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Document Plan for 403(b). A retirement plan for employees of tax-exempt organizations

More on the 403(b) Pre-approved Plan Program and Whether It Is Right for Your Organization

More on the 403(b) Pre-approved Plan Program and Whether It Is Right for Your Organization

A 403(b) plan is a retirement plan for employees of tax-exempt organizations.  The IRS issued final 403(b) regulations in 2007, but until 2013 did not have a program for 403(b) plan sponsors to obtain opinion and advisory letters determining whether a plan satisfies the regulations.  IRS Revenue Procedure 2013-22 established a new program for pre-approved 403(b) plans, starting June 28, 2013.  Subsequently, Revenue Procedure 2014-28 modified IRS Revenue Procedure 2013-22, effective April 14, 2014.

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Plans Subject to the New Program

Under the program, sponsors of 403(b) prototype and 403(b) volume submitter plans can apply for opinion and advisory letters.  A prototype plan consists of one basic plan document and one adoption agreement.  A volume submitter plan refers to either a “specimen 403(b) plan” of a volume submitter practitioner or a plan of a client of the volume submitter practitioner that is substantially similar to the volume submitter’s approved specimen plan.

Currently, the IRS does not have a program that allows individually designed plans to obtain determination letters.  Consequently, an employer that wants to obtain confirmation from the IRS that its plan satisfies 403(b) requirements should adopt a pre-approved plan under the new program.

Program Procedures

In June 2013, the IRS began accepting applications for opinion and advisory letters for plans seeking to determine whether their pre-approved 403(b) plan satisfied the regulations.  To apply, plan sponsors have to submit a separate “Application for Approval of § 403(b) Pre-approved Plan” for each adoption agreement for prototype plans and each specimen of volume submitter plans, along with a copy of the plan itself.  The application can be found in the appendix of Revenue Procedure 2014-28 (previously Revenue Procedure
2013-22).

To assist plan sponsors with drafting 403(b) plan documents, the IRS issued an information package that contains samples of 403(b) plan provisions and language.  The scope of the IRS’s review is limited to the basic plan document and adoption agreement or the volume submitter specimen plan.  The IRS will not review the plan’s investment arrangements; however, they must satisfy the applicable law and 403(b) requirements.

Plan sponsors must submit applications for opinion and advisory letters to the IRS no later than the established deadline.  Revenue Procedure 2014-28 extended the previous deadline of April 30, 2014, to April 30, 2015.  The IRS will continue to provide additional guidance on the new program.

Is a Pre-approved 403(b) Plan Right for Your Organization?

Employers offering 403(b) plans need to determine whether a pre-approved plan is right for them.  Adopting a pre-approved plan can give eligible employers a simpler, more feasible way to provide retirement benefits to their employees. However, in exchange, they may give up some flexibility in the plan’s design. More information on the 403(b) pre-approved plan program can be found on the IRS website at http://www.irs.gov/Retirement-Plans/403b-Pre-Approved-Plan-Program.

©2014

Contact Sandy P. Purdy, CPA, with questions at (925) 277-9100.  Sandy is a senior manager in Lindquist LLP’s San Ramon office.  She has spent more than 14 years in public accounting, working with employee benefit plans of various sizes, complexities and structures.  She performs audits of more than 25 retirement plans with more than $400 million in total assets.      

Our firm provides the information in this e-newsletter for general guidance only.  It does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind.  The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers.  Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.  Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer.  The information is provided "as is," with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.

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