The IRS has finally released the long awaited procedure (Rev. Proc. 2013-22) for 403(b) prototype and volume submitter plan documents. As it does with the qualified plan prototype and volume submitter programs, the IRS released sample language (Listing of Required Modifications; LRM) to assist sponsors in drafting 403(b) pre-approved plans. Sponsors are not obligated to use the language but the LRM language serves as an outline of what the IRS will approve. Although the LRM language is not intended to serve as guidance, the language often clarifies IRS positions and the reviewer notes often provide guidance as to how the IRS will rule on certain language. This Technical Update identifies some of the interesting sample language provisions and notes to IRS reviewers.
Note: We will release another Technical Update that discusses the prototype and volume submitter procedure.
Eligibility conditions (elective deferrals). Because of the universal availability requirement, the plan may not impose eligibility conditions for elective deferrals. However, the LRM language allows a plan to include reasonable administrative procedures for plan entry, including a reasonable period for providing a participant notice of the right to defer and a reasonable election period. The IRS indicates that a plan that provides the notice within 30 day of employment commencement, allows the participant make an election up to 30 days after the notice is provided, and provides the election will be made effective as soon as administratively practicable is considered to reasonable administrative procedures that comply with the universal availability requirement.
Employers. For purposes of eligibility the term “employer" includes related employers identified in the adoption agreement.
Public school employee. The IRS refers reviewers to Rev. Rul. 80-139 and Rev. Rul. 73-607 for guidance regarding when an individual is a common law employee of a state performing service for a public school.
Investment arrangements. The plan must include a list of the vendors of investment arrangements approved for use in the plan, including sufficient information to identify the approved investment arrangements, in an appendix to the plan.
Employees who normally work less than 20 hours per week exclusion. The Code allows employers to exclude employees who work fewer than 20 hours/week. The regulations interpret that to mean 1,000 hours per year, and seem to imply that each year a plan using this provision must exclude from deferring any employee with fewer than 1,000 hours of service in the prior year. In Rev. Proc. 2007-71, the IRS suggested that this exclusion might not be available in ERISA plans because of the apparent conflict with ERISA. Under ERISA, once an employee has completed the 1,000 hours of service in a 12-month period, the plan generally cannot require the employee to re-complete the requirement. The LRM language permits the use of the exclusion, including in ERISA plans. The LRM language follows the ERISA requirement regarding eligibility requirements.
Severance from employment. For purposes of a public school employee, severance means the employee ceases to be employed by the employer and is not employed by another public school of the same state. However, the public school employee may be considered to have severed if he/she works for another unit of the state that is not a public school. A 403(b)(9) church plan may provide that a severance does not occur if the employee moves between churches of the same denomination.
Plan administration. The plan may allocate administrative duties to various persons. The provision allocating administrative duties should identify how the duties are allocated to ensure compliance with Code §403(b). Depending on allocation provisions, the allocation may result in the plan being subject to ERISA.
Depositing deferrals with the plan. A plan may include a provision indicating when deferrals will be deposited with the plan (i.e., within 15 business days following the month the amounts were withheld). The note to the reviewer indicates that ERISA plans will need to comply with the ERISA requirements. Note: Since including this provision is optional, a practitioner may decide not to include the provision. By including such a provision, a deposit beyond the specified date would have to include earnings with the correction. However, including the provision removes ambiguity over when the IRS would consider a deposit unreasonably late.
415 notice. The LRM language requires the administrator to provide a notice to employees that explains the aggregation requirement and possible 415 violation if a participant participates in a qualified plan that the participant controls (owns more than 50%). Note: The notice requirement is a new requirement and is not required under the Code or regulations.
415 limit. The LRM language includes an ordering rule that indicates that excess annual additions consist of the last contributions credited for the limitation year. The exception to the ordering rule is that contributions to a qualified plan or SEP are considered to have been credited first.
Hardship distributions. The LRM language uses the 401(k) safe harbor hardship distribution rules.
Loans. The LRM language recommends a 15-year amortization for a principal residence loan.
Exchanges. The plan may permit exchanges to vendors not identified in the plan only if the plan and the vendor sign an information sharing agreement.
QDRO. The LRM language has separate sample language for government/church plans and for employers other than governments and churches.
IRS levy. The LRM language includes a provision that permits the plan to distribute in response to a levy issued by the IRS with respect to a participant.
Compensation. Standardized 403(b) plans either must use total definition of compensation (such as W-2 wages grossed up for deferral or current 415 income) or a safe harbor definition that satisfies Code §414(s) (such as compensation net of elective deferrals). Nonstandardized and Volume Submitter documents may use alternative nondiscriminatory definitions of compensation.
Vesting. The plan must use vesting schedules at least as generous as the ERISA vesting schedules even if the plan is not subject to ERISA (e.g., governmental plans).
QNECs. A plan may not use forfeitures to fund QNECs.
Nondiscrimination and coverage. The document for a nonstandardized plan (other than a government or church) must include language indicating that the plan must satisfy the nondiscrimination and coverage requirements.
403(b) Plans: New Pre-approved Plan Procedure and Sample Language Web Seminar – We will discuss in detail the new 403(b) plan sample language and the new 403(b) plan procedure for pre-approved plans 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.
Back-to-Back scheduling in most cities – Multi-program discount when you attend both programs in the same city.
Visit our Web site for more details and to register: www.relius.net/events/events.aspx?Seminar.
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 |
