By Kathy Davidson Ireland, Esq.
Section 403(b) plans are those established by certain "eligible employers," including public schools, §501(c)(3) organizations that are tax-exempt under §501(a), an employer of a minister described in §414(e)(5)(A) with respect to the minister, and a minister described in §414(e)(5)(A) with respect to a retirement income account established for the minister. Until 2009, such plans were not required to be in writing under the Code. Except for occasional IRS private letter rulings regarding the excludability of contributions for a contract or account under §403(b), no approval process was available for §403(b) plans prior to the issuance of Rev. Proc. 2013-22, which established procedures for pre-approval of §403(b) plans. The IRS has opted not to establish a determination letter program for individually-designed §403(b) plans; therefore, the only form of reliance available for employers with §403(b) plans with respect to the requirements of §403(b) is through adoption of a pre-approved plan.
The pre-approved §403(b) plan program opened on June 28, 2013, will accept applications until April 30, 2014, and includes both prototype and volume submitter plans. Under certain circumstances, an employer that adopts the pre-approved §403(b) plan may be able to rely on the opinion or advisory letter. In addition, an employer that adopts a pre-approved §403(b) plan in accordance with the revenue procedure and otherwise complies with its requirements will have a remedial amendment period retroactive to the later of January 1, 2010, or the effective date of the plan. The IRS will announce the end of the remedial amendment period for such employers following the issuance of opinion and advisory letters to prototype sponsors and volume submitters, respectively.
Eligible employers seeking assurance that their plans satisfy the requirements of §403(b) will be able to choose between prototype and volume submitter plans, but neither of these options is available immediately, given that the program is just starting. Employers therefore have time to determine whether pre-approved plans can provide them with the options that they need under their plans. Such employers should consider reviewing the sample plan language that the IRS has posted on its website to assist prototype sponsors and volume submitters in drafting their plans. While the sample language is not mandatory, the provisions can provide insight into whether the pre-approved plan program can accommodate the employer's current plan.
For more information, in the Tax Management Portfolios, see Ireland, 360 T.M., Qualified Plans - IRS Determination Letter Procedures, and Kenty and Hughes, 388 T.M., Section 403(b) Plans, and in Tax Practice Series, see ¶5540, Obtaining IRS Approval for Qualified Plans, and ¶5630, Tax Sheltered Annuities.
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