Public schools, universities and other tax-exempt organizations often sponsor Code Section 403(b) retirement plans, which are also referred to as “tax-sheltered annuities” or “tax-deferred annuities.” In 2007, the IRS issued final regulations under Code Section 403(b) that require all 403(b) plans (both ERISAgoverned and non-ERISA-governed plans) to be evidenced by a written plan document that satisfies the regulations’ requirements in both form and substance. The original deadline imposed by the regulations for adopting compliant-written 403(b) plan documents was Jan. 1, 2009.
In light of the difficulties that many plan sponsors experienced in meeting this deadline, on Dec. 11, 2008, the IRS issued transition relief in the form of Notice 2009-3 (the “Notice”). The Notice extends the deadline for plan sponsors to adopt a written 403(b) plan document, or to amend existing plan documents, to Dec. 31, 2009, provided that:
- During 2009, the plan sponsor operates the plan in accordance with a reasonable interpretation of Code Section 403(b), taking into account the final regulations
- By Dec. 31, 2009, the plan sponsor has adopted a written plan document, effective Jan. 1, 2009, that is intended to satisfy the requirements of Code Section 403(b) and the regulations thereunder
- By Dec. 31, 2009, the plan sponsor makes its best effort to retroactively correct any operational failure during the 2009 calendar year to conform to the written plan document
The Notice also announced the IRS’ intent to issue future guidance relating to 403(b) plans, including (i) a program for preapproval of “prototype” 403(b) plans; (ii) a program under which plan sponsors can obtain determination letters on the tax-qualified status of individually designed 403(b) plans; (iii) rules that would continue to allow retroactive remedial amendments to be made after 2009 (in a similar fashion to which amendments may now be made to 401(k) plans); and (iv) the increased availability of the IRS voluntary correction program to 403(b) plans.
Sponsors of 403(b) plans with a written plan document in compliance with Code Section 403(b) should continue to ensure compliance with Code Section 403(b), both in operation and in form. For those 403(b) plan sponsors without a written plan document, or whose document is not in compliance with Code Section 403(b) and the regulations, action must be taken to satisfy the written plan document requirements of Code Section 403(b), and in the interim, to administer the plan’s operation in compliance with statutory requirements and related regulations. We advise sponsors to establish a written document as soon as practicable in 2009.