As part of the 403(b) procedure, the IRS has announced that it will not provide a mechanism for individual determination letters. This means two things: (1) An employer cannot request a determination that the employer has properly adopted a pre-approved plan, and (2) The only way an employer can have reliance that the form of the plan complies with 403(b) is to properly adopt a pre-approved plan. Eligible employers that do not adopt a pre-approved 403(b) plan document will not know whether there is a plan defect unless and until the IRS determines one exists under audit.

This Technical Update discusses the procedure in general terms. A future Technical Update will focus on the plan provisions which either must be or cannot be included in a 403(b) pre-approved plan.

Pre-approved program structure and timing

If you are familiar with the pre-approved document programs for qualified plans, you will be familiar with the language and concepts of the pre-approved document program for 403(b) plans. The IRS has established a prototype program and a volume submitter program for 403(b) plans. The prototype document consists of a basic plan document and an adoption agreement. No changes to the prototype adoption agreement options or basic plan document are permitted. A prototype document may be a standardized or nonstandardized plan. Standardized plans are plans that:

1. only permit elective deferrals, or
2. if other contributions are provided,
   1. the other contributions benefit all employees (on a controlled group basis),
   2. all benefits, rights and features are currently available to all participants,
   3. any nonelective employer contribution satisfies a 401(a)(4) designed-based safe harbor for a defined contribution plan, and
   4. compensation is defined as a 415(c)(3)-compliant definition of compensation (total compensation) or a safe harbor nondiscriminatory definition of compensation under Code §414(s)for purposes of determining contributions under the plan (other than for elective deferrals).

Standardized plans may be popular with non-church tax-exempt entities complying with the ERISA safe harbor exemption (which therefore only permit elective deferrals).

A volume submitter document has a specimen plan document and may have an adoption agreement as well, but is not required too. An eligible employer may make minor modifications to the adoption agreement options, if applicable, or the specimen plan document. Otherwise the volume submitter is a word-for-word identical adopter. The IRS will look at the differences between the terms of the modified plan and the pre-approved specimen to determine whether the changes are so extensive or complex to be incompatible with the pre-approved plan program. Unfortunately, at present the only way a plan sponsor knows whether its modifications are sufficiently extensive to cause it to lose reliance until the IRS determines that in an audit.

Reliance

The level of reliance depends on the type of plan, the adopting employer, and the employer’s choices:

• Prototype plans
  • Governments, churches, and qualified church controlled organizations (QCCOs) are entitled to full reliance on a standardized or nonstandardized prototype plan. Full reliance includes reliance on whether the plan complies with Code §401(a)(4) nondiscrimination and Code §410(b) coverage for employer contributions.
  • Other tax-exempt organizations are entitled to full reliance on a standardized plan if the plan is limited to elective deferrals or if all members of the employers’ controlled group are eligible to sponsor a 403(b) plan; otherwise the employer is entitled to limited reliance. Limited reliance means that there is no reliance the plan complies with Code §401(a)(4) or Code 410(b).
  • If a tax-exempt organization (other than a government, church, or QCCO) adopts a nonstandardized plan, the employer is entitled to limited reliance.
  • An employer loses reliance (the plan becomes individually designed) if the employer modifies the basic plan or changes options in the adoption agreement.
• Volume Submitter Plans
  • Governments, churches, and QCCOs are entitled to full reliance on a volume submitter plan.
  • Other tax-exempt organizations are entitled to limited reliance.
  • An employer may make limited (but not extensive) modifications to the specimen plan or adoption agreement without losing reliance as to the balance of the document. However there is no reliance on the modifications.

Submission

The IRS will begin accepting applications of preapproved plans June 28, 2013. The 403(b) procedure includes detailed information on the application process. The deadline to apply is April 30, 2014. Preapproved plans submitted after that date will not be entitled to the remedial amendment period the IRS has promised to 403(b) plans. If the plan is a word-for-word identical adoption of a mass submitter document, it is sufficient that the mass submitter apply for its document by April 30, 2014.

The IRS will later announce a deadline for employers to adopt the preapproved plans. The IRS expects to announce a 6-year restatement cycle for 403(b) plans.

403(b) Plans: New Pre-approved Plan Procedure and Sample Language Web Seminar – We will further discuss this topic in this Web seminar presented on April 16th and repeated on May 3rd, 12:00 p.m. ET. For more details and to register online, here: www.relius.net/Events/events.aspx?Web.

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Upcoming Web Seminars
403(b) Pre-approved Plans, Deferral Deposits, Plan Amendments, 409A, IRS Form 5330, 457(b) Plans, and more
Visit our Web site for more details and to register online, here: www.relius.net/Events/events.aspx?Web.

Form 5500 Workshop 2013, April – June
One of the primary purposes of EFAST2 was to make IRS and DOL enforcement more timely and effective. Every indication suggests that the government is following through on its promise. If you have wondered why the IRS or DOL is auditing or investigating your clients’ plans, you probably need look no further than the answers and information included on the Form 5500. Visit our Web site for details and to register online here: www.relius.net/events/events.aspx?Seminar.

401(k) Plan Workshop 2013, April – June
This year’s 401(k) Plan Workshop will discuss the likely changes Tax Reform will have on retirement plans. Other topics include: 401(k) plan corrections; in-plan Roth transfers; retroactive amendments (11(g) amendments) to avoid plan disqualification; tax consequences of plan disqualification; identifying, testing amending benefits, rights and features, current developments; and an interesting explanation of what the IRS likely will do with the information they obtained in their recent surveys of 401(k) plans. Visit our Web site for details and to register online here: www.relius.net/events/events.aspx?Seminar.

Added Value! – Attendees of each Workshop receive a complimentary registration for a Web seminar (recorded) – a $190 value.

• Form 5500 Workshop attendees receive a complimentary copy of responses to 40 FAQs submitted by attendees of Relius Education’s Schedule C Web seminars.
• 401(k) Plan Workshop attendees receive:
  • a sample completed VCP application package for an interim (or optional) amendment failure
  • a sample completed VCP application package for a nonamender failure, and
  • a retroactive amendment package.

Save the Date:
Chicago Advanced Pension Conference – August 28-30, 2013
Just for ERPAs Workshop, Chicago IL – August 27, 2013
Event details and online registration will be available in June on our Web site: www.relius.net/Events/seminardetail.aspx?CID=26172