Last week, the Internal Revenue Service ("IRS") published Rev. Proc. 2013-22, which establishes a program for issuing opinion and advisory letters for §403(b) prototype plans and §403(b) volume submitter plans ("pre-approved plans") similar to the pre-approved plan program for plans qualified under §401(a) of the Internal Revenue Code. This type of program has not previously been available and will assist employers in complying with the written plan requirements of the §403(b) regulations finalized in 2007. The IRS will begin accepting applications from pre-approved plan sponsors on June 28, 2013.
Previous IRS guidance provided that an employer would not be treated as failing to satisfy the plan requirements for 2009 if it adopted a written §403(b) plan document effective January 1, 2009 by not later than December 31, 2009 and operated the plan in compliance with the terms of the document for all of 2009, including making its best efforts to retroactively correct any operational failure during 2009 to conform to the terms of the written document. An employer meeting these requirements then has a remedial amendment period in which to correct any defect in the form of the plan retroactively to January 1, 2010 by timely adopting a preapproved §403(b) plan or filing for a determination letter on an individually designed §403(b) plan.
The new guidance applies to §403(b) plans adopted by tax-exempt organizations, public schools and church-related organizations that sponsor retirement income accounts. An adopter of pre-approved §403(b) plans generally will be able to rely on the sponsor's opinion or advisory letter other than for operational requirements such as nondiscrimination testing, if applicable, by adopting the plan by the end of the remedial amendment period. This is expected to be at least one year after the date on which the IRS announces its issuance of opinion and advisory letters on §403(b) pre-approved plans. A letter may not, however, be relied on for purposes of ERISA. The IRS determined that an individual determination letter program for §403(b) plans is not feasible, and employers that adopted individually designed §403(b) plans during 2009 will not have reliance following the end of the remedial amendment period (see below) unless they timely restate their plans using pre-approved plans.
Any person with an established place of business in the United States where it is accessible every business day and who expects at least 30 employers to adopt the plan (the minimum adopter number does not apply to church-related plans) may sponsor a pre-approved plan. Rev. Proc. 2013-22 includes detailed requirements for pre-approved plans, and the IRS also published model plan language. Significantly, the terms of the plan document must override any inconsistent provisions of the investment arrangements under the plan. A separate appendix must identify the parties responsible for various administrative functions necessary to comply with §403(b) and other tax requirements and must list the approved vendors. The pre-approved plan sponsor also must carry out certain duties, including keeping the document up to date for changes in the law and notifying adopting employers of the changes. The IRS expects that future guidance will require restatement of §403(b) pre-approved plans every six years.
Sponsors of §403(b) plans should be alert to the issuance of advisory and opinion letters and the announcement of the end of the remedial amendment period. Those employers that have adopted individually designed plans should plan to adopt pre-approved plans during the remedial amendment period in order to obtain reliance on the pre-approved plan sponsor's advisory or opinion letter.