Non-profit entities, including schools and universities, that sponsor 403(b) retirement plans should begin the process of restating their plans to comply with current law. This is the first restatement cycle since the December 31, 2009 deadline for sponsors of 403(b) plans to adopt written plan documents. A 403(b) plan is similar to a 401(k) plan in that it allows employees to defer compensation into an account that is held for retirement with the contributions and earnings on that account being tax deferred until paid to the employee. The tax benefits associated with a 403(b) plan are only available if the employer restates its plan prior to March 31, 2020 to comply with law changes from 2009 to present.
To facilitate the restatement process, the IRS has issued opinion letters on prototype 403(b) plan documents sponsored by certain recordkeepers confirming that the language of the prototype complies with current law. By using an IRS approved prototype, the 403(b) plan sponsor will have assurance that its plan document is consistent with IRS guidance. Because the terms of a prototype can vary among recordkeepers, it is important for a plan sponsor to confirm that the prototype and the services offered by the recordkeeper meet the sponsor’s objectives.
While the March 31, 2020 deadline for adopting the restatement seems far away, this lengthy period gives a plan sponsor time to assess whether the features of its current plan meet the company’s objectives and encourage employees to save for retirement. In addition, a plan sponsor will want to discuss with its advisors possible modifications to the plan such as adding an after-tax Roth contribution feature. Finally it would be prudent for the plan sponsor to explore current best practices for administering retirement plans and overseeing the investment options offered to participant. Recent lawsuits filed against large universities alleging breach of fiduciary duty in selection of investments offered to plan participants are a reminder that those individuals responsible for the plan must act in the best interest of participants. Establishing a committee composed of those individuals who are responsible for overseeing the 403(b) plan and which reports back to the company’s directors or trustees is a best practice for effective administration.