New Determination Letter Program for 403(b) Plans

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Mervin Alexander
5 years ago
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com Aimee Nash is the Senior Writer/Analyst at Wolters Kluwer Law & Business on the ftwilliam.com portfolio and has been at ftwilliam.

1 New Determination Letter Program for 403(b) Plans Aimee Nash, JD, APM, Senior Write/Analyst, ftwilliam.com, Wolters Kluwer Law & Business Aimee Nash, JD, APM Senior Writer/Analyst, Wolters Kluwer - ftwilliam.com Aimee Nash is the Senior Writer/Analyst at Wolters Kluwer Law & Business on the ftwilliam.com portfolio and has been at ftwilliam.com for over 6 years. She was the primary drafter of the pre-approved defined contribution plan mass submitter documents for the PPA cycle as well as ftwilliam's 403(b), nonqualified and Welfare plan documents.

2 Aimee Nash, JD, APM Senior Writer/Analyst, Wolters Kluwer - ftwilliam.com She is a member of ASPPA's Tax Exempt and Governmental Plans Committee. Aimee received her Bachelors of Science in Biochemistry and her J.D. (cum laude) from the University of Wisconsin - Madison. She also served in the US Peace Corps in Tanzania and regularly speaks on and writes about retirement and welfare plan issues. Agenda Overview/timeframes Background/Remedial Amendment Period The pre-approval program Special church rules

3 Pre-Approval Program Overview Draft plans due April 30, 2014 Plans can be volume submitter or prototype Approved plans available 2016??? Once documents are approved, restatement window will be "in excess of one year" IRS "expects future guidance to require... restatement... every six years" No determination letter program intended Background 2007 final regulations require written plan even if not subject to ERISA Small exception for certain churches Written plan deadline: December 31, 2009 (extended deadline per Notice ) No plan in place = document failure; use EPCRS 2009 pre-approval program announced (12/28/09 announcement ) Also established Remedial Amendment Period (RAP) If qualify for RAP, document failures can be fixed retroactively to 1/1/10

4 Remedial Amendment Period For plans in existence on or prior to December 31, 2009: A written plan written plan actually adopted on or before December 31, 2009, or a VCP compliance statement or an Audit CAP closing agreement ; During 2009, plan was operated in accordance with a reasonable interpretation of 403(b) and regs; and On or before 12/31/2009 best efforts were made to retroactively correct operational failures during 2009 Plan sponsor must adopt a pre-approved plan once made available Remedial Amendment Period New plans established on or after 1/1/10 Plan sponsor must adopt a pre-approved plan once made available If the above applies, document failures are fixed retroactively to 1/1/10 Includes untimely interim amendments and other plan doc defects The deadline to restate to a pre-approved plan not yet known - once documents are approved, restatement window will be "in excess of one year"

5 Pre-approval Program Basics Roles Mass submitters (at least 30 "word for word" advisors/sponsors) Some require word-for-word application to use document Volume submitter advisors (at least 30 employers adopt the plan) Includes word-for-word adopters M&P prototype sponsors (at least 30 employers adopt the plan) Includes word-for-word adopters Also possible to be minor-modifier of mass submitter prototype plan Plan types Prototype Volume Submitter 401(a)(9)/retirement income accounts (RIA) need separate BPD Prototypes Format must be adoption agreement plus BPD Any language modification loses reliance individually designed plan Vesting limited to 411(a)(2)(B) even if sponsor not subject to this rule/erisa 2-6 year graded; 3 year cliff maximums

6 2 Types of Prototypes Standardized Only exclude employees - Treasury Reg section 1.410(b)-6, Must use total compensation under 415 or 1.414(s) 1(c) for allocations, Non-elective contribution formulas must satisfy one of the designbased safe harbors (1.401(a)(4) 2(b)(2)) Non-standardized Prototype that is not standardized Vol Subs Format is not restricted Modifications do not lose pre-approval status if not "so extensive or complex as to be incompatible with preapproval" program Vesting: Non-ERISA plans need not follow 411 minimums

7 RIAs "RIA" = retirement income account under 403(b)(9) Rev Proc requires separate BPD/specimen plan in every case No other restrictions on type of employer and type of plan in the 403(b) pre-approval program one prototype standardized plan can be used by government, church or an ERISA-covered 501(c)(3) Which Document Type to Use? Volume submitter Most flexible Typically can be designed in same manner as a standardized plan (carries the same reliance) Prototype Fewer options in standardized plan may be appealing RIAs may find the marketplace limiting Can you add 401(a)(9) language to a vol sub (if language is kept brief) and keep pre-approved status? Vol subs can contain other church-specific rules If you want an individually designed plan, start with a volume submitter. keep changes short and sweet (can they be done in investment documents?)

8 Requirements For All Pre-approved 403(b) Plans Plan must include provisions describing Eligibility Contributions and benefits Limitations (415) Distributions, loans, transfers, exchanges, rollovers Plan may provide that the forms are those permitted under the investment contract Plan must comply (to the extent applicable to the sponsor) Universal availability ACP 401(a)(17) Vesting requirements Separate accounting of non-vested amounts Requirements For All Pre-approved 403(b) Plans Contracts must be incorporated by reference Plan governs in conflict Administrative appendix required Vendors and contracts Parties and responsibilities Changes do not affect reliance no solid guidance on timing requirements What are the consequences if this gets out of date?

9 Required Amendments All pre-approved plans must provide procedure for pre-approval sponsor/advisor to amend the plan on behalf of adopting employers Amendments apply to all adopting employers adopting employer can override an option/language chosen by document vendor Amendment language is "good faith" and not preapproved by IRS No guidance on timing/deadlines as of yet Limits of Pre-approval Form of the adopting eligible employer's plan is approved - not operation For 501(c)(3) (non-govt and non-church) plan: No reliance that non-electives pass 401(a)(4) and 410(b) (unless using a design safe harbor/standardized plan) No 415 reliance if related employer has 403(b) plan covering the same employee(s) Inherently factual issues - no reliance Church/govt status

10 LRMs List of Required Modifications Drafted by IRS Suggested language for pre-approved plan Concerns with 403(b) LRMs Problematic definition of public school, severance from employment Lack of language in certain areas (MEPs, entry dates, pick ups) this is not unique to 403(b) LRMs Differences From 401(a) Pre-approval Program Investment contracts not pre-approved and not part of plan 401(a) trusts can be submitted for pre-approval No investment language override requirement in 401(a) program No administrative/funding appendix in 401(a) program Gov't plans must have separate BPD in 401(a) program Pre-approved plan sponsor/advisor role 403(b) program, all pre-approved plans must provide practitioner/sponsor with authority to amend plan on behalf of employer Optional in 401(a) program Timing (restatement window and cycle)?

11 Unknowns/Timing Pre-approved documents currently due 4/30/14 Once documents are approved, the restatement window will be "in excess of one year". Restatement cycles "The Service expects future guidance to require the restatement of every section 403(b) pre-approved plan by the pre-approved plan sponsor every six years". Individually designed plans no determination letter program so no cycles apply Required/interim amendments Optional plan design changes Special Church Rules Church-related orgs "ERISA church" ERISA section 3(32) Code section 414(e) Qualified church-controlled organization "FICA Church" or "Steeple church" Code section 3121(w)(3) 501(c)(3) tax-exempt organization and does NOT Offer goods, services, or facilities for sale, other than on an incidental basis, to the general public at other than a nominal charge that is substantially less than the cost of providing such goods, services, or facilities, and Normally receives more than 25 percent of its support from the sum of governmental sources and receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in activities that are not unrelated trades or businesses.

12 Churches and 403(b) FICA church/qcco No nondiscrimination rules apply (universal availability) No written plan required unless investing in 403(b)(9) accounts 403(b)(9) sponsors do not need written records of adopting employers ERISA Church/church related org May maintain 403(b)(9) accounts ERISA coverage is optional (Code section 410(d) 403(b)(9) account Separate accounting Investment performance is based on gains and losses on those assets Exclusive benefit of Participants

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Thank You to Our Sponsors! Session 2 Plan Document Update: What You Need to Know in 2018 Kelsey N. H. Mayo, Esq. Partner Poyner Spruill LLP Robert M. Richter, Esq., APM Vice President FIS Wealth and Management