All employers sponsoring 403(b) plans (other than certain church plan sponsors) were required to adopt a written plan document by December 31, 2009. This requirement was the beginning of the Internal Revenue Service’s (IRS) effort to formally bring 403(b) plan documents in compliance with the law. In the same announcement, the IRS said it would release suggested language to be used in 403(b) plan documents at a later date. All 403(b) plans would then be required to be restated into compliance with the law.
That later date was in 2013, when the IRS established a program for issuing opinion letters for 403(b) pre-approved plan documents. Under this program, document providers submitted their prototype plan documents to the IRS for approval.
Starting in 2017, the IRS began issuing approval letters to document providers who are working with plan sponsors to get their plan documents restated. Plan sponsors of 403(b) plans have until March 31, 2020 to restate their plan documents by adopting an IRS pre-approved 403(b) plan. Individually-designed plans should be amended to correct defects, too, but without receiving a determination letter.
Although most plan document providers have already worked with their 403(b) plan sponsors to restate their plans, time is running short for those plan sponsors who have not yet restated their plan document. For those plan sponsors there is still some time left to get this done, but do not delay. Adopting a pre-approved plan is the only way plan sponsors may now be assured that their plan documents meets all IRS 403(b) regulations.
Check your key plan provisions
All 403(b) plan sponsors should take the time to evaluate their 403(b) plans before the IRS deadline ends next year. Most importantly, the restatement provides an opportunity to review your plan’s provisions to address any issues with plan administration and defects in your plan document. This is the last chance to do this without incurring expensive fixes to your plan by missing out on the restatement opportunity.
In addition, when adopting a pre-approved 403(b) plan by March 31, 2020, plan sponsors may receive retroactive relief for any non-compliant plan provisions, which may be retroactive to January 1, 2010. To take advantage of this opportunity, the effective restatement date must be the first day of the 2010 plan year.
Plan restatement tips
When restating your plan, it is important to understand your plan’s operations and the written terms of your plan document. Below are suggestions to help your restatement process:
- Review and compare your plan processes to the plan document to evaluate whether the plan is being operated in compliance with the plan document;
- Note any discrepancies, assess the significance of these differences and how long they may have been out of sync with the operation of the plan document;
- Consider making any meaningful changes to improve the plan;
- Review the plan’s compensation definition and compare it to payroll;
- Review eligibility provisions as it relates to your workforce and compliance with the once-in-always-in rule;
- Review the plan’s compliance testing and whether there are difficulties passing testing; and
- Engage your plan administrator, document provider or consultant to assist with the restatement.
Take action now
Take action now if you still need to restate and correct defects in your 403(b) plan document. This is a last time effort to fix the form of your plan document retroactively without a costly IRS filing and fee to correct it. Keep in mind that not all plan errors may be corrected through restatement. Operational errors must be corrected according to the IRS correction program.
Consider engaging an independent plan consultant to help review your plan documents and suggest improvements to your retirement plan.
For questions or assistance on the restatement process, contact Larry Ruff at [email protected] or 312.670.7444. Visit orba.com to learn more.