It seems like yesterday that employers sponsoring 403(b) plans went through the process of obtaining written plan documents. Employers must now again face the process of rewriting their 403(b) documents. The IRS recently announced that employers have until March 31, 2020 to restate their 403(b) plans into IRS pre-approved documents in order to have reasonable assurance that the plan document as written is in compliance with current law.
The 403(b) plan documents adopted in 2009 were not pre-approved by the IRS as there was no process in place to submit them to the IRS for approval. The IRS at the time stated that the written plans would be accepted as good faith compliance until such time as the IRS opened a process to approve plan documents.
The IRS since then has established a process to approve plan documents and recently issued approval letters so that document providers may now make their pre-approved plans available to their clients. By adopting a pre-approved document, the employer has assurance that the plan language is acceptable and that it complies with the tax code requirements retroactive to January 1, 2010.
Employers should begin preparing for the restatement process if they have not done so already. The following steps can be taken to prepare for the restatement process:
- Evaluate the plan’s provisions and decide if changes should be made. Is the plan working well? Are the employer contributions at a desirable level? Is there a high level of employee participation?
- Review your plan’s definition of compensation. Are contributions being allocated on the definition as outlined in your plan document?
- Review your plan’s compliance testing. Are the correct tests being performed? Does the plan have trouble passing the tests?
- Review your plan processes and procedures, and compare them to the plan document to ensure that the plan is being operated in compliance with the plan document.
- Identify any discrepancies and whether the procedures should be changed to comply with the plan document or the plan document should be revised to comply with the plan’s operation.
- Review language on contribution groups or tiers to be sure it is clear and does not leave the groups open to interpretation. For example, if rates of contribution are based on years of service, what is the definition of years of service for this purpose? At what date does the change in grouping take effect?
- Consider obtaining an independent review of the plan document, procedures and compliance. Audit activity by the IRS and Department of Labor has increased for 403(b) plans.
- Discuss desired changes and any issues with your document provider.
- Watch for alerts from your service provider that the restatement period has begun. Be sure to take action promptly as directed.
Use Your Resources
To minimize your compliance risk, be sure you have a service provider in place that will be preparing the document restatement for you and alerting you that the restatement process has begun. An independent consultant may be able to assist in the restatement process by providing an objective review of your current document and coordinating the restatement process.
If you have any questions on the restatement process, please contact us.
Bernie Kaplan is the Managing Director of the Retirement and Benefit Plan Services Group in the Boston office. He can be reached at 617.761.0541 or email@example.com. Bernie consults on a wide variety of employee benefit topics including 403(b) plans, qualified retirement plans, executive compensation, nonqualified deferred compensation, section 409A and health care reform.
Diane Caron is a Director in the Retirement and Benefit Plan Services Group. She can be reached at 617.761.0539 or firstname.lastname@example.org.