IRS Announces New 403(b) Prototype Plan Program

         Final regulations issued under Section 403(b) of the Internal Revenue Code (Code) in 2007, generally effective January 1, 2009, significantly changed the nature of 403(b) plans and increased the responsibilities of the employers that sponsor them.  One of these changes is that sponsors of Code Section 403(b) plans are now required to maintain a written plan document.  Notice 2009-3 relieved sponsors of the written plan requirement for the 2009 calendar year if certain conditions were met.  One condition was that by December 31, 2009, the sponsor of the plan must adopt a written plan that is intended to satisfy the requirements of Code Section 403(b) effective as of January 1, 2009.

         As part of its effort to assist employers in meeting the new requirements under the final 403(b) regulations, the Internal Revenue Service (IRS) announced this week its intent to establish a program for the pre-approval of prototype plans under Code Section 403(b). Announcement 2009-34 includes a draft revenue procedure containing the IRS' proposed procedures and rules for issuing opinion letters with respect to the form of prototype plans under Code Section 403(b).  The IRS has stated that the rules in the draft revenue procedure will generally be similar to those that apply under Revenue Procedure 2005-16, the IRS' opinion letter program for master and prototype plans qualified under Code Section 401(a), except for differences related to the requirements of Code Section 403(b).  Draft sample plan language has also been posted on the IRS Web site for use in drafting Code Section 403(b) prototype plans. The new 403(b) prototype plan program will allow employers and employee benefit practitioners to obtain advance approval of the form of a 403(b) prototype plan.  Employers who then adopt these 403(b) prototype plans will generally have assurance that the form of the plan meets the requirements under Code Section 403(b) and the 2007 regulations.  Additionally, the draft revenue procedure provides for a retroactive remedial amendment period for 403(b) plans for years after 2009.

         In Revenue Procedure 2007-71, the IRS provided guidance regarding compliance with the 2007 regulations and published model plan language that may be used by public schools and other eligible employers to adopt or amend a written plan to reflect the requirements of Code Section 403(b) and the 2007 regulations.  Importantly, the draft revenue procedure in Announcement 2009-34 does not modify the model plan language in Rev. Proc. 2007-71.  Accordingly, public schools and other eligible employers may continue to use the model language in Rev. Proc. 2007-71 until further notice.

         When the draft revenue procedure is finalized, the IRS will announce the date it will start accepting applications for opinion letters for Code Section 403(b) prototype plans.  Vendors will then be able to sponsor an approved 403(b) prototype plan which many employers may want to adopt to satisfy the written plan requirement of the 2007 regulations.  However, the IRS also announced its intent to establish a determination letter program for 403(b) plans at a later date that would allow eligible employers to obtain determination letters for individually designed plans.  This will be very helpful for plans with complex design features, as well as for church and governmental plans with design features that are not available under a prototype plan.

         Interested persons, which includes employers, are invited to submit comments to the IRS about the procedures and sample plan language.  Written comments should be submitted by June 1, 2009.  In addition, in order to anticipate its future workload, the IRS is also requesting each entity that expects to file an opinion letter application for a 403(b) prototype plan, either as a prototype plan sponsor or as a mass submitter, to advise the IRS of its intent in writing by June 1, 2009.  This information should be submitted separately from any comments on the draft revenue procedure and sample plan language.

         For additional information about Announcement 2009-34, the 403(b) prototype plan program, and their impact on your 403(b) plan, please contact Tara Schulstad Sciscoe, Mary Beth Braitman, Terry Mumford or your Ice Miller LLP employee benefits attorney.