forth in section 2.02(2)(a)(iii)(F) below, in
addition to the SVP correction method, the exclusion of an eligible
employee for a plan year from a profit-sharing or stock bonus plan
that provides for nonelective contributions may be corrected using
the reallocation correction method set forth in this section
2.02(2)(a)(iii). Under the reallocation correction method, the
account balance of the excluded employee is increased as provided in
paragraph (2)(a)(iii)(B) below, the account balances of other
employees are reduced as provided in paragraph (2)(a)(iii)(C) below,
and the increases and reductions are reconciled, as necessary, as
provided in paragraph (2)(a)(iii)(D) below. (See Examples 9 and 10.)
(B) Increase in Account Balance of Excluded Employee. The account
balance of the excluded employee is increased by an amount that is
equal to the allocation the employee would have received had the
employee shared in the allocation of the nonelective contribution.
The amount is adjusted for earnings.

(C) Reduction in Account Balances of Other Employees. (1
) The
account balance of each employee who was an eligible employee who
shared in the original allocation of the nonelective contribution is
reduced by the excess, if any, of (I) the employee’s allocation of
that contribution over (II) the amount that would have been allocated
to that employee had the failure not occurred. This amount is
adjusted for earnings taking into account the rules set forth in
section 2.02(2)(a)(iii)(C)(2
) and (3) below. The amount after
adjustment for earnings is limited in accordance with section
2.02(2)(a)(iii)(C)(4
) below.

(2
) This paragraph (2)(a)(iii)(C)(2) applies if most of the
employees with account balances that are being reduced are nonhighly
compensated employees. If there has been an overall gain for the
period from the date of the original allocation of the contribution
through the date of correction, no adjustment for earnings is
required to the amount determined under section 2.02(2)(a)(iii)(C)(1
)
for the employee. If the amount for the employee is being adjusted
for earnings and the plan permits investment of account balances in
more than one investment fund, for administrative convenience, the
reduction to the employee’s account balance may be adjusted by the
lowest earnings rate of any fund for the period from the date of the
original allocation of the contribution through the date of

- 56 -
correction.
(3
) If an employee’s account balance is reduced and the original
allocation was made to more than one investment fund or there was a
subsequent distribution or transfer from the fund receiving the
original allocation, then reasonable, consistent assumptions are used
to determine the earnings adjustment.
(4
) The amount determined in section 2.02(2)(a)(iii)(C)(1) for an
employee after the application of section 2.02(2)(a)(iii)(C)(2
) and
(3
) may not exceed the account balance of the employee on the date of
correction, and the employee is permitted to retain any distribution
made prior to the date of correction.
(D) Reconciliation of Increases and Reductions. If the aggregate
amount of the increases under section 2.02(2)(a)(iii)(B) exceeds the
aggregate amount of the reductions under section 2.02(2)(a)(iii)(C),
the employer makes a corrective contribution to the plan for the
amount of the excess. If the aggregate amount of the reductions
under section 2.02(2)(a)(iii)(C) exceeds the aggregate amount of the
increases under section 2.02(2)(a)(iii)(B), then the amount by which
each employee's account balance is reduced under section
2.02(2)(a)(iii)(C) is decreased on a pro rata basis.
(E) Reductions Among Multiple Investment Funds. If an employee's
account balance is reduced and the employee's account balance is
invested in more than one investment fund, then the reduction may be
made from the investment funds selected in any reasonable manner.
(F) Limitations on Use of Reallocation Correction Method. If any
employee would be permitted to retain any distribution pursuant to
section 2.02(2)(a)(iii)(C)(4
), then the reallocation correction
method may not be used unless most of the employees who would be
permitted to retain a distribution are nonhighly compensated
employees.
(b) Examples.
Example 8
:
Employer D maintains a profit-sharing plan that provides for
discretionary nonelective employer contributions. The plan
provides that the employer's contributions are allocated to
account balances in the ratio that each eligible employee's
compensation for the plan year bears to the compensation of all
eligible employees for the plan year and, therefore, the only
relevant factor for determining an allocation is the employee’s
compensation. The plan provides for self-directed investments
among four investment funds and daily valuations of account
balances. For the 1997 plan year, Employer D made a
contribution to the plan of a fixed dollar amount. However,
five employees who met the eligibility requirements were
inadvertently excluded from participating in the plan. The

- 57 -
contribution resulted in an allocation on behalf of each of the
eligible employees, other than the excluded employees, equal to
10% of compensation. Most of the employees who received
allocations under the plan for the year of the failure were
nonhighly compensated employees. No distributions have been made
from the plan since 1997. If the five excluded employees had
shared in the original allocation, the allocation made on behalf
of each employee would have equaled 9% of compensation. The
excluded employees began participating in the plan in the 1998
plan year.
Correction
:

Employer D uses the SVP correction method to correct the failure
to include the five eligible employees. Thus, Employer D makes
a corrective contribution to the plan. The amount of the
corrective contribution on behalf of the five excluded employees
for the 1997 plan year is equal to 10% of compensation of each
excluded employee, the same allocation that was made for other
eligible employees, adjusted for earnings. The excluded
employees receive an allocation equal to 10% of compensation
(adjusted for earnings) even though, had the excluded employees
originally shared in the allocation for the 1997 contribution,
their account balances, as well as those of the other eligible
employees, would have received an allocation equal to only 9% of
compensation.

Example 9
:
The facts are the same as in Example 8.

Correction
:
Employer D uses the reallocation correction method to correct
the failure to include the five eligible employees. Thus, the
account balances are adjusted to reflect what would have
resulted from the correct allocation of the employer
contribution for the 1997 plan year among all eligible
employees, including the five excluded employees. The inclusion
of the excluded employees in the allocation of that contribution
would have resulted in each eligible employee, including each
excluded employee, receiving an allocation equal to 9% of
compensation. Accordingly, the account balance of each excluded
employee is increased by 9% of the employee’s 1997 compensation,
adjusted for earnings. The account balance of each of the
eligible employees other than the excluded employees is reduced
by 1% of the employee’s 1997 compensation, adjusted for
earnings. Employer D determines the adjustment for earnings
using the earnings rate of each eligible employee’s excess
allocation (using reasonable, consistent assumptions).
Accordingly, for an employee who shared in the original
allocation and directed the investment of the allocation into
more than one investment fund or who subsequently transferred a

- 58 -
portion of a fund that had been credited with a portion of the
1997 allocation to another fund, reasonable, consistent
assumptions are followed to determine the adjustment for
earnings. It is determined that the total of the initially
determined reductions in account balances exceeds the total of
the required increases in account balances. Accordingly, these
initially determined reductions are decreased pro rata so that
the total of the actual reductions in account balances equals
the total of the increases in the account balances, and Employer
D does not make any corrective contribution. The reduction from
the account balances are made on a pro rata basis among all of
the funds in which each employee’s account balance is invested.
Example 10
:
The facts are the same as in Example 8.
Correction
:
The correction is the same as in Example 9, except that, because
most of the employees whose account balances are being reduced
are nonhighly compensated employees, for administrative
convenience, Employer D uses the earnings rate of the fund with
the lowest earnings rate for the period of the failure to adjust
the reduction to each account balance. It is determined that
the aggregate amount (adjusted for earnings) by which the
account balances of the excluded employees is increased exceeds
the aggregate amount (adjusted for earnings) by which the other
employees' account balances are reduced. Accordingly, Employer
D makes a contribution to the plan in an amount equal to the
excess. The reduction from account balances is made on a pro
rata basis among all of the funds in which each employee's
account balance is invested.
.03 Vesting Failures
.
(1) Correction Methods. (a) Contribution Correction Method. A
failure in a defined contribution plan to apply the proper vesting
percentage to an employee's account balance that results in
forfeiture of too large a portion of the employee's account balance
may be corrected using the contribution correction method set forth
in this paragraph. The employer makes a corrective contribution on
behalf of the employee whose account balance was improperly forfeited
in an amount equal to the improper forfeiture. The corrective
contribution is adjusted for earnings. If, as a result of the
improper forfeiture, an amount was improperly allocated to the
account balance of another employee, no reduction is made to the
account balance of that employee. (See Example 11.)
(b) Reallocation Correction Method. In addition to the
contribution correction method, in a defined contribution plan under
which forfeitures of account balances are reallocated among the
account balances of the other eligible employees in the plan, a

- 59 -
failure to apply the proper vesting percentage to an employee’s
account balance which results in forfeiture of too large a portion of
the employee’s account balance may be corrected under the
reallocation correction method set forth in this paragraph. A
corrective reallocation is made in accordance with the reallocation
correction method set forth in section 2.02(2)(a)(iii), subject to
the limitations set forth in section 2.02(2)(a)(iii)(F). In applying
section 2.02(2)(a)(iii)(B), the account balance of the employee who
incurred the improper forfeiture is increased by an amount equal to
the amount of the improper forfeiture and the amount is adjusted for
earnings. In applying section 2.02(2)(a)(iii)(C)(1
), the account
balance of each employee who shared in the allocation of the improper
forfeiture is reduced by the amount of the improper forfeiture that
was allocated to that employee’s account. The earnings adjustments
for the account balances that are being reduced are determined in
accordance with sections 2.02(2)(a)(iii)(C)(2
) and (3) and the
reductions after adjustments for earnings are limited in accordance
with section 2.02(2)(a)(iii)(C)(4
). In accordance with section
2.02(2)(a)(iii)(D), if the aggregate amount of the increases exceeds
the aggregate amount of the reductions, the employer makes a
corrective contribution to the plan for the amount of the excess. In
accordance with section 2.02(2)(a)(iii)(D), if the aggregate amount
of the reductions exceeds the aggregate amount of the increases, then
the amount by which each employee’s account balance is reduced is
decreased on a pro rata basis. (See Example 12.)
(2) Examples.
Example 11
:
Employer E maintains a profit-sharing plan that provides for
nonelective contributions. The plan provides for self-directed
investments among four investment funds and daily valuation of
account balances. The plan provides that forfeitures of account
balances are reallocated among the account balances of other
eligible employees on the basis of compensation. During the
1997 plan year, Employee R terminated employment with Employer E
and elected and received a single-sum distribution of the vested
portion of his account balance. No other distributions have
been made since 1997. However, an incorrect determination of
Employee R’s vested percentage was made resulting in Employee R
receiving a distribution of less than the amount to which he was
entitled under the plan. The remaining portion of Employee R’s
account balance was forfeited and reallocated (and these
reallocations were not affected by the limitations of § 415).
Most of the employees who received allocations of the improper
forfeiture were nonhighly compensated employees.
Correction
:
Employer E uses the contribution correction method to correct
the improper forfeiture. Thus, Employer E makes a contribution
on behalf of Employee R equal to the incorrectly forfeited

- 60 -
amount (adjusted for earnings) and Employee R’s account balance
is increased accordingly. No reduction is made from the account
balances of the employees who received an allocation of the
improper forfeiture.
Example 12
:
The facts are the same as in Example 11.
Correction
:
Employer E uses the reallocation correction method to correct
the improper forfeiture. Thus, Employee R’s account balance is
increased by the amount that was improperly forfeited (adjusted
for earnings). The account of each employee who shared in the
allocation of the improper forfeiture is reduced by the amount
of the improper forfeiture that was allocated to that employee’s
account (adjusted for earnings). Because most of the employees
whose account balances are being reduced are nonhighly
compensated employees, for administrative convenience, Employer
E uses the earnings rate of the fund with the lowest earnings
rate for the period of the failure to adjust the reduction to
each account balance. It is determined that the amount
(adjusted for earnings) by which the account balance of Employee
R is increased exceeds the aggregate amount (adjusted for
earnings) by which the other employees’ account balances are
reduced. Accordingly, Employer E makes a contribution to the
plan in an amount equal to the excess. The reduction from the
account balances is made on a pro rata basis among all of the
funds in which each employee’s account balance is invested.
.04 § 415 Failures
.
(1) Failures Relating to a § 415(b) Excess.
(a) Correction Methods. (i) Return of Overpayment Correction
Method. Overpayments as a result of amounts being paid in excess of
the limits of § 415(b) may be corrected using the return of
overpayment correction method set forth in this paragraph (1)(a)(i).
The employer takes reasonable steps to have the Overpayment (with
appropriate interest) returned by the recipient to the plan and
reduces future benefit payments (if any) due to the employee to
reflect § 415(b). To the extent the amount returned by the recipient
is less than the Overpayment, adjusted for earnings at the plan's
earnings rate, then the employer or another person contributes the
difference to the plan. In addition, in accordance with section
6.02(4)(a), the employer must notify the recipient that the
Overpayment was not eligible for favorable tax treatment accorded to
distributions from qualified plans (and, specifically, was not
eligible for tax-free rollover). (See Examples 15 and 16.)
(ii) Adjustment of Future Payments Correction Method. (A) In
General. In addition to the return of overpayment correction method,
in the case of plan benefits that are being distributed in the form

- 61 -
of periodic payments, Overpayments as a result of amounts being paid
in excess of the limits in § 415(b) may be corrected by using the
adjustment of future payments correction method set forth in this
paragraph (1)(a)(ii). Future payments to the recipient are reduced
so that they do not exceed the § 415(b) maximum limit and an
additional reduction is made to recoup the Overpayment (over a period
not longer than the remaining payment period) so that the actuarial
present value of the additional reduction is equal to the Overpayment
plus interest at the interest rate used by the plan to determine
actuarial equivalence. (See Examples 13 and 14.)
(B) Joint and Survivor Annuity Payments. If the employee is
receiving payments in the form of a joint and survivor annuity, with
the employee's spouse to receive a life annuity upon the employee's
death equal to a percentage (e.g., 75%) of the amount being paid to
the employee, the reduction of future annuity payments to reflect
§ 415(b) reduces the amount of benefits payable during the lives of
both the employee and spouse, but any reduction to recoup
Overpayments made to the employee does not reduce the amount of the
spouse's survivor benefit. Thus, the spouse's benefit will be based
on the previous specified percentage (e.g., 75%) of the maximum
permitted under § 415(b), instead of the reduced annual periodic
amount payable to the employee.
(C) Overpayment Not Treated as an Excess Amount. An Overpayment
corrected under this adjustment of future payment correction method,
is not treated as an Excess Amount as defined in section 5.01(3).
(b) Examples.
Example 13
:
Employer F maintains a defined benefit plan funded solely
through employer contributions. The plan provides that the
benefits of employees are limited to the maximum amount
permitted under § 415(b), disregarding cost-of-living
adjustments under § 415(d) after benefit payments have
commenced. At the beginning of the 1998 plan year, Employee S
retired and started receiving an annual straight life annuity of
$140,000 from the plan. Due to an administrative error, the
annual amount received by Employee S for 1998 included an
Overpayment of $10,000 (because the § 415(b)(1)(A) limit for
1998 was $130,000). This error was discovered at the beginning
of 1999.

Correction
:
Employer F uses the adjustment of future payments correction
method to correct the failure to satisfy the limit in § 415(b).
Future annuity benefit payments to Employee S are reduced so
that they do not exceed the § 415(b) maximum limit, and, in
addition, Employee S's future benefit payments from the plan are
actuarially reduced to recoup the Overpayment. Accordingly,

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Employee S’s future benefit payments from the plan are reduced
to $130,000 and further reduced by $1,000 annually for life,
beginning in 1999. The annual benefit amount is reduced by
$1,000 annually for life because, for Employee S, the actuarial
present value of a benefit of $1,000 annually for life
commencing in 1999 is equal to the sum of $10,000 and interest
at the rate used by the plan to determine actuarial equivalence
beginning with the date of the first Overpayment and ending with
the date the reduced annuity payment begins. Thus, Employee S’s
remaining benefit payments are reduced so that Employee S
receives $129,000 for 1999, and for each year thereafter.
Example 14
:
The facts are the same as in Example 13.
Correction
:
Employer F uses the adjustments of future payments correction
method to correct the § 415(b) failure, by recouping the entire
excess payment made in 1998 from Employee S's remaining benefit
payments for 1999. Thus, Employee S's annual annuity benefit
for 1999 is reduced to $119,400 to reflect the excess benefit
amounts (increased by interest) that were paid from the plan to
Employee S during the 1998 plan year. Beginning in 2000,
Employee S begins to receive annual benefit payments of
$130,000.
Example 15
:
The facts are the same as in Example 13, except that the benefit
was paid to Employee S in the form of a single-sum distribution
in 1998, which exceeded the maximum § 415(b) limits by $110,000.
Correction
:
Employer F uses the return of overpayment correction method to
correct the § 415 (b) failure. Thus, Employer F notifies
Employee S of the $110,000 Overpayment and that the Overpayment
was not eligible for favorable tax treatment accorded to
distributions from qualified plans (and, specifically, was not
eligible for tax-free rollover). The notice also informs
Employee S that the Overpayment (with interest at the rate used
by the plan to calculate the single-sum payment) is owed to the
plan. Employer F takes reasonable steps to have the Overpayment
(with interest at the rate used by the plan to calculate the
single-sum payment) paid to the plan. Employee S pays the
$110,000 (plus the requested interest) to the plan. It is
determined that the plan's earnings rate for the relevant period
was 2 percentage points more than the rate used by the plan to
calculate the single-sum payment. Accordingly, Employer F
contributes the difference to the plan.

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Example 16:
The facts are the same as in Example 15.
Correction
:
Employer F uses the return of overpayment correction method to
correct the § 415(b) failure. Thus, Employer F notifies
Employee S of the $110,000 Overpayment and that the Overpayment
was not eligible for favorable tax treatment accorded to
distributions from qualified plans (and, specifically, was not
eligible for tax-free rollover). The notice also informs
Employee S that the Overpayment (with interest at the rate used
by the plan to calculate the single-sum payment) is owed to the
plan. Employer F takes reasonable steps to have the Overpayment
(with interest at the rate used by the plan to calculate the
single-sum payment) paid to the plan. As a result of Employer
F's recovery efforts, some, but not all, of the Overpayment
(with interest) is recovered from Employee S. It is determined
that the amount returned by Employee S to the plan is less than
the Overpayment adjusted for earnings at the plan’s earnings
rate. Accordingly, Employer F contributes the difference to the
plan.
(2) Failures Relating to a § 415(c) Excess.
(a) Correction Methods. (i) SVP Correction Method. Appendix A,
section .08 sets forth the SVP correction method for correcting the
failure to satisfy the § 415(c) limits on annual additions.
(ii) Forfeiture Correction Method. In addition to the SVP
correction method, the failure to satisfy § 415(c) with respect to a
nonhighly compensated employee (A) who in the limitation year of the
failure had annual additions consisting of both (I) either elective
deferrals or employee after-tax contributions or both and (II) either
matching or nonelective contributions or both, (B) for whom the
matching and nonelective contributions equal or exceed the portion of
the employee's annual addition that exceeds the limits under § 415(c)
("§ 415(c) excess") for the limitation year, and (C) who has
terminated with no vested interest in the matching and nonelective
contributions (and has not been reemployed at the time of the
correction), may be corrected by using the forfeiture correction
method set forth in this paragraph. The § 415(c) excess is deemed to
consist solely of the matching and nonelective contributions. If the
employee's § 415(c) excess (adjusted for earnings) has previously
been forfeited, the § 415(c) failure is deemed to be corrected. If
the § 415(c) excess (adjusted for earnings) has not been forfeited,
that amount is placed in an unallocated account, similar to the
suspense account described in § 1.415-6(b)(6)(iii), to be used to
reduce employer contributions in succeeding year(s) (or if the amount
would have been allocated to other employees who were in the plan for
the year of the failure if the failure had not occurred, then that
amount is reallocated to the other employees in accordance with the
plan's allocation formula). Note that while this correction method

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will permit more favorable tax treatment of elective deferrals for
the employee than the SVP correction method, this correction method
could be less favorable to the employee in certain cases, for
example, if the employee is subsequently reemployed and becomes
vested. (See Examples 17 and 18.)
(iii) Return of Overpayment Correction Method. A failure to
satisfy § 415(c) that includes a distribution of the § 415(c) excess
attributable to nonelective contributions and matching contributions
may be corrected using the return of overpayment correction method
set forth in this paragraph. The employer takes reasonable steps to
have the Overpayment (i.e., the distribution of the § 415(c) excess
adjusted for earnings to the date of the distribution), plus
appropriate interest from the date of the distribution to the date of
the repayment, returned by the employee to the plan. To the extent
the amount returned by the employee is less than the Overpayment
adjusted for earnings at the plan's earnings rate, then the employer
or another person contributes the difference to the plan. The
Overpayment, adjusted for earnings at the plan's earnings rate to the
date of the repayment, is to be placed in an unallocated account,
similar to the suspense account described in § 1.415-6(b)(6)(iii), to
be used to reduce employer contributions in succeeding year(s) (or if
the amount would have been allocated to other eligible employees who
were in the plan for the year of the failure if the failure had not
occurred, then that amount is reallocated to the other eligible
employees in accordance with the plan's allocation formula). In
addition, the employer must notify the employee that the Overpayment
was not eligible for favorable tax treatment accorded to
distributions from qualified plans (and, specifically, was not
eligible for tax-free rollover).
(b) Examples.
Example 17
:
Employer G maintains a 401(k) plan. The plan provides for
nonelective employer contributions, elective deferrals, and
employee after-tax contributions. The plan provides that the
nonelective contributions vest under a 5-year cliff vesting
schedule. The plan provides that when an employee terminates
employment, the employee's nonvested account balance is
forfeited five years after a distribution of the employee's
vested account balance and that forfeitures are used to reduce
employer contributions. For the 1998 limitation year, the annual
additions made on behalf of two nonhighly compensated employees
in the plan, Employees T and U, exceeded the limit in § 415(c).
For the 1998 limitation year, Employee T had § 415 compensation
of $60,000, and, accordingly, a § 415(c)(1)(B) limit of $15,000.
Employee T made elective deferrals and employee after-tax
contributions. For the 1998 limitation year, Employee U had
§ 415 compensation of $40,000, and, accordingly, a
§ 415(c)(1)(B) limit of $10,000. Employee U made elective
deferrals. Also, on January 1, 1999, Employee U, who had three

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years of service with Employer G, terminated his employment and
received his entire vested account balance (which consisted of
his elective deferrals). The annual additions for Employees T
and U consisted of:
T U
Nonelective $7,500 $4,500
Contributions
Elective 10,000 5,800
Deferrals
After-tax 500 0
Contributions _________ _________

Total Contributions $18,000 $10,300
§ 415(c) Limit $15,000 $10,000
§ 415(c) Excess $3,000 $300
Correction:
Employer G uses the SVP correction method to correct the
§ 415(c) excess with respect to Employee T (i.e., $3,000).
Thus, a distribution of plan assets (and corresponding reduction
of the account balance) consisting of $500 (adjusted for
earnings) of employee after-tax contributions and $2,500
(adjusted for earnings) of elective deferrals is made to
Employee T. Employer G uses the forfeiture correction method to
correct the § 415(c) excess with respect to Employee U. Thus,
the § 415(c) excess is deemed to consist solely of the
nonelective contributions. Accordingly, Employee U's nonvested
account balance is reduced by $300 (adjusted for earnings) which
is placed in an unallocated account, similar to the suspense
account described in § 1.415-6(b)(6)(iii), to be used to reduce
employer contributions in succeeding year(s). After correction,
it is determined that the ADP and ACP tests for 1998 were
satisfied.
Example 18
:
Employer H maintains a 401(k) plan. The plan provides for
nonelective employer contributions, matching contributions and
elective deferrals. The plan provides for matching
contributions that are equal to 100% of an employee’s elective
deferrals that do not exceed 8% of the employee’s plan
compensation for the plan year. For the 1998 limitation year,
Employee V had § 415 compensation of $50,000, and, accordingly,
a § 415(c)(1)(B) limit of $12,500. During that limitation year,
the annual additions for Employee V totaled $15,000, consisting
of $5,000 in elective deferrals, a $4,000 matching contribution
(8% of $50,000), and a $6,000 nonelective employer contribution.
Thus, the annual additions for Employee V exceeded the § 415(c)

- 66 -
limit by $2,500.

Correction
:
Employer H uses the SVP correction method to correct the
§ 415(c) excess with respect to Employee V (i.e., $2,500).
Accordingly, $1,000 of the unmatched elective deferrals
(adjusted for earnings) are distributed to Employee V. The
remaining $1,500 excess is apportioned equally between the
elective deferrals and the associated matching employer
contributions, so Employee V's account balance is further
reduced by distributing to Employee V $750 (adjusted for
earnings) of the elective deferrals and forfeiting $750
(adjusted for earnings) of the associated employer matching
contributions. The forfeited matching contributions are placed
in an unallocated account, similar to the suspense account
described in § 1.415-6(b)(6)(iii), to be used to reduce employer
contributions in succeeding year(s). After correction, it is
determined that the ADP and ACP tests for 1998 were satisfied.

.05 Correction of Other Overpayment Failures
.
An Overpayment, other than one described in section 2.04(1)
(relating to a § 415(b) excess) or section 2.04(2) (relating to a
§ 415(c) excess), may be corrected in accordance with this section
2.05. An Overpayment from a defined benefit plan is corrected in
accordance with the rules in section 2.04(1). An Overpayment from a
defined contribution plan is corrected in accordance with the rules
in section 2.04(2)(a)(iii).
.06 § 401(a)(17) Failures
.
(1) Reduction of Account Balance Correction Method. The allocation
of contributions or forfeitures under a defined contribution plan for
a plan year on the basis of compensation in excess of the limit under
§ 401(a)(17) for the plan year may be corrected using the reduction
of account balance correction method set forth in this paragraph.
The account balance of an employee who received an allocation on the
basis of compensation in excess of the § 401(a)(17) limit is reduced
by this improperly allocated amount (adjusted for earnings). If the
improperly allocated amount would have been allocated to other
employees in the year of the failure if the failure had not occurred,
then that amount (adjusted for earnings) is reallocated to those
employees in accordance with the plan's allocation formula. If the
improperly allocated amount would not have been allocated to other
employees absent the failure, that amount (adjusted for earnings) is
placed in an unallocated account, similar to the suspense account
described in § 1.415-6(b)(6)(iii), to be used to reduce employer
contributions in succeeding year(s). For example, if a plan provides
for a fixed level of employer contributions for each eligible
employee, and the plan provides that forfeitures are used to reduce
future employer contributions, the improperly allocated amount
(adjusted for earnings) would be used to reduce future employer

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contributions. (See Example 19.) If a payment was made to an
employee and that payment was attributable to an improperly allocated
amount, then it is an Overpayment defined in section 2.05(2) that
must be corrected (see section 2.05(1)).
(2) Example.
Example 19
:
Employer J maintains a money purchase pension plan. Under the
plan, an eligible employee is entitled to an employer
contribution of 8% of the employee’s compensation up to the
§ 401(a)(17) limit ($160,000 for 1998). During the 1998 plan
year, an eligible employee, Employee W, inadvertently was
credited with a contribution based on compensation above the
§ 401(a)(17) limit. Employee W's compensation for 1998 was
$220,000. Employee W received a contribution of $17,600 for
1998 (8% of $220,000), rather than the contribution of $12,800
(8% of $160,000) provided by the plan for that year, resulting
in an improper allocation of $4,800.
Correction
:
The § 401(a)(17) failure is corrected using the reduction of
account balance method by reducing Employee W's account balance
by $4,800 (adjusted for earnings) and crediting that amount to
an unallocated account, similar to the suspense account
described in § 1.415-6(b)(6)(iii), to be used to reduce employer
contributions in succeeding year(s).
.07 Correction by Amendment Under Walk-in CAP
.
(1) § 401(a)(17) Failures. (a) Contribution Correction Method. In
addition to the reduction of account balance correction method under
section 2.06 of this Appendix B, an employer may correct a
§ 401(a)(17) failure for a plan year under a defined contribution
plan under the Walk-in Closing Agreement Program ("Walk-in CAP") (in
accordance with the requirements of section 11) by using the
contribution correction method set forth in this paragraph. The
employer contributes an additional amount on behalf of each of the
other employees (excluding each employee for whom there was a
§ 401(a)(17) failure) who received an allocation for the year of the
failure, amending the plan (as necessary) to provide for the
additional allocation. The amount contributed for an employee is
equal to the employee's plan compensation for the year of the failure
multiplied by a fraction, the numerator of which is the improperly
allocated amount made on behalf of the employee with the largest
improperly allocated amount, and the denominator of which is the
limit under § 401(a)(17) applicable to the year of the failure. The
resulting additional amount for each of the other employees is
adjusted for earnings. (See Example 20.)
(b) Examples.

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Example 20:
The facts are the same as in Example 19.
Correction
:
Employer J corrects the failure under Walk-in CAP using the
contribution correction method by (1) amending the plan to
increase the contribution percentage for all eligible employees
(other than Employee W) for the 1998 plan year and (2)
contributing an additional amount (adjusted for earnings) for
those employees for that plan year. To determine the increase
in the plan’s contribution percentage (and the additional amount
contributed on behalf of each eligible employee), the improperly
allocated amount ($4,800) is divided by the § 401(a)(17) limit
for 1998 ($160,000). Accordingly, the plan is amended to
increase the contribution percentage by 3 percentage points
($4,800/$160,000) from 8% to 11%. In addition, each eligible
employee for the 1998 plan year (other than Employee W) receives
an additional contribution of 3% multiplied by that employee's
plan compensation for 1998. This additional contribution is
adjusted for earnings.

(2) Hardship Distribution Failures. (a) Plan Amendment Correction
Method. The Operational Failure of making hardship distributions to
employees under a plan that does not provide for hardship
distributions may be corrected under Walk-in CAP (in accordance with
the requirements of section 11) using the plan amendment correction
method set forth in this paragraph. The plan is amended
retroactively to provide for the hardship distributions that were
made available. This paragraph does not apply unless (i) the
amendment satisfies § 401(a), and (ii) the plan as amended would have
satisfied the qualification requirements of § 401(a)(including the
requirements applicable to hardship distributions under § 401(k), if
applicable) had the amendment been adopted when hardship
distributions were first made available. (See Example 21.)
(b) Example.
Example 21
:
Employer K, a for-profit corporation, maintains a 401(k) plan.
Although plan provisions in 1998 did not provide for hardship
distributions, beginning in 1998 hardship distributions of
amounts allowed to be distributed under § 401(k) were made
currently and effectively available to all employees (within
the meaning of § l.401(a)(4)-4). The standard used to determine
hardship satisfied the deemed hardship distribution standards in
§ 1.401(k)-1(d)(2). Hardship distributions were made to a
number of employees during the 1998 and 1999 plan years,
creating an Operational Failure. The failure was discovered in
2000.

- 69 -
Correction:
Employer K corrects the failure through Walk-in CAP by adopting
a plan amendment, effective January 1, 1998, to provide a
hardship distribution option that satisfies the rules applicable
to hardship distributions in § 1.401(k)-1(d)(2). The amendment
provides that the hardship distribution option is available to
all employees. Thus, the amendment satisfies § 401(a), and the
plan as amended in 2000 would have satisfied § 401(a) (including
§ 1.401(a)(4)-4 and the requirements applicable to hardship
distributions under § 401(k)) if the amendment had been adopted
in 1998.
SECTION 3. EARNINGS ADJUSTMENT METHODS AND EXAMPLES
.01 Earnings Adjustment Methods
. (1) In general. (a) Under
section 6.02(5)(a), whenever the appropriate correction method for an
Operational Failure in a defined contribution plan includes a
corrective contribution or allocation that increases one or more
employees' account balances (now or in the future), the contribution
or allocation is adjusted for earnings and forfeitures. This section
3 provides earnings adjustment methods (but not forfeiture adjustment
methods) that may be used by an employer to adjust a corrective
contribution or allocation for earnings in a defined contribution
plan. Consequently, these earnings adjustment methods may be used to
determine the earnings adjustments for corrective contributions or
allocations made under the correction methods in section 2 and under
the SVP correction methods in Appendix A. If an earnings adjustment
method in this section 3 is used to adjust a corrective contribution
or allocation, that adjustment is treated as satisfying the earnings
adjustment requirement of section 6.02(5)(a). Other earnings
adjustment methods, different from those illustrated in this section
3, may also be appropriate for adjusting corrective contributions or
allocations to reflect earnings.
(b) Under the earnings adjustment methods of this section 3, a
corrective contribution or allocation that increases an employee's
account balance is adjusted to reflect an "earnings amount" that is
based on the earnings rate(s) (determined under section 3.01(3)) for
the period of the failure (determined under section 3.01(2)). The
earnings amount is allocated in accordance with section 3.01(4).
(c) The rule in section 6.02(6)(a) permitting reasonable estimates
in certain circumstances applies for purposes of this section 3. For
this purpose, a determination of earnings made in accordance with the
rules of administrative convenience set forth in this section 3 is
treated as a precise determination of earnings. Thus, if the
probable difference between an approximate determination of earnings
and a determination of earnings under this section 3 is insignificant
and the administrative cost of a precise determination would
significantly exceed the probable difference, reasonable estimates
may be used in calculating the appropriate earnings.

- 70 -
(d) This section 3 does not apply to corrective distributions or
corrective reductions in account balances. Thus, for example, while
this section 3 applies in increasing the account balance of an
improperly excluded employee to correct the exclusion of the employee
under the reallocation correction method described in section
2.02(2)(a)(iii)(B), this section 3 does not apply in reducing the
account balances of other employees under the reallocation correction
method. (See section 2.02(2)(a)(iii)(C) for rules that apply to the
earnings adjustments for such reductions.) In addition, this section
3 does not apply in determining earnings adjustments under the one-
to-one correction method described in section 2.01(1)(b)(iii).

(2) Period of the Failure. (a) General Rule. For purposes of this
section 3, the "period of the failure" is the period from the date
that the failure began through the date of correction. For example,
in the case of an improper forfeiture of an employee’s account
balance, the beginning of the period of the failure is the date as of
which the account balance was improperly reduced.
(b) Rules for Beginning Date for Exclusion of Eligible Employees
from Plan. (i) General Rule. In the case of an exclusion of an
eligible employee from a plan contribution, the beginning of the
period of the failure is the date on which contributions of the same
type (e.g., elective deferrals, matching contributions, or
discretionary nonelective employer contributions) were made for other
employees for the year of the failure. In the case of an exclusion
of an eligible employee from an allocation of a forfeiture, the
beginning of the period of the failure is the date on which
forfeitures were allocated to other employees for the year of the
failure.
(ii) Exclusion from a 401(k) or (m) Plan. For administrative
convenience, for purposes of calculating the earnings rate for
corrective contributions for a plan year (or the portion of the plan
year) during which an employee was improperly excluded from making
periodic elective deferrals or employee after-tax contributions, or
from receiving periodic matching contributions, the employer may
treat the date on which the contributions would have been made as the
midpoint of the plan year (or the midpoint of the portion of the plan
year) for which the failure occurred. Alternatively, in this case,
the employer may treat the date on which the contributions would have
been made as the first date of the plan year (or the portion of the
plan year) during which an employee was excluded, provided that the
earnings rate used is one half of the earnings rate applicable under
section 3.01(3) for the plan year (or the portion of the plan year)
for which the failure occurred.
(3) Earnings Rate. (a) General Rule. For purposes of this section
3, the earnings rate generally is based on the investment results
that would have applied to the corrective contribution or allocation
if the failure had not occurred.

(b) Multiple Investment Funds. If a plan permits employees to

- 71 -
direct the investment of account balances into more than one
investment fund, the earnings rate is based on the rate applicable to
the employee’s investment choices for the period of the failure. In
accordance with section 6.02(5)(a), for administrative convenience,
if most of the employees for whom the corrective contribution or
allocation is made are nonhighly compensated employees, the rate of
return of the fund with the highest earnings rate under the plan for
the period of the failure may be used to determine the earnings rate
for all corrective contributions or allocations. If the employee had
not made any applicable investment choices, the earnings rate may be
based on the earnings rate under the plan as a whole (i.e., the
average of the rates earned by all of the funds in the valuation
periods during the period of the failure weighted by the portion of
the plan assets invested in the various funds during the period of
the failure).
(c) Other Simplifying Assumptions. For administrative convenience,
the earnings rate applicable to the corrective contribution or
allocation for a valuation period with respect to any investment fund
may be assumed to be the actual earnings rate for the plan’s
investments in that fund during that valuation period. For example,
the earnings rate may be determined without regard to any special
investment provisions that vary according to the size of the fund.
Further, the earnings rate applicable to the corrective contribution
or allocation for a portion of a valuation period may be a pro rata
portion of the earnings rate for the entire valuation period, unless
the application of this rule would result in either a significant
understatement or overstatement of the actual earnings during that
portion of the valuation period.
(4) Allocation Methods. (a) In General. For purposes of this
section 3, the earnings amount generally may be allocated in
accordance with any of the methods set forth in this paragraph (4).
The methods under paragraph (4)(c), (d), and (e) are intended to be
particularly helpful where corrective contributions are made at dates
between the plan’s valuation dates.

(b) Plan Allocation Method. Under the plan allocation method, the
earnings amount is allocated to account balances under the plan in
accordance with the plan's method for allocating earnings as if the
failure had not occurred. (See Example 22.)
(c) Specific Employee Allocation Method. Under the specific
employee allocation method, the entire earnings amount is allocated
solely to the account balance of the employee on whose behalf the
corrective contribution or allocation is made (regardless of whether
the plan's allocation method would have allocated the earnings solely
to that employee). In determining the allocation of plan earnings
for the valuation period during which the corrective contribution or
allocation is made, the corrective contribution or allocation
(including the earnings amount) is treated in the same manner as any
other contribution under the plan on behalf of the employee during
that valuation period. Alternatively, where the plan's allocation

- 72 -
method does not allocate plan earnings for a valuation period to a
contribution made during that valuation period, plan earnings for the
valuation period during which the corrective contribution or
allocation is made may be allocated as if that employee’s account
balance had been increased as of the last day of the prior valuation
period by the corrective contribution or allocation, including only
that portion of the earnings amount attributable to earnings through
the last day of the prior valuation period. The employee’s account
balance is then further increased as of the last day of the valuation
period during which the corrective contribution or allocation is made
by that portion of the earnings amount attributable to earnings after
the last day of the prior valuation period. (See Example 23.)
(d) Bifurcated Allocation Method. Under the bifurcated allocation
method, the entire earnings amount for the valuation periods ending
before the date the corrective contribution or allocation is made is
allocated solely to the account balance of the employee on whose
behalf the corrective contribution or allocation is made. The
earnings amount for the valuation period during which the corrective
contribution or allocation is made is allocated in accordance with
the plan’s method for allocating other earnings for that valuation
period in accordance with section 3.01(4)(b). (See Example 24.)
(e) Current Period Allocation Method. Under the current period
allocation method, the portion of the earnings amount attributable to
the valuation period during which the period of the failure begins
("first partial valuation period") is allocated in the same manner as
earnings for the valuation period during which the corrective
contribution or allocation is made in accordance section 3.01(4)(b).
The earnings for the subsequent full valuation periods ending before
the beginning of the valuation period during which the corrective
contribution or allocation is made are allocated solely to the
employee for whom the required contribution should have been made.
The earnings amount for the valuation period during which the
corrective contribution or allocation is made ("second partial
valuation period") is allocated in accordance with the plan’s method
for allocating other earnings for that valuation period in accordance
with section 3.01(4)(b). (See Example 25.)
.02 Examples.
Example 22
:
Employer L maintains a profit-sharing plan that provides only
for nonelective contributions. The plan has a single investment
fund. Under the plan, assets are valued annually (the last day
of the plan year) and earnings for the year are allocated in
proportion to account balances as of the last day of the prior
year, after reduction for distributions during the current year
but without regard to contributions received during the current
year (the "prior year account balance"). Plan contributions for
1997 were made on March 31, 1998. On April 20, 2000 Employer L
determines that an operational failure occurred for 1997 because

- 73 -
Employee X was improperly excluded from the plan. Employer L
decides to correct the failure by using the SVP correction
method for the exclusion of an eligible employee from
nonelective contributions in a profit-sharing plan. Under this
method, Employer L determines that this failure is corrected by
making a contribution on behalf of Employee X of $5,000
(adjusted for earnings). The earnings rate under the plan for
1998 was +20%. The earnings rate under the plan for 1999 was
+10%. On May 15, 2000, when Employer L determines that a
contribution to correct for the failure will be made on June 1,
2000, a reasonable estimate of the earnings rate under the plan
from January 1, 2000 to June 1, 2000 is +12%.
Earnings Adjustment on the Corrective Contribution
:
The $5,000 corrective contribution on behalf of Employee X is
adjusted to reflect an earnings amount based on the earnings
rates for the period of the failure (March 31, 1998 through June
1, 2000) and the earnings amount is allocated using the plan
allocation method. Employer L determines that a pro rata
simplifying assumption may be used to determine the earnings
rate for the period from March 31, 1998 to December 31, 1998,
because that rate does not significantly understate or overstate
the actual earnings for that period. Accordingly, Employer L
determines that the earnings rate for that period is 15% (9/12
of the plan’s 20% earnings rate for the year). Thus, applicable
earnings rates under the plan during the period of the failure
are:
Time Periods Earnings Rate
3/31/98 - 12/31/98 (First Partial Valuation Period) +15%
1/1/99 - 12/31/99 +10%
1/1/00 - 6/1/00 (Second Partial Valuation Period) +12%
If the $5,000 corrective contribution had been contributed for
Employee X on March 31, 1998, (1) earnings for 1998 would have
been increased by the amount of the earnings on the additional
$5,000 contribution from March 31, 1998 through December 31,
1998 and would have been allocated as 1998 earnings in
proportion to the prior year (December 31, 1997) account
balances, (2) Employee X’s account balance as of December 31,
1998 would have been increased by the additional $5,000
contribution, (3) earnings for 1999 would have been increased by
the 1999 earnings on the additional $5,000 contribution
(including 1998 earnings thereon) allocated in proportion to the
prior year (December 31, 1998) account balances along with other
1999 earnings, and (4) earnings for 2000 would have been
increased by the earnings on the additional $5,000 (including
1998 and 1999 earnings thereon) from January 1 to June 1, 2000
and would be allocated in proportion to the prior year (December
31, 1999) account balances along with other 2000 earnings.
Accordingly, the $5,000 corrective contribution is adjusted to
reflect an earnings amount of $2,084 ($5,000[(1.15)(1.10)(1.12)-

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1]) and the earnings amount is allocated to the account balances
under the plan allocation method as follows:

(a) Each account balance that shared in the allocation of
earnings for 1998 is increased, as of December 31, 1998, by its
appropriate share of the earnings amount for 1998, $750
($5,000(.15)).
(b) Employee X’s account balance is increased, as of December
31, 1998, by $5,000.
(c) The resulting December 31, 1998 account balances will share
in the 1999 earnings, including the $575 for 1999 earnings
included in the corrective contribution ($5,750(.10)), to
determine the account balances as of December 31, 1999.
However, each account balance other than Employee X’s account
balance has already shared in the 1999 earnings, excluding the
$575. Accordingly, Employee X’s account balance as of December
31, 1999 will include $500 of the 1999 portion of the earnings
amount based on the $5,000 corrective contribution allocated to
Employee X’s account balance as of December 31, 1998
($5,000(.10)). Then each account balance that originally
shared in the allocation of earnings for 1999 (i.e., excluding
the $5,500 additions to Employee X’s account balance) is
increased by its appropriate share of the remaining 1999 portion
of the earnings amount, $75.

(d) The resulting December 31, 1999 account balances (including
the $5,500 additions to Employee X’s account balance) will share
in the 2000 portion of the earnings amount based on the
estimated January 1, 2000 to June 1, 2000 earnings included in
the corrective contribution equal to $759 ($6,325(.12)). (See
Table 1.)
_____________________________________________________________________
_
TABLE 1
CALCULATION AND ALLOCATION OF THE
CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS
Earnings RateAmountAllocated to:
Corrective $5,000Employee X
Contribution
First Partial Valuation 15% 750All 12/31/1997
Period EarningsAccount Balances
1
4
1999 Earnings10% 575Employee X ($500)/
2
All 12/31/1998
Account Balances
($75)
4

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Second Partial12% 759All 12/31/1999
Valuation PeriodAccount Balances
Earnings(including Employee
3
X’s $5,500)
4
Total Amount $7,084
Contributed
$5,000 x 15%
1
$5,750($5,000 +750) x 10%
2
$6,325($5,000 +750 +575) x 12%
3
After reduction for distributions during the year for which earning are being determined but
4
without regard to contributions received during the year for which earnings are being
determined.
___________________________________________________________________________
_
Example 23
:
The facts are the same as in Example 22.
Earnings Adjustment on the Corrective Contribution
:
The earnings amount on the corrective contribution is the same
as in Example 22, but the earnings amount is allocated using the
specific employee allocation method. Thus, the entire earnings
amount for all periods through June 1, 2000 (i.e., $750 for
March 31, 1998 to December 31, 1998, $575 for 1999, and $759 for
January 1, 2000 to June 1, 2000) is allocated to Employee X.
Accordingly, Employer L makes a contribution on June 1, 2000 to
the plan of $7,084 ($5,000(1.15)(1.10)(1.12)). Employee X’s
account balance as of December 31, 2000 is increased by $7,084.
Alternatively, Employee X’s account balance as of December 31,
1999 is increased by $6,325 ($5,000(1.15)(1.10)), which shares
in the allocation of earnings for 2000, and Employee X’s account
balance as of December 31, 2000 is increased by the remaining
$759. (See Table 2.)
_____________________________________________________________________
_
TABLE 2
CALCULATION AND ALLOCATION OF THE
CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS
Earnings RateAmountAllocated to:
Corrective $5,000Employee X
Contribution

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First Partial Valuation 15% 750Employee X
Period Earnings
1
1999 Earnings10% 575Employee X
2
Second Partial12% 759Employee X
Valuation Period
Earnings
3
Total Amount $7,084
Contributed
$5,000 x 15%
1
$5,750($5,000 +750) x 10%
2
$6,325($5,000 +750 +575) x 12%
3
_____________________________________________________________________
_
Example 24
:
The facts are the same as in Example 22.
Earnings Adjustment on the Corrective Contribution
:
The earnings amount on the corrective contribution is the same
as in Example 22, but the earnings amount is allocated using the
bifurcated allocation method. Thus, the earnings for the first
partial valuation period (March 31, 1998 to December 31, 1998)
and the earnings for 1999 are allocated to Employee X.
Accordingly, Employer L makes a contribution on June 1, 2000 to
the plan of $7,084 ($5,000(1.15)(1.10)(1.12)). Employee X’s
account balance as of December 31, 1999 is increased by $6,325
($5,000(1.15)(1.10)); and the December 31, 1999 account balances
of employees (including Employee X’s increased account balance)
will share in estimated January 1, 2000 to June 1, 2000 earnings
on the corrective contribution equal to $759 ($6,325(.12)).
(See Table 3.)
_____________________________________________________________________
_
TABLE 3
CALCULATION AND ALLOCATION OF THE
CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS
Earnings RateAmountAllocated to:
Corrective $5,000Employee X
Contribution

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First Partial Valuation 15% 750Employee X
Period Earnings
1
1999 Earnings10% 575Employee X
2
Second Partial12% 759 12/31/99 Account
Valuation PeriodBalances (including
EarningsEmployee X’s
3
$6,325)
4
Total Amount $7,084
Contributed

$5,000 x 15%
1
$5,750($5,000 +750) x 10%
2
$6,325($5,000 +750 +575) x 12%
3
After reduction for distributions during the 2000 year but without regard to contributions
4
received during the 2000 year .
_____________________________________________________________________
_
Example 25
:
The facts are the same as in Example 22.
Earnings Adjustment on the Corrective Contribution
:
The earnings amount on the corrective contribution is the same
as in Example 22, but the earnings amount is allocated using the
current period allocation method. Thus, the earnings for the
first partial valuation period (March 31, 1998 to December 31,
1998) are allocated as 2000 earnings. Accordingly, Employer L
makes a contribution on June 1, 2000 to the plan of $7,084
($5,000 (1.15)(1.10)(1.12)). Employee X’s account balance as of
December 31, 1999 is increased by the sum of $5,500
($5,000(1.10)) and the remaining 1999 earnings on the corrective
contribution equal to $75 ($5,000(.15)(.10)). Further, both (1)
the estimated March 31, 1998 to December 31, 1998 earnings on
the corrective contribution equal to $750 ($5,000(.15)) and (2)
the estimated January 1, 2000 to June 1, 2000 earnings on the
corrective contribution equal to $759 ($6,325(.12)) are treated
in the same manner as 2000 earnings by allocating these amounts
to the December 31, 2000 account balances of employees in
proportion to account balances as of December 31, 1999
(including Employee X’s increased account balance). (See Table
4.) Thus, Employee X is allocated the earnings for the full
valuation period during the period of the failure.
_____________________________________________________________________

- 78 -
_
TABLE 4
CALCULATION AND ALLOCATION OF THE
CORRECTIVE AMOUNT ADJUSTED FOR EARNINGS
Earnings RateAmountAllocated to:
Corrective $5,000Employee X
Contribution
First Partial Valuation 15% 75012/31/99 Account
Period EarningsBalances (including
1
Employee X’s
$5,575)
4
1999 Earnings10% 575Employee X
2
Second Partial12% 759 12/31/99 Account
Valuation PeriodBalances (including
EarningsEmployee X’s
3
$5,575)
4
Total Amount $7,084
Contributed
$5,000 x 15%
1
$5,750($5,000 +750) x 10%
2
$6,325($5,000 +750 +575) x 12%
3
After reduction for distributions during the year for which earnings are being determined but
4
without regard to contributions received during the year for which earnings are being
determined.

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APPENDIX C
VCR/SVP/WALK-IN CAP/TVC CHECKLIST
IS YOUR SUBMISSION COMPLETE?
INSTRUCTIONS

The Service will be able to respond more quickly to your VCR, SVP,
Walk-in CAP or TVC request if it is carefully prepared and
complete. To ensure that your request is in order, use this
checklist. Answer each question in the checklist by inserting yes,
no, or N/A, as appropriate, in the blank next to the item. Sign and
date the checklist (as taxpayer or authorized representative) and
place it on top of your request.
You must submit a completed copy of this checklist with your request.
If a completed checklist is not submitted with your request,
substantive consideration of your submission will be deferred until a
completed checklist is received.
TAXPAYER’S NAME
TAXPAYER’S I.D. NO.
PLAN NAME & NO.
ATTORNEY/P.O.A.
The following items relate to all submissions:
______ 1. Have you included a complete description of the
failure(s) and the years in which the failure(s)
occurred (including the years for which the statutory
period has expired)? (See section 12.03(1) of Rev.
Proc. 2000-16.) (Hereafter, all section references
are to Rev. Proc. 2000-16.)
______ 2. Have you included an explanation of how and why
the failure(s) arose, including a description of the
administrative procedures for the plan in effect at
the time the failure(s) occurred? (See section
12.03(2) and (3).)

______ 3. Have you included a detailed description of the
method for correcting the failure(s) identified in
your submission? This description must include, for

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example, the number of employees affected and the
expected cost of correction (both of which may be
approximated if the exact number cannot be determined
at the time of the request), the years involved, and
calculations or assumptions the Plan Sponsor used to
determine the amounts needed for correction. In lieu
of providing correction calculations with respect to
each employee affected by a failure, you may submit
calculations with respect to a representative sample
of affected employees. However, the representative
sample calculations must be sufficient to demonstrate
each aspect of the correction method proposed. Note
that each step of the correction method must be
described in narrative form. (See section 12.03(4).)
______ 4. Have you described the earnings or interest
methodology (indicating computation period and basis
for determining earnings or interest rates) that will
be used to calculate earnings or interest on any
corrective contributions or distributions? (As a
general rule, the interest rate (or rates) earned by
the plan during the applicable period(s) should be
used in determining the earnings for corrective
contributions or distributions.) (See section
12.03(5).)
If you inserted "N/A" for item 4, enter explanation:
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
___
______ 5. Have you submitted specific calculations for each
affected employee or a representative sample of
affected employees? (See section 12.03(6).)
______ 6. Have you described the method that will be used
to locate and notify former employees or, if there
are no former employees affected by the failure(s),
provided an affirmative statement to that effect?
(See section 12.03(7).)

______ 7. Have you provided a description of the
administrative measures that have been or will be
implemented to ensure that the same failure(s) do not
recur? (See section 12.03(8).)
______ 8. Have you included a statement that, to the best
of the Plan Sponsor’s knowledge, the plan is not
currently under an Employee Plans examination? (See
section 12.03(9).)

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______ 9. Have you included a statement that, to the best
of the Plan Sponsor’s knowledge, the Plan Sponsor is
not under an Exempt Organizations examination? (See
section 12.03(9).)
______ 10. If the plan is currently being considered in a
determination letter application on a Form 5310, have
you included a statement to that effect? (See
section 12.03(10).)
______ 11. Have you included a copy of the portions of the
plan document (and adoption agreement, if applicable)
relevant to the failure(s) and method(s) of
correction? (See section 12.04(3).)
______ 12. Have you included a copy of the plan’s most
recent Favorable Letter and/or the required
applicable document(s)? (See section 12.04(4).)
______ 13. Have you included the appropriate voluntary
compliance or correction fee? (See section 12.05.)
______ 14. Have you included the original signature of the
sponsor or the sponsor’s representative? (See
section 12.06.)
_____ 15. Have you included a Power of Attorney (Form
2848)? Note: (representation under the VCR/SVP,
Walk-in CAP and TVC is limited to attorneys,
certified public accountants, enrolled agents, and
enrolled actuaries; unenrolled return preparers are
not eligible to act as representatives under the VCR
or TVC program). (See section 12.07.)

______ 16. Have you included a Penalty of Perjury Statement
signed (original signature only) and dated by the
Plan Sponsor? (See section 12.08.)
______ 17. Have you designated your submission as a VCR,
SVP, Walk-in CAP, or TVC submission, as appropriate?
(See section 12.10.)
The following items relate only to submissions under VCR (including
SVP):
______ 18. Have you included a copy of the first page, the
page containing employee census information
(currently line 7f of the 1998 Form 5500), and the
information relating to plan assets (currently line
31f of the 1998 Form 5500) of the most recently filed
Form 5500 series return? Note: If a Form 5500 is

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not applicable, insert N/A and furnish the name of
the plan, and the census information required of Form
5500 series filers. (See section 12.04(1).)
______ 19. Have you proposed a time period of correction
that is limited to 150 days from the date the
compliance statement is issued? (See section 10.13.)

The following items relate only to submissions under SVP:
______ 20. Have you included a statement identifying your
request as an SVP request? (See section 12.03(11).)

______ 21. Are each of the failures you have identified
eligible for correction under SVP? (See Appendix A
and Appendix B.)

______ 22. Have you identified no more than two SVP
failures? (If more than two failures were
identified, SVP is not available, but you may make a
submission under VCR.) (See section 10.11(3).)
______ 23. Have you proposed to correct the failure(s)
identified in your request using the permitted
correction method(s) set forth in Appendix A or
Appendix B? (See Appendix A and Appendix B.)
The following item relates only to submissions under Walk-in CAP:

______ 24. Have you included a copy of the most recently
filed Form 5500? (See section 12.04(1).)
______ 25. Have you submitted an application
for a determination letter? (See section
11.01(4).)
__________________________________________ ____________________
Signature Date
_________________________________________________________________
Title or Authority
_________________________________________________________________
Typed or printed name of person signing checklist