Understanding the requirements of Plan Documents
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.