403(b) Prototype to Allow for Vesting
Schedules
November 4, 2009 (PLANSPONSOR.com) - The Internal
Revenue Service is working on a final revenue procedure for
Section 403(b) prototype plans that takes into account
comments received, James Flannery, a tax law specialist at
IRS, said at the annual conference of the American Society of
Pension Professionals and Actuaries (ASPPA), according to
BNA.
The IRS in April announced its intent to offer a
prototype program for 403(b) plans (see
IRS Releases Proposed 403(b) Prototype
Document Program
). A prototype program offers a master plan with adoption
agreements containing various plan options that sponsors
may elect or not. Adoption of a prototype comes with a
determination letter from the IRS guaranteeing plan
compliance with IRS rules.
Previously, to get this guarantee, 403(b) plan sponsors
had to file for a private-letter ruling from the IRS that
their plan complied. Douglas O. Kant, Senior Vice President
and Deputy General Counsel at FMR LLC, pointed out that a
prototype program would be cheaper for sponsors than filing
for a private-letter ruling.
The biggest suggestion among all commenters to the IRS
announcement of the program was to allow prototype plans to
include vesting schedules (see
Trade Groups/Providers Comment on 403(b)
Prototype Program
). According to BNA, Flannery said the IRS thought plans
did not provide for this, and it "will amend the revenue
procedure to allow for vesting of employer contributions."
The amendment will probably apply to government plans too,
he said.
BNA said Flannery also addressed concerns about the
draft revenue procedure requirement that the plan document
terms override individual contract terms, and said the IRS
is "taking a hard look" at that section of the revenue
procedure to make it workable.
Among the comments, including one from ASPPA
itself, was a suggestion for the IRS to consider a volume
submitter program, in which an organization requests
approval for a sample or specimen plan, which is then
adopted by multiple employers. Employers may adopt
versions of the specimen plan that have minor deviations
in language, making these plans more flexible than
prototype plans. In response, Flannery said that in
creating the prototype program, the IRS is responding to
recommendations made by the Advisory Committee on Tax
Exempt and Government Entities, and going forward, it is
"seriously considering" including a volume submitter
program for Section 403(b) plans, according to
BNA.