(b)lines Ask the Experts – Responsibility for Updating Plan to Comply with Regs

May 10, 2011 (PLANSPONSOR (b)lines) – “Our museum has a 403(b) plan with only one provider that provides investment vehicles and also serves as the third party administrator.  We have not considered this plan an "employer controlled plan" because our participants have individual contracts with our provider.  We understand that the final 403(b) regulations issued in 2007 require us to update the plan.  Whose responsibility is it to update the plan?

“Also, can we offer Roth 403(b) contributions under the plan?”   

David Levine, Groom Law Group, answers:    

First, under the 2007 regulations the “plan sponsor” is required to update the plan document.  This rule applies even if you considered your plan to be non-ERISA and administered by your service provider.  While your provider may be able to assist you in adopting a document, and you might start by raising this with them, in the end, your organization, as the employer and plan sponsor, is responsible for adopting and updating your 403(b) plan document.    

You should be aware that it appears that you may have failed to timely adopt a written plan compliant with the 2007 regulations (which was generally required by the end of 2009, though keep in mind that the final regulations permit a written plan to consist of a variety of documents, and need not necessarily be in a single document).   If so, you should work quickly to get a compliant document in place.  Although as of the date of this answer there is no IRS correction program in place for failing to meet this deadline, we expect one to become available in the future and suggest you consider whether you can use this program when it becomes available.   

Second, your reference to an “employer controlled plan” implies that you have treated your 403(b) plan as a plan not subject to the Employee Retirement Income Security Act (ERISA), presumably under the Department of Labor regulatory “safe harbor” of 29 CFR 2510.3-2(f).  We recommend you review Field Assistance Bulletins 2007-02 (see EBSA: 403(b) Programs not Necessarily ERISA Plans) and 2010-01 (see EBSA Offers Form 5500 Guidance for 403(b) Plans), particularly Q&A 16 of the 2010 Field Assistance Bulletin addressing whether multiple vendors need to be permitted to be a non-ERISA plan, to evaluate whether your plan should be considered subject to ERISA and related requirements, and if so, what actions should be taken to bring the plan into compliance.   It can be very difficult to meet all the requirements of the DoL “safe harbor” while still complying with the IRS final regulations.     

Third, yes, under Internal Revenue Code rules, a 403(b) plan may permit Roth contributions.  We recommend you talk with your provider to determine whether they can implement Roth contributions and any rules or restrictions that may apply on their recordkeeping system.  


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.