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Public schools, churches, and tax-exempt organizations must adopt an IRS pre-approved 403(b) plan document before the March 31, 2020, deadline to remain compliant.

Employer strategies

Plan Sponsors Should Act Now to Adopt IRS Pre-Approved 403(b) Documents

  • Denise Falbo
  • 4/25/2019

In 2017, the IRS, along with many 403(b) plan document providers, announced the release of pre-approved 403(b) plan documents. This news followed the IRS’s introduction of a pre-approved document program in 2013.

With this change, plan sponsors may adopt either prototype or volume submitter plans, which will help narrow the gap between 403(b) and 401(k) plan documents and establish similar compliance standards.

In order to keep your 403(b) plan in compliance with IRS regulations, your plan document must be reviewed and restated to match the pre-approved document prior to March 31, 2020.

Pre-approved documents make compliance easier

Prior to 2017, 403(b) plan documents and their provisions had only implicit reliance on IRS approval but no formal IRS approval. Unlike its availability to other qualified retirement plans, the IRS determination letter program was never an option available to plan sponsors adopting 403(b) plans. As a result, the documents were lacking in detail, and a formal amendment process was non-existent.

Eligible employers should begin reviewing their plan

Eligible employers who can take advantage of this new 403(b) plan program include:

IRS approval now at the forefront of 403(b) plans

In July 2007, 403(b) regulations were updated for the first time since 1964. In addition to other guidance, the new regulations required that all 403(b) plans be maintained pursuant to a written plan that, in both form and operations, satisfied the regulations of Section 403(b) and the final 403(b) regulations. Thus, all 403(b) plans, with the exception of church plans with no retirement accounts, were required to adopt 403(b) plan documents no later than December 31, 2009.

Document providers followed with the release of 403(b) plan documents, but these documents were initially quite vague. While some enhancements were introduced over the years, the plans still lacked corresponding IRS approval.

Adopting pre-approved plan helps correct plan defects

Of considerable benefit under the new program is a feature allowing an eligible employer to retroactively correct defects in their organization’s written 403(b) plan. This applies back to the first day of the plan’s Remedial Amendment Period (RAP), which is the latter of:

  • January 1, 2010; or
  • The plan’s effective date

A plan sponsor who adopts a pre-approved 403(b) plan with a favorable opinion or advisory letter by March 31, 2020, automatically corrects any defects in its plan from the beginning of the RAP. 403(b) plan sponsors who did not adopt a written plan before December 31, 2009, must use the IRS Voluntary Correction Program to correct this error.

How we can help

More than anything, this change will bring plan sponsors confidence that their plan is written in compliance with IRS requirements. With the March 31, 2020, deadline looming, plan sponsors should begin reviewing their options for updating their plan to meet the new regulations. This is also a good time to address plan design issues.

Learn about our financial management tools and services exclusively for religious organizations.

CLA plan professionals can help review your current plan design and prepare restated plan documents for all types of 403(b) plans, including plans subject to The Employee Retirement Income Security Act of 1974 (ERISA), governmental plans, deferral only plans, and church plans.