On March 28, the IRS issued long-awaited guidance to help 403(b) retirement plan sponsors comply with written plan document requirements in the form of Revenue Procedure 2013-22, which contains a “master and prototype program,” and an information package with sample plan provisions. As a result, beginning June 28, 2013, the IRS will accept plan sponsor applications for opinion and advisory letters that will verify 403(b) plans are in compliance with 403(b) rules.
However, it appears that the IRS is tabling efforts to develop an individual determination letter program for 403(b) plans, due to cost and administrative constraints.
The release of this latest guidance follows the issuance of a revised Employer Plans Compliance Resolution System, which includes steps 403(b) plan sponsors can take to correct plan document failures.
Background
A master and prototype program is designed to relieve employers of the expense and difficulties of adopting their own plan document, submitting it to the IRS for approval and maintaining the plan terms based on changing rules and regulations. Document vendors can use the program to put together standardized documents that can be simply adopted by a large number of employers.
The need for such a program became particularly important for 403(b) plan sponsors in light of their increased compliance responsibilities. In 2009, IRS regulations generally became effective that, for the first time, required 403(b) plans to have a written plan document. For other types of retirement plans, IRS has prototype programs that plan sponsors use as an inexpensive way to achieve compliance with certain IRS rules. Although the 403(b) plan document requirement became effective in 2009, the IRS noted it would be take at least 2½ years after that date to establish a formal prototype program for 403(b) plans.
That formal program was launched in the new revenue procedure; therefore, a 403(b) plan sponsor employer that has received an IRS opinion or advisory letter under the master and prototype program will be able to clearly satisfy the written plan requirement and obtain assurance that its plan meets 403(b) requirements. Here is a brief overview of the guidance.
- The master and prototype program is similar in many ways to IRS’ pre-approved plan program for qualified 401(a) plans described in Revenue Procedure 2011-49. For example, two categories of pre-approved plans — prototype plans and volume submitter plans — are available under both programs. However, there are differences — a key one being that there is not an individual determination letter program for 403(b) plans at this time (see more below).
- There are two parts to the prototype plan document: (a) the basic plan document, with provisions that apply to the plan of any eligible employer that uses the document to adopt a written 403(b) plan — those provisions cannot be modified by that employer; and (b) an adoption agreement, which is completed and signed by an eligible employer in order to establish a written plan.
- There are two forms of prototype plans: (a) a “standardized plan” under which the only contributions the employer may choose are elective deferrals, or the plan terms satisfy uniform coverage and nondiscrimination requirements for any other plan contributions; and (b) a “nonstandardized plan,” which simply put, is a prototype plan that is not a standardized plan.
- Regarding a volume submitter plan, a volume submitter practitioner may apply for an advisory letter that a volume submitter specimen plan (that is, a sample plan of the practitioner rather than an employer’s plan) satisfies 403(b) requirements.
Determination Letter Program Doubtful
It was assumed that IRS would address the plan document program in two stages — first issuing the “master and prototype” program, followed by an individual determination letter program permitting a plan sponsor to submit its own, customized plan document to the IRS for a favorable determination letter. However, the new revenue procedure makes that second step much less certain. The agency noted that it “does not contemplate” issuing such determination letters to 403(b) plans because it is costly and less efficient, and the agency has limited resources.
More details on this issue can be found in The 403(b)/457 Plan Requirements Handbook, at http://hrcomplianceexpert.com.