IRS Issues Model Language for 403(b) Plans

As promised, the Internal Revenue Service has issued model 403(b) plan language that may be used by public school corporations to either draft or update a written plan document to comply with the final regulations under Section 403(b) of the Internal Revenue Code.  Click here for a link to the IRS model language .  The final 403(b) regulations, which were issued July 26, 2007, require that school corporations which allow employees to contribute to a 403(b) plan adopt a written plan document no later than January 1, 2009.  The plan must contain all the material terms and conditions for eligibility, benefits, contribution limits, and distributions, as well as identify the approved vendors under the plan.  The IRS’ model language is specifically designed for use by public school corporations that sponsor salary deferral 403(b) plans to satisfy these requirements. 

We are in the process of reviewing the IRS model language, along with issues we know that affect a number of school corporations.  Schools will want to review the model language closely to eliminate optional provisions that do not apply to their 403(b) plan, and to modify or add to the model language to the extent that their 403(b) plan permits Roth contributions or employer discretionary, matching or post-retirement contributions, or contains optional plan features not addressed in the model language.  To the extent your school's 403(b) plan contains buyout amounts, leave conversion amounts, or other similar provisions, these will also need to be set forth in the plan document.  This process may require some discussions with your employees.  Additionally, your plan document must be consistent with the underlying annuity contracts and/or custodial account agreements, as well as with the vendor service agreements setting forth delegated administrative responsibility, so this process will also necessitate discussions with your vendors. 

Schools that timely adopt model IRS plan provisions can rely on the provisions adopted as satisfying Code Section 403(b) in form, but the plan must still be operated in accordance with the written plan document and must continue to satisfy in form and operation all other requirements under the final 403(b) regulations.  While the IRS looks to the school corporation to operate the 403(b) plan in compliance with the applicable rules, the school may delegate responsibility to a third party.

If you have any questions regarding the model 403(b) plan language or have any other questions regarding your 403(b) program, please contact Mary Beth Braitman, Tara Schulstad Sciscoe, Jim Kemper, or Wayne McClain.