Many nonprofit organizations, churches, public schools and other governmental entities are eligible to sponsor 403(b) retirement plans for their employees. Like the 401(k) plans common in the for-profit world, 403(b) plans provide a pre-tax opportunity for employees to save for retirement. Employers can, but do not have to, contribute something as well. However, there have always been important differences, and the IRS has historically treated them very differently. Much of that changed in 2009, when major revisions to the regulations under section 403(b) of the Internal Revenue Code became effective, and began to make 403(b) plans operate a lot more like 401(k) plans. Still, 403(b) plan sponsors had no determination, opinion, or advisory letter program under which they could apply to the IRS for reassurance that their plans met all necessary requirements, whereas 401(k) plan sponsors have had such a system for decades. Four years ago, the IRS proposed a similar program in draft form for 403(b) plans.
Finally, the IRS has established a pre-approved plan program for the 403(b) plan. All pre-approved plans will include a basic plan document, and most will also include an adoption agreement for employers to make limited choices about their plan features. Employers that adopt a pre-approved plan can rely on the IRS opinion or advisory letter stating that it complies in form with the IRS requirements applicable to 403(b) plans.
While the end point for the remedial amendment period hasn’t been announced yet, it will be coordinated with availability of pre-approved plans. In the meantime, plan sponsors of individually-designed plans can begin considering whether they wish to migrate to a pre-approved plan. Adopting a pre-approved plan will provide assurance that the plan complies in form with the requirements applicable to 403(b) plans. However, it will also mean a loss of flexibility and the inability to continue to use certain plan design features. Plan sponsors that choose to adopt a pre-approved plan must be very careful in completing adoption agreements and in identifying effective dates for certain provisions. These are not tasks that should be left to the last minute. Plan sponsors that decide to continue to maintain individually-designed plans may need to adopt amendments to correct defects and to take advantage of the guidance the IRS has provided.
Revenue Procedure 2013-22 announcing and describing the program can be found here: http://www.irs.gov/pub/irs-drop/rp-13-22.pdf.
Contact the Gray Plant Mooty attorney you normally work with, or any member of the Employee Benefits and Executive Compensation Group, to discuss how the new program affects your plan.
This article is provided for general informational purposes only and should not be construed as legal advice or legal opinion on any specific facts or circumstances. You are urged to consult a lawyer concerning any specific legal questions you may have.
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