The §403(b) Written Plan Requirements - Can they be
Satisfied with Existing Documents?
April 1, 2008 ((b)lines) - In July 2007, the IRS
issued final regulations on tax-sheltered annuity plans under
IRC §403(b) as the first comprehensive guidance for §403(b)
plans in more than 40 years. One of the major changes in the
regulations requires that §403(b) plans be maintained
pursuant to a written plan adopted by the plan sponsor,
effective January 1, 2009.
The actual text of the regulations requires that
the written plan contain all material terms and
conditions for eligibility, benefits, applicable
limitations, the contracts available under the plan, and
the timing and form of benefit distributions. In
addition, any optional plan features (e.g., hardships or
loans) offered under the plan must be described in
writing, as well as how responsibility for performing
administrative functions is allocated between appropriate
parties. The regulations also state that the written plan
may incorporate other documents by reference, including
the annuity contract or custodial account
agreement.
This last statement has many §403(b) plan sponsors
wondering whether they can satisfy the written plan
requirements with documents that already exist. The
preamble to the final regulations provides some
explanation on this point. Preamble language clearly
indicates that while an annuity contract may contain
terms describing the compliance requirements under the
regulations and may provide that the issuer will be
responsible for many of the administrative functions
under the plan, such document cannot satisfy the function
of setting eligibility criteria for employees and cannot
coordinate compliance requirements that depend on other
contracts (e.g., limitations on loan amounts). Thus, the
annuity contract, by itself, will not satisfy the written
plan requirements.
Still, the IRS was careful to specify that a
"written plan" is required and not necessarily
a single "plan document," which means that the
plan may consist of multiple documents. Therefore, a plan
sponsor could, for example, satisfy the written plan
requirements using existing documents (such as annuity
contracts) combined with written provisions that describe
who is eligible to participate in the §403(b) plan, as
well as how compliance requirements are coordinated among
multiple issuers (if applicable). The preamble cautions
that if the plan consists of multiple documents, there
must not be conflicting provisions in those documents. In
addition, the preamble states that if the plan has
multiple issuers, then the IRS expects a single plan
document to coordinate plan administration, rather than a
separate document for each issuer.
Finally, the IRS published model plan language,
specifically for public school employers, on November 27,
2007. However, while the model plan language includes
provisions that would satisfy all compliance requirements
for §403(b) plans, the plan sponsor will still need
additional language describing the specifics of their
plan. This language should include who is eligible to
participate, who is responsible for various
administrative functions, and the names of issuers who
are permitted to accept contributions and/or contract
exchanges on behalf of employees.
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Melanie Walker, JD, Vice President and West Region
Compliance Practice Leader, The Segal Company
editors@plansponsor.com
editors@plansponsor.com