May 12, 2013

By Shawn Hansen, CPA

The Internal Revenue Service (IRS) recently announced that it has established a new program to review and approve certain types of 403(b) plan documents.

Previously, final 403(b) regulations that became effective in 2009 required employers sponsoring 403(b) plans to adopt a written plan document describing the plan’s major provisions and rules. Although the final regulations mandated written plans, the IRS didn’t have a process in place to approve those plans…until now.

With the new program, organizations adopting a pre-approved 403(b) plan document will now have a cost-effective and efficient way to obtain assurance that the written form and design of their plans satisfies Section 403(b) of the Internal Revenue Code.

A pre-approved plan document is generally one of two types: a prototype or volume submitter plan. Prototype and volume submitter plan documents are created by third-party service organizations such as insurance companies (e.g., TIAA-CREF), financial institutions (e.g., Fidelity), or retirement plan document providers (e.g., SunGard Relius).

Since pre-approved document providers are usually responsible for maintaining the plan document, a pre-approved plan document makes it easier for adopting employers to stay up to date with legislative and other required changes.

Under the new 403(b) pre-approved plan program, the IRS can start issuing approval letters (also known as “opinion letters” or “advisory letters”) for 403(b) prototype or volume submitter plan documents. The IRS will begin accepting applications from document providers for opinion and advisory letters on June 28, 2013, with the first letters expected to be issued in late summer. If your organization adopted a 403(b) prototype or volume submitter plan, you may want to contact your document provider to inquire when they expect to receive their opinion or advisory letter.

403(b) plan sponsors not using a prototype or volume submitter plan document will need to adopt an individually designed plan. Individually designed plans offer the greatest amount of customization and plan design flexibility, but are often more costly to establish and maintain.

The IRS has not yet established a program to issue approval letters (also known as “determination letters”) for individually designed 403(b) plans. Of course, organizations using individually designed plans could seek approval from the IRS through a Private Letter Ruling, but the cost of doing so can be prohibitive. Please contact your financial advisor or Clark Nuber for more details.

© Clark Nuber PS, 2013.  All Rights Reserved

This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.