Friendly Reminder:

Upcoming 403(b) Plan Document Restatement Deadline

January 2019

With a couple of caveats, 403(b) nonprofit plan sponsors must establish and maintain their plans in accordance with written documents that satisfy the requirements of Treasury Regulation Section (Treas. Reg.-) 1.403(b)-3(b)(3). These documents must also be up-to-date on all current law changes. As such, it is required for the first time by law that 403(b) plans are restated/re-written by first quarter of 2020.

In 2007, the IRS released “final 403(b) regulations” requiring all 403(b) plans have a written plan document (prior to that a written document was never mandated). And although the IRS required employers to have a written plan document in place by December 31, 2009, there was no 403(b) pre-approved plan document program. As a result, employers were required to create a “good faith” attempt to document their plan provisions with sample documents available from document providers.

Fast forward to today, the IRS officially approved the documents that had been previously submitted by providers for pre-approved status and announced the end of the remedial amendment period. In other words, employers sponsoring a 403(b) plan have until March 31, 2020, to restate their plan. This is an excellent time for employers to give their plan a thorough health check-up, meaning working with a 403(b) expert ensuring the plan is fully compliant—for example, does the plan need annual CPA audit?; ensure competitiveness—does it provide similar or better benefits than competitors?; and is the plan still meeting employer and employee goals?

403(b) plan sponsors should reach out to their TPA or provider, if not already, and ask to provide information and timeline for restating their plan document.

Some considerations:

  • Currently the IRS has no guidance for employers to submit an individually-drafted document for a plan-specific approval letter.
  • The plan document requirement applies to church 403(b)(9) retirement income accounts. However it does not apply to 403(b)(7) custodial accounts or 403(b)(1) annuity contracts maintained by churches.
  • With certain exceptions, most 403(b) plans must be maintained in accordance with the written plan document rules.
  • Nonprofit 403(b) sponsors that have no written document can correct the error through the IRS correction program.
  • If a sponsor fails to adopt a written document if needed, their 403(b) plan may lose tax-favored status.
  • This restatement/re-writing TPA or provider service fee can be paid using forfeiture, if your plan document allows.

Need help? Have questions? Please do not hesitate to contact Steve Wilkinson or Mizan Rahman.