By Shawn Hansen, CPA

Pre-Approved 403(b) Plans

In a previous article, I provided readers with an overview of a new Internal Revenue Service (IRS) program that will review and approve certain types of 403(b) plan documents known as pre-approved plans. This article provides readers with some additional details of the program including when the IRS might start issuing approval letters for pre-approved 403(b) plan documents.

As I highlighted in the previous article, organizations adopting prototype or volume submitter plan documents (collectively referred to as pre-approved plans) will have a cost-effective and efficient way to obtain assurance that the written form and design of their plans satisfy Section 403(b) of the Internal Revenue Code (IRC). Third-party service organizations creating pre-approved plans originally had until April 30, 2014 to submit their documents to the IRS. Efforts by those lobbying for an extension of the deadline have paid off. Revenue Procedure 2014-28 extends the due date for submitting pre-approved plans from April 30, 2014 to April 30, 2015.

The IRS will likely take a couple years to complete their review process once all pre-approved plan submissions are received. At that point, approval letters will be sent to service organizations who submitted their plans for review. This would likely occur sometime in 2017. Employers adopting a pre-approved plan will receive the applicable IRS approval letter from their service organization along with their plan document.

So, even though a formal pre-approved program was launched in 2013, employers are still a few years away from getting their hands on IRS letters “blessing” these types of plans adopted by their organization.

Individually Designed 403(b) Plans

The other option for employers not utilizing a pre-approved plan document would be an individually designed plan document. Individually designed plans offer the greatest amount of plan design flexibility but are often more costly to establish and maintain.

Due to resource constraints, the IRS indicated that they will not open a program providing approval letters for individually designed 403(b) plans (also known as determination letters). This news came as a surprise since the IRS indicated in 2009 that they would open such a program after a pre-approved program was established. Unlike the 403(b) community, employers adopting 401(k) plans do have access to a determination letter program for individually designed plans. Employers with 403(b) plans would need to adopt a pre-approved plan document if they want assurance that their plan satisfies Section 403(b) of the IRC. Employers adopting individually designed 403(b) plans will only know if there is an issue with the written form of their plan document if they are selected for audit by the IRS.

© Clark Nuber PS, 2014. 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.