What provisions must all pre-approved 403(b) plans include?
The IRS will only review a prototype’s plan’s basic plan document and adoption agreement, or volume submitter plan document, and will not review provisions contained in investment arrangements or other documents incorporated by reference in the plan document.
- All 403(b) pre-approved plans must include provisions that:
- Incorporate by reference the terms of the plan’s investment arrangements (annuity contracts and custodial accounts). The terms must satisfy applicable law and may not have any provisions that are inconsistent with Internal Revenue Code Section 403(b).
- State that the terms of the pre-approved plan document govern in the event of any conflict between its terms and those of any document incorporated by reference.
- Contain all of the material terms and conditions for plan eligibility, benefits, applicable limitations, available investment arrangements, and when and how benefits will be distributed.
- Satisfy the universal availability requirements for employee salary deferral contributions (unless the eligible employer is a church or qualified church-controlled organization.
- Limit compensation for plan contributions to the IRC Section 401(a)(17) amount (unless the eligible employer is a church or qualified church-controlled organization), but governmental plans may use the special transitional rule for limits on participant’s compensation for governmental plans.
- Meet IRC Section 401(m) requirements if the plan provides for matching contributions or after-tax employee contributions (unless the plan is a governmental, church or qualified church-controlled organization plan).
- Govern hardship distributions and other distribution events, loans, plan-to-plan transfers, contract exchanges, contributions and rollovers into the plan, if the plan includes these features.
- Provide for full and immediate vesting, or a vesting schedule for nonelective employer contributions, except:
- for a volume submitter plan that isn’t subject to ERISA’s vesting rules, the contributions and earnings can use a vesting schedule at least as rapid as those required by qualified plans under IRC Section 411;
- the non-vested portion of a participant’s interest must be maintained in a separate account that’s treated as a separate contract governed by IRC Section 403(c) (or other IRC Sections), but as amounts in the separate account become vested, they must be removed from the separate account and treated as amounts held under the 403(b) plan, to the extent permitted); and
- all non-vested amounts must become vested upon plan termination.
- Outline how the pre-approved plan sponsor will:
- amend the plan so that changes in the Internal Revenue Code, regulations, and other guidance are applied to all adopting employers, and
- inform the adopting employers of any plan amendments, and the discontinuance or abandonment of the plan.
- Explain that the plan’s appendix:
- identifies the parties responsible for the plan’s various administrative duties, and
- lists all of the plan’s annuity contract and custodial accounts vendors (changes to this appendix will not affect an employer’s reliance on the plan’s opinion or advisory letter).
What additional provisions must 403(b) prototype plans include?
In addition to the required provisions for all pre-approved plans, all 403(b) prototype plans must:
- Limit total employer and employee contributions to the IRC Section 415 contribution limits (a custodial account and a retirement income account are treated as an annuity contract for these purposes). The plan must also include these related provisions:
- all 403(b) annuity contracts an employer purchases for a plan participant are treated as one 403(b) annuity contract for IRC Section 415 purposes;
- if a participant controls the employer who purchased the 403(b) annuity contract on his behalf, the employer must aggregate the 403(b) annuity contract with all of its other defined contribution plans in determining if the limits have been exceeded;
- the adopting employer must coordinate IRC Section 415 limits among all of its and any related employers’ 403(b) prototype plans (or among all the adopting employer’s 403(b) plans if at least one is a non-prototype plan).
- Provide that an eligible employer will be considered to have adopted an individually designed plan (and thus will not have reliance on an opinion letter) if the employer:
- amends any provision of either the basic plan document or the adoption agreement (other than very limited amendments permitted by Revenue Procedure 2013-22), or
- decides to discontinue participation in the prototype plan sponsor amended plan.
What provisions must all adoption agreements of 403(b) prototype plans include?
A 403(b) prototype plan’s adoption agreement must:
- Require that the adopting employer disclose its status as an eligible employer by indicating whether it is:
- A public school
- A 501(c)(3) organization
- A minister’s employer
- A self-employed minister
- Require the adopting employer to indicate (for nondiscrimination requirements) whether the plan is:
- A government plan of a public school
- A government plan of a 501(c)(3) tax-exempt organization
- A plan of a church or a qualified church-controlled organization
- A plan (other than those indicated above) of a 501(c)(3) tax-exempt organization
- Permit the adopting employer to add overriding plan language as necessary to comply with IRC Section 415 contribution limits when aggregating multiple plans.
- Contain a dated employer signature line and require the adopting employer to sign (may use an electronic signature):
- the adoption agreement when it firsts adopts the plan,
- a new adoption agreement when the plan is restated, and
- a new signature page if it modifies any prior elections or makes new elections in its adoption agreement.
- State that it can only be used with the specifically identified basic plan document.
- Contain a cautionary statement that failure to properly complete the adoption agreement may result in the plan failing to meet the requirements of IRC Section 403(b).
- Include the plan sponsor’s name, address, and telephone number, or space to include, so the adopting employer may contact the sponsor about the:
- plan's adopting employer process,
- plan provisions and their meaning, or
- opinion letter’s effect.
What provisions must adoption agreements of all nonstandardized 403(b) prototype plans include?
Nonstandardized prototype plans must state that:
- The plan must satisfy the nondiscrimination and coverage requirements of IRC Sections 401(a)(4) and 410(b) for nonelective contributions (unless the plan is a government 403(b), church plan, or plan of a qualified church-controlled organization).
- Adopting employers can’t rely on the plan’s opinion letter for whether the plan satisfies the nondiscrimination and coverage requirements of IRC Sections 401(a)(4) and 410(b).
What provisions must be included in a 403(b) pre-approved plan provided by a church?
A pre-approved plan intended to be a 403(b)(9) retirement income account provided by a church must:
- State that the plan is intended to be a 403(b)(9) retirement income account that meets the requirements of the 403(b) final regulations.
- Include plan provisions that satisfy separate accounting, investment performance, and exclusive benefit requirements of the 403(b) final regulations.
- If the plan provides a life annuity benefit, satisfy the present value and benefit guarantee requirements of the 403(b) final regulations based on actuarial assumptions stated in the plan document or incorporated by reference.
Does the IRS provide sample 403(b) plan language?
The IRS has provided sample plan language for:
- Pre-approved plans - Listing of Required Modification (for § 403(b) Plans)
- Public schools 403(b) plans - Notice 2007-71 (can be used to draft a 403(b) pre-approved plan).