SECTION 9. AUDIT CAP FOR

403(B) PLANS

.01 Audit CAP requirements . The provisions of Sections 14 and 15 of Rev. Proc. 98–22 are expanded to cover 403(b) Plans. Thus, in the event the Service identifies an Operational Failure, Demographic Failure, or an Eligibility Failure upon an Employee Plans or Exempt Organizations examination (other than a failure that has been corrected under APRSC or TVC or that is eligible for correction under APRSC), the requirements of Section 14 of Rev. Proc. 98–22 are satisfied with respect to the failure if the employer corrects the failure, pays a sanction in accordance with section 9.02 below, adopts appropriate administrative procedures, and enters into a closing agreement with the Service. Audit CAP for 403(b) Plans is not available for failures relating to a misuse or diversion of plan assets.

.02 Payment of sanction. The sanction under Audit CAP for 403(b) Plans is a negotiated percentage of the Total Sanction Amount. Sanctions will not be excessive and will bear a reasonable relationship to the nature, extent, and severity of the failures. 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. 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 were not treated as a plan described in § 403(b); (3) whether the failure is a failure to satisfy the requirements of § 401(a)(4), § 401(a)(26), or § 410(b) (pursuant to § 403(b)(12)(A)(i)); (4) the extent to which the failure relates to Excess Amounts; (5) whether the plan is a Plan of an Ineligible Employer; (6) whether the plan has a combination of Operational, Demographic, or Eligibility

Failures; (7) the period over which the failure occurred; and (8) the reason for the failure (for example, data errors such as errors in transcription of data, the transposition of numbers, or minor arithmetic errors).