Recent 403(b) Developments

by King & Spalding
Contact

Background

403(b) retirement plans are similar to 401(k) plans, but the employers who may establish 403(b) plans are limited to public schools, certain tax exempt employers (including religious and charitable organizations) and certain ministers and employers of those ministers. 403(b) plans became subject to written plan document requirements similar to those applicable to 401(k) plans several years ago, but, unlike 401(k) plans, there was no IRS process in place to approve 403(b) plan documents. Recently, the IRS published procedures for issuing opinion and advisory letters for pre-approved 403(b) plans and updated its procedures for correcting operational and document failures in 403(b) plans.

In 2007, the Treasury Department issued final regulations requiring 403(b) plans to have a written plan document in 2009. The IRS provided model 403(b) plan language for use by public school employers in 2007. The IRS also allowed employers to delay adopting a written plan document until December 31, 2009 in IRS Notice 2009-3. If an employer adopted a written 403(b) plan document on or before December 31, 2009, the employer will have a remedial amendment period in which to correct plan defects retroactive to January 1, 2010 by timely adopting a pre-approved 403(b) plan or obtaining an individual determination letter. Refer to IRS Announcement 2009-89. The problem with Announcement 2009-89 was that the IRS had yet to issue procedures for issuing opinion or advisory letters to pre-approved 403(b) plans or issuing individual determination letters on 403(b) plans.

IRS Review of Pre-Approved 403(b) Plans

On March 28, 2013, the IRS issued Revenue Procedure 2013-22 which set forth the procedures for issuing opinion and advisory letters for 403(b) pre-approved prototype and volume submitter plans.

The IRS will accept applications for opinion and advisory letters regarding the acceptability of the form of the 403(b) prototype and volume submitter plans starting June 28, 2013. Importantly, the IRS announced it will not review individually designed plans, so employers that seek IRS approval will have to adopt a pre-approved prototype or volume submitter plan.

Based on experience with pre-approved 401(k) plans, it is likely to be at least two years before IRS pre-approved 403(b) plans are available. The IRS will announce the end of the remedial amendment period for adopting pre-approved 403(b) plans in future guidance. We would expect the last day of the remedial amendment period to be a reasonable period of time after the IRS begins issuing opinion and advisory letters to pre-approved plans.

Pre-approved Plan Design

Similar to the IRS pre-approved program for 401(k) plans, there are three types of pre-approved 403(b) plans – a standardized prototype plan, a nonstandardized prototype plan and a volume submitter plan.

Prototype plans have two components -- a basic plan document and an adoption agreement that allows employers to make certain choices regarding plan design.

A standardized prototype plan is a plan that (1) offers only elective deferrals or (2) whose plan design offers elective deferrals and non-elective employer contributions on a controlled group basis under a safe harbor formula.

A nonstandardized prototype plan provides more flexibility for the employer regarding non-elective contributions, but offers no assurance that contributions (other than elective deferrals) are non-discriminatory.

A volume submitter plan may have a basic plan document and an adoption agreement, but is not required to. Instead, a volume submitter plan may be drafted more like an individually designed plan.

Scope and Reliance on Opinion/Advisory Letters

The IRS will issue opinion letters to prototype plans and advisory letters to volume submitter plans.

The IRS opinion or advisory letter constitutes a determination that the form of the plan document satisfies the requirements of Section 403(b). It does not constitute an opinion regarding any investment arrangements under the plan or other documents that may be incorporated into the plan by reference and does not express an opinion as to whether the plan is subject to Title I of ERISA.

An employer that is a governmental entity, church or qualified church-controlled organization (“QCCO”) and adopts a prototype plan, either standardized or nonstandardized, may rely upon the opinion letter issued to the prototype plan that the form of the plan satisfies the requirements of Section 403(b).

Other tax-exempt employers that adopt a standardized prototype may rely upon an opinion letter that the form of the plan satisfies Section 403(b) as well as the nondiscrimination requirements applicable to contributions.

A tax-exempt employer (other than a governmental entity, church or QCCO) that adopts a nonstandardized prototype plan may rely on the opinion letter that the form of the plan satisfies the requirements of Section 403(b), but has no assurance that contributions (other than elective deferrals) are nondiscriminatory.

An employer that adopts a volume submitter plan may rely upon an advisory letter that the form of the plan satisfies the requirements of Section 403(b) except (1) to the extent that the employer modifies the plan terms (other than by selecting optional terms of the approved specimen plan); and (2) if the employer is not a government, church or QCCO, there is no assurance that contributions (other than elective deferrals) are nondiscriminatory.

An opinion or advisory letter does not provide reliance with respect to the requirements of Section 415 if the employer or any of its related employers maintains another 403(b) plan covering any of the same participants.

Pre-Approved Plan Maintenance

Prototype and volume submitter plan sponsors are required to keep the pre-approved documents up-to-date for changes in the law. Further, pre-approved plan sponsors must have a procedure for notifying adopting employers when the changes are made to the pre-approved plan and of the need to timely adopt the plan or a restatement of the plan. Prototype and volume submitter plan sponsors also must notify adopting employers of the fact that the failure to timely adopt the plan or a plan restatement or to operate the plan in accordance with plan amendments may result in adverse tax consequences.

Correction of Operational and Documentary Failures

In updating its correction procedures, the IRS made several changes related to 403(b) plans. Under the correction procedures, more commonly referred to as the Employee Plans Compliance Resolution System or “EPCRS”, employers may generally correct 403(b) plan operational and document failures in the same manner as employers that sponsor 401(k) plans.

Plan Document Failures

If a written 403(b) plan document was not adopted by December 31, 2009 (or the first day of the plan, if later), the employer may submit an application under the Voluntary Compliance Program (VCP) under EPCRS to correct that defect.

Operational Failures

403(b) plans with operational failures (i.e. failure to follow plan terms) that occurred on or after January 1, 2009, may now correct such failures under EPCRS using either the self-correction program or the VCP. Similar to the requirements applicable to 401(k) plans, the employer sponsoring a 403(b) plan must have written administrative procedures and in some cases, a favorable determination letter. Pending additional guidance, a 403(b) plan is treated as having a favorable determination letter if a written plan document was adopted by December 31, 2009 or the employer corrects the document failure in accordance with EPCRS.

King & Spalding can assist you in determining whether your 403(b) plan satisfies applicable documentary and operational requirements and, if not, what correction procedure is most appropriate for your situation.

*Non-lawyer Employee Benefits Consultant

Authors, Eleanor Banister, Atlanta, +1 404 572 2755, 4930, ebanister@kslaw.com and James P. Cowles*, Atlanta, +1 404 572 3455, jcowles@kslaw.com

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© King & Spalding | Attorney Advertising

Written by:

King & Spalding
Contact
more
less

King & Spalding on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!