SunGard Relius

As expected, the IRS recently announced that it will be establishing a prototype program for 403(b) plans (IRS Announcement 2009-34). The Announcement also includes a draft Revenue Procedure setting forth the parameters of the 403(b) prototype program. The IRS is soliciting public input before finalizing the procedure (and the Listing of Required Modifications ( (LRMs) that were released in conjunction with the Announcement.)

Below is a summary of key provisions in the “draft” Revenue Procedure. You should keep in mind that these are not the final rules. If you oppose provisions of the draft, then you are encouraged to submit comments to the IRS (the deadline is June 1, 2009).

What impact does this have on the requirement to establish a written plan no later than December 31, 2009?

The announcement of a 403(b) prototype program does not impact the previously announced deadline of having a plan in place no later than December 31, 2009. 403(b) plans must generally be set forth in writing no later than December 31, 2009 (see the December 12, 2008 technical update). Plans established by December 31, 2009 must represent a good faith attempt at complying with the 2007 final 403(b) regulations.

Submissions under the new 403(b) prototype program, on the other hand, will not be permitted prior to March 15, 2010. The 403(b) prototype program will be subject to the 6-year cycle that currently applies to pre-approved qualified plans (master and prototype and volume submitter plans). Accordingly, one would expect the IRS to take up to two years to review and approve any 403(b) prototype plans, with employer restatements taking place over a minimum of a 1 year period after that.

Should an employer which still needs to adopt a written 403(b) plan do so now or wait until the end of the year in the hopes that the new prototype will be available?

There is no reason to delay. We do not anticipate that the IRS will grant a further extension to adopt a written plan beyond December 31, 2009. We will not make major efforts to modify our document to deal with the new prototype program until the IRS has finalized the program, and do not expect to have prototypes under the new program available during 2009. Even if we did, the IRS approval and employer adoption deadline will surely be years in the future.

Will plans that have been established thus far need to be amended due to the issuance of draft 403(b) LRMs?

It depends. If an employer has adopted a SunGard prototype formatted plan (or our new “individually designed” plan that is based on our prototype formatted plan) then no modifications are needed as these plans include a good-faith attempt to conform to the 2007 final regulations. If an employer is not using one of these plans, then one must check with the plan provider to determine whether the plan makes a good-faith effort to conform to the final regulations.

Will tack-on amendments be needed for PPA or other law changes?

The IRS has not established rules regarding interim amendments for 403(b) plans but it intends on doing so in future guidance. However, the SunGard prototype formatted plan (or our “individually designed” plan that is based on the prototype formatted plan) already includes PPA provisions as well as the final 415 regulations. However, it does not include provisions for WRERA or HEART or the changes in the final EACA/QACA regulations. We do not know whether the IRS will require tack-on amendments for these laws.

Will a remedial amendment period be provided for 403(b) plans?

Based on the draft Revenue Procedure and comments by IRS officials, the IRS plans to allow a remedial amendment period for 403(b) sponsors who either (1) adopt a prototype document, or (2) file a request for a determination letter. But, the IRS does not plan to provide a remedial amendment period for other plans (plans which neither have prototype reliance nor file a determination letter request).

Who can sponsor a 403(b) prototype plan for adoption by employers?

Any entity that expects at least 30 employers to adopt its prototype plan may sponsor a 403(b) prototype. Alternatively, if an entity is a word-for-word adopter of a mass submitter plan, then there is no requisite number of adopting employers. SunGard will be a mass submitter of 403(b) plans (just as we are for qualified plans) and we will provide you with more information on this once the IRS finalizes the procedures.

What are the responsibilities of a 403(b) prototype sponsor?

The IRS is modeling the 403(b) prototype program after the master and prototype program for qualified plans. However, the IRS is proposing to expand the responsibilities for 403(b) prototype plan sponsors (items 3 and 4 below). This expansion is consistent with questions the IRS had been asking some qualified plan master and prototype sponsors as part of the Employee Plans Compliance Unit compliance check.

A sponsor must generally:

1. Maintain a list of adopting employers.
2. Continue to maintain the approved status of the plan by adopting amendments for changes in the law.
3. Have a procedure to verify that an adopting employer has timely completed and signed a new adoption agreement when required (e.g., when a restatement is required).
4. Have a procedure to acknowledge receipt of amendments when a restatement is not required.
5. Either correct compliance issues under EPCRS or notify an adopting employer about EPCRS, if the sponsor determines that an employer’s plan may no longer meet the requirements of Code Section 403(b).

What limitations will apply to 403(b) prototype plans?

The draft Revenue Procedure outlines several key restrictions for 403(b) prototypes:

1. Full vesting is required for employer contributions.
2. Special provisions that apply to churches are not permitted (e.g., plans must include IRC §401(a)(17) compensation limit, must satisfy universal availability, and may not provide for retirement income contracts).
3. Standardized plans must provide a safe harbor allocation method. It is not clear how much flexibility will be permitted in nonstandardized plans.

We expect practitioners to object to some of the restrictions being considered (e.g., full vesting of employer contributions).