Written by Mickie Murphy, ERPA, QPA, QKA

In 2007, the Internal Revenue Service published 403(b) regulations requiring that all 403(b) plans have a written plan document in place by December 31, 2009. A written document was never required for nearly 100 years prior to that. However, as of December 31, 2009, there was no 403(b) Pre-Approved Plan Document program, so plan sponsors were required to create a good faith attempt to document their plan provisions with sample documents available from certain providers. Some sponsors took a gamble by cobbling together what became known as a “paper clip” document, pulling all the pieces together with a big binder clip, and calling that their plan document.

The time has come to restate those good faith effort documents. In March 2017, the IRS approved the documents that had previously been submitted by providers to them for pre-approved status and announced the end of the remedial amendment period as March 31, 2020. That means employers sponsoring a 403(b) plan have until March 31, 2020, to get their 403(b) plans under governance of one of the IRS pre-approved documents to have reliance that their plan document is in compliance with regulations. Currently, the IRS has made no provision for employers to submit an individually drafted document for a plan specific approval letter. If a pre-approved document is not used, there is no way for an employer to gain the reliance that their plan document is sufficient.

Effective Date of Restatement

The effective date of the restatement period is the later of January 1, 2010, or the plan effective date. The employer may make retroactive document corrections for certain types of omissions or errors that occurred during the remedial amendment period (January 1, 2010 – March 31, 2020). Self-correction is permitted if the sponsor previously adopted a written document by January 1, 2010 (or the effective date of the plan, if later). If the sponsor did not adopt a written plan by January 1, 2010, then submission must be made through the IRS Voluntary Correction Program in order to be treated as having adopted a written plan by the required deadline and to make use of retroactive changes within the restated document.

In order to accommodate the plan changes during the long remedial amendment period, the IRS has allowed for effective date addendums or a recap sheet of historical changes. By adding a list of changes and effective dates to the document, the sponsor can bring the plan document into compliance for the whole period. There will also be a required Administrative Appendix that will show who has responsibility for different services, such as financial reporting, enrollment of participants, contribution determination and compliance testing, as well as a list of approved vendors.

How to Get Started

There is a lot of information that will be required for the document restatement. Some organizations that previously provided documents, will no longer take on that task. There are also some new notice requirements that will go into effect in 2020. Now is the time to get prepared by doing the following:

• Review your plan provisions and compare them to how the plan is being operated. Are there changes to be made to the document? Is there documentation needed to note when a previous change was made, for example, the date a Roth contribution provision was added to the plan?
• Pull together a list of all changes that have been made to the plan by amendment or operational change since January 1, 2010 and identify the date the changes were made. You may need to use payroll records to identify adding that Roth provision, if no formal amendment was made. Or look through board minutes to make note of when bonuses were excluded from contribution calculations, changes made to contribution tiers, etc. and create a recap sheet for your document provider’s use.
• Review your plan definition of compensation. Does the plan definition match what is being used for contribution calculations by payroll or your plan administrator?
• Identify any discrepancies and decide whether the operation or documentation need a revision.
• Verify with your plan service provider to verify if they will assist with preparation of the document restatement. Some investment providers may no longer be providing document services and those who are providing services will get busier as March 2020 approaches.
• Ask your document provider about new plan provisions, such as the “once in, always in” rule. Although not a regulation, the IRS has taken the position that the universal availability rule provides that once an employee has met eligibility to defer by meeting the 1000-hour benchmark, they will continue to remain eligible to participate. This provision may now be written into pre-approved documents and may not be the way many employers have treated the rule in the past.

Overall, updated plan documents and notification requirements may have additional effects on your 403(b) plan administration. Be prepared for the restatement coming by knowing your plan and the history of the past ten years, ask about getting corrections made for non-compliant documents prior to 12/31/2009, and contact your plan document provider now to discuss next steps before the March 31, 2020 rush.

For more information, contact Mickie Murphy mmurphy@bluebenefitsonline.com, or your local Blue Benefits Consulting, Inc. consultant.