Written Plan Document Requirement for 403(b) Plans
Generally for plan years beginning after 12/31/2008, a 403(b) plan is required to be maintained pursuant to a written plan document. The plan must comply in form and operation with the requirements of the Code and regulations.
IRC Section and Treas. Regulation:
Reg. 1.403(b)-3(b)(3) - Written Plan Requirement
Reg. 1.403(b)-9(a)(2)(ii) - Special Rules for Church Plans
IRC 403(b) - Taxation of Employee Annuities
Resources (Court Cases, Chief Counsel Advice, Revenue Rulings, Internal Resources):
Notice 2009-3 - Relief from immediate compliance with written plan document requirement
The final regulations under section 403(b) impose a written plan document requirement. An annuity contract does not satisfy the plan document requirement unless it is maintained pursuant to a plan. For this purpose, a plan is a written defined contribution plan, which, in both form and operation, satisfies the requirements of Section 1.403(b)-1, Section 1.403(b)-2, 1.403(b)-3, and Sections 1.403(b)-4 through 1.403(b)-11. A 403(b) plan must contain all the material terms and conditions for eligibility, benefits, applicable limitations, the contracts available under the plan, and the time and form under which benefit distributions would be made.
A 403(b) plan may contain certain optional features that are consistent with but not required under section 403(b), such as hardship distributions, loans, plan-to-plan or annuity contract-to-annuity contract transfers, and acceptance of rollovers to the plan. However, if a plan contains any optional provisions, the optional provisions must meet, in both form and operation, the relevant requirements under section 403(b).
Under section 403(b)(9), a retirement income account for employees of a church-related organization is treated as an annuity contract. The final 403(b) regulations also require a plan document for retirement income accounts. Specifically, a retirement income account must be maintained pursuant to a program which is a plan and the plan document must state (or otherwise evidence in a similarly clear manner) the intent to constitute a retirement income account.
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.
Notice 2009-3 provides relief during 2009 for sponsors of 403(b) plans with respect to the requirement to have a written plan in place by January 1, 2009. The Service will not treat a 403(b) plan as failing to satisfy the requirements of section 403(b) and the final regulations during the 2009 calendar year, provided that:
(1) on or before December 31, 2009, the sponsor of the plan has adopted a written 403(b) plan that is intended to satisfy the requirements of 403(b) (including the final regulations) effective as of January 1, 2009;
(2) during 2009, the sponsor operates the plan in accordance with a reasonable interpretation of Section 403(b), taking into account the final regulations; and
(3) before the end of 2009, the sponsor makes its best efforts to retroactively correct any operational failure during the 2009 calendar year to conform to the terms of the written 403(b) plan, with such correction to be based on the general principles of correction set forth in the Service’s Employee Plans Compliance Resolution System (EPCRS) at section 6 of Rev. Proc. 2008-50, 2008-35 I.R.B. 464.
The relief under Notice 2009-3 applies solely with respect to the 2009 calendar year, and may not be relied on with respect to the operation of the plan or correction of operational defects in any prior or subsequent year.
A written 403(b) plan document was adopted by the sponsor of a 501(c)(3) hospital, but was adopted after December 31, 2009. The plan document was not adopted timely and EPCRS correction procedures (Rev. Proc. 2013-12) apply.
A written 403(b) plan document was adopted by the sponsor of the same hospital, but was adopted on December 31, 2009. If the requirements of Notice 2009-3 are met, the plan document is considered to be adopted timely.
Issue Indicators or Audit Tips:
Plan document compliance is an exam issue in every 403(b) case and the plan’s provisions, as well as the plan’s operation, should be considered.
An agent should verify that:
- The plan satisfies the 403(b) requirements in writing;
- The written plan document was timely adopted; and
- The plan has been timely amended for changes in the law, including the Heroes Earnings Assistance and Relief Tax Act of 2008 (Heart) and the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA).
In the event of a plan document failure, the plan should be corrected using the principles of EPCRS.