A 403(b) plan is a retirement plan for employees of public schools and certain tax-exempt organizations. The IRS issued final 403(b) regulations in 2007, but until earlier this year it didn’t 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 establishes a new program for preapproved 403(b) plans.
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’s substantially similar to the volume submitter’s approved specimen plan.
Currently, the IRS doesn’t have a program that allows individually designed plans to obtain determination letters. Thus, an employer that wants to obtain confirmation from the IRS that its plan satisfies 403(b) requirements should adopt a preapproved plan under the new program.
In June, the IRS began accepting applications for opinion and advisory letters for plans seeking to determine whether their preapproved 403(b) plan satisfies the regulations. To apply, plan sponsors must 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 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 won’t review the plan’s investment arrangements; however, they must satisfy applicable law and the 403(b) requirements.
Plan sponsors must submit applications for opinion and advisory letters to the IRS no later than April 30, 2014. The IRS will continue to provide additional guidance on the new program.
Is a preapproved 403(b) plan right for you?
Employers offering 403(b) plans need to determine whether a preapproved plan is right for them. Adopting a preapproved 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) preapproved plan program can be found on the IRS website at http://www.irs.gov/Retirement-Plans/403b-Pre-Approved-Plan-Program.
For more information contact QPAC at [email protected].