March 1, 2020

Many tax-exempt employers such as hospitals, universities and non-profit organizations maintain a retirement plan intended to meet the requirements of Section 403(b) of the Tax Code. In many respects, a 403(b) plan is similar to a 401(k) plan, and tax-exempt employers are generally eligible to maintain either type of plan, but a 403(b) plan can only be maintained by a tax-exempt employer.

Historically, the tax-qualification requirements applicable to 403(b) plans were less detailed and less specific than those applicable to 401(k) plans, but that stance of the IRS has been changing over the course of the last decade, particularly in the area of plan document requirements. In fact, prior to 2009, a written plan document was not specifically required by the IRS for a 403(b) plan (although it may have been required under the separate federal law of ERISA). This position changed, however, as IRS regulations published in 2007 required all 403(b) plans to have a written plan document in place by December 31, 2009.

Although a tax-exempt employer was required to have a written plan document for its 403(b) plan in place by the end of 2009, there were no specific rules with regard to the content of that document. While 401(k) plan sponsors had many “pre-approved” plan documents available to them from a variety of different types of providers (law firms, mutual fund companies, third-party plan administration firms, etc.), there was no such thing as a pre-approved 403(b) plan document. As a result, the IRS had no specific expectations with regard to the language of 403(b) plan documents (beyond the mere existence of such a document).

All of this has changed in recent years. In 2017, the IRS implemented a new program for pre-approved (e.g., “prototype” and ” volume submitter”) 403(b) plan documents, and the first IRS opinion letters approving 403(b) plan documents were issued in 2018. Under the new program, the only way for a tax-exempt employer to be sure that its 403(b) plan continues to be a tax-qualified plan is to adopt a pre-approved plan document with a valid IRS opinion letter on or before March 31, 2020. Further, that document is required to reflect an effective date of January 1, 2010, to retroactively correct any defects that may have existed in any plan documents, in the view of the IRS, during the interim.

Many providers of investments and/or administrative services in the 403(b) plan world supply 403(b) plan documents, including documents that are the subject of a current IRS opinion letter. Therefore, some plans have already been brought into compliance with the 2020 deadline. On the other hand, there are many 403(b) plan documents that have not been updated since the 2009 deadline, and many 403(b) account providers that do not consider plan document compliance to be their responsibility. Ultimately, in the IRS view, plan document compliance is the responsibility of the employer maintaining the plan.

Houston Harbaugh maintains a pre-approved 403(b) plan document with a valid IRS opinion letter, and is not affiliated with any investment provider. Therefore, our document is available to all 403(b) plan sponsors without regard to where assets of the plan are held. We are also available to review plan documents supplied by other providers, to ensure compliance with IRS requirements. Please contact Gary Gunnett at (412) 288-2210 or to discuss any needs your organization might have in this area.

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