Skip to main content

You are here


Case of the Week: Voluntarily Correcting Governmental 457(b) Plans

The ERISA consultants at the Retirement Learning Center Resource regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Ohio is representative of a common inquiry related to correcting 457(b) plan errors. The advisor asked:

“Does the IRS have a correction program that covers 457(b) plans for governmental employers under the Employee Plans Compliance Resolution System (EPCRS)?”

Highlights of the Discussion

Effectively, yes. The two avenues of correction for governmental 457(b) plans are: (1) self-correction (without a submission); and (2) voluntary compliance (VC) with a formal submission. The IRS accepts VC submissions for governmental plans on a provisional basis under standards that are similar to EPCRS, but that are, technically, outside of the correction system. Qualifying governmental entities are listed in Internal Revenue Code (IRC) § 457(e)(1)(A), and include:

  • a state;

  • a political subdivision of a state (e.g., a county, city, town, township, village or school district); and

  • any agency or instrumentality of a state or political subdivision of a state.

Sponsors of governmental 457(b) plans may self-correct their plans without a formal IRS submission if they did not comply with the IRC or regulations in some way. A sponsor has until the first day of the plan year that begins more than 180 days after the IRS notifies it of the failure to correct the errors (IRC Section 457(b)(6) and Treasury Regulation Section 1.457-9(a)).

Considering the amount of time governmental entities have to self-correct plan errors, they may not need to make voluntary submissions to the IRS under the following procedures.

The IRS will accept VC submissions for some errors related to 457(b) plans for governmental employers (see Section 4.09 of Revenue Procedure 2016-51 through 2018 and Section 4.09 of Revenue Procedures 2018-52 effective Jan. 1, 2019). Note, however, the IRS, generally, will not address any issues: (1) related to the form of a written 457(b) plan document; or (2) problems associated with top-hat[1. Nongovernmental 457(b) “top hat” plans must limit participation to groups of highly compensated employees or groups of executives, managers, directors or officers. The plan may not cover rank-and-file employees.] plans of tax-exempt entities. However, the IRS may consider a submission where, for example, the top hat plan was erroneously established to benefit the entity’s non-highly compensated employees and the plan has been operated in a manner that is similar to a qualified plan.

The IRS’s VC unit retains complete discretion to accept or reject any requests for correction approval. If accepted, VC will issue a special closing agreement.

The steps to voluntary correction are:

  1. Complete IRS Form 8950, Application for Voluntary Correction Program (VCP).

  2. Compose a cover letter that describes the problem and includes a proposed solution.

  3. Mail both the form and cover letter to the address listed in the instructions to Form 8950.

Sponsors will receive IRS Letter 5265 acknowledging the submission along with a control number for reference. The IRS will be in contact if additional information is needed.


The IRS has two avenues of correction for governmental 457(b) plans: self-correction without a submission and voluntary compliance with a submission. Sponsors can refer to IRS Form 8950 and its instructions, along with Revenue Procedure 2016-51 through 2018, and 2018-52 beginning in 2019 for complete details.

Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.

©2018, Retirement Learning Center, LLC. Used with permission.