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 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.