What is the new 403(b) Plan Document Restatement Program?
Compliance for retirement plans is a moving target. As changes in the law occur, retirement plans are required to comply in both form and function with the new provisions as of the effective date of the law.
The information provided below is intended to provide both the context for and the instructions associated with the required 403(b) Plan Document Restatement Program currently underway. We would strongly encourage you to read this information carefully.
Written Plan Document Requirement for 403(b) Retirement Plans
Prior to 2009, 403(b) retirement plans were not required to have a written Plan Document. This changed with the passage of the final 403(b) regulations in 2007, which required plans to have a written Plan Document in place for plan years beginning after December 31, 2008. This written Plan Document requirement included both 403(b)(7) Non-Church Plans and 403(b)(9) Church Plans.
In direct response to this January 1, 2009 effective date, Envoy Financial assured that all of the 403(b) plans that we serviced had a written Plan Document in place.
The 403(b) Plan Document is required to contain all the material terms and conditions as established by both the Internal Revenue Service and the Department of Labor. This includes the provisions for eligibility, benefits, applicable limitations, the investment funds available under the plan, and the time and form under which benefit distributions would be made.
The 403(b) Plan Document may also contain certain optional provisions that are consistent with but not required under Code Section 403(b). These optional provisions would be elected by the Plan Sponsor (employer) as part of their plan design and therefore become part of the Plan Document. These optional provisions include hardship distributions, loans, plan-to-plan transfers, in-service distributions, Roth contributions, the acceptance of rollover contributions into the plan and others. However, if a plan contains any optional provisions, the optional provisions must meet, in both form and operation, the relevant requirements under Code Section 403(b).
In 2009, at the time that the Plan Document requirement took effect, the IRS did not require Plan Document providers to submit their Plan Documents to the Service for pre-approval. Although an approval process was in place for 401(k) Plan Documents, no such process existed for 403(b) plans. As such, the Plan Documents provided to meet the January 1, 2009 requirement were not pre-approved by the IRS.
Although this 403(b) Plan Document requirement was an important step in the evolution of 403(b) plan compliance, there were still additional compliance related requirements to come.
IRS Pre-Approved Plan Program for 403(b) Retirement Plans
In 2015, for the first time ever, the IRS opened the 403(b) Pre-approved Plan Document Program. This program allowed plan providers, like Envoy Financial, to submit their prototype or volume submitter 403(b) Plan Documents for approval. This was a fee based service provided by the IRS.
Under the 403(b) Pre-approved Plan Document Program:
403(b) Prototype Plans may apply for a Favorable Opinion Letter, and 403(b) Volume Submitter Plans may apply for a Favorable Advisory Letter.
The Favorable Opinion Letter and/or Favorable Advisory Letter assures that the Plan Document, in form, satisfies the requirements of Internal Revenue Code Section 403(b) and (if applicable) the Department of Labor ERISA Regulations (subject to certain restrictions).
In 2015, at the first available entry date, Envoy Financial submitted their Prototype 403(b)(7) and 403(b)(9) Plan Documents to the IRS for their review. In March of 2017, Envoy Financial received a Favorable Opinion Letter on both its Prototype 403(b)(7) Non-Church Plan Document and its Prototype 403(b)(9) Church Plan Document.
Required 403(b) Plan Document Restatements
The Plan Document restatement process has been ongoing for other defined contribution plans like 401(k) plans for quite some time. This process is new for 403(b) plans.
Under the required 403(b) restatement process, there is a window of time by which all 403(b) plans need to be restated. This required restatement process requires Plan Sponsors (employers) to adopt a pre-approved plan like the Envoy Financial Pre-Approved 403(b)(7) or 403(b)(9) Plan. Going forward, Plan Sponsors who adopted a pre-approved plan should expect to restate their Plan Documents every six years.
Will the Plan Document Restatements Impact Our Current Plan Design?
Every effort will be made to dovetail your organization’s current 403(b) plan design into the Pre-Approved Prototype Plan Document. However, Envoy’s Pre-Approved Prototype Plan includes the elective plan provisions that are currently allowed under the IRS Code and the Department of Labor ERISA Regulations. In bringing your organization’s retirement plan into compliance with the current Code and Regulations, some changes may be required.
The Adoption Agreement will clearly outline the elective provisions for your organization’s 403(b) retirement plan on a go-forward basis.
What Plan Documents Will Need to be Signed by the Plan Administrator?
Your organization’s Plan Administrator will need to review and sign the Adoption Agreement for the Plan Document set. The updated Summary Plan Description will be published to the Employer Web Portal for your organization’s 403(b) retirement plan for future use.