Pre-Approved 403(b) Plan Documents

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1 Pre-Approved 403(b) Plan Documents PenServ Plan Services,

2 IRS Circular 230 Disclosure This information is provided for educational and informational purposes and is not intended to be used to avoid tax penalties or to render tax or legal advice. The taxpayer should seek advice from an independent tax and/or legal advisor. PenServ Plan Services,

3 ?? Questions?? If you have questions during the presentation please your questions to: PenServ Plan Services,

4 Overview of Recent Changes On March 28, 2013, the IRS released the long awaited ruling (Revenue Procedure ) providing a timeframe for when Prototypes / Volume Submitter 403(b) plans can be submitted for IRS approval, as well as the structure of such plans. On the same day they also released sample language (LRMs Listing of Required Modifications ) consultants and attorneys can use to begin drafting the new 403(b) Plan documents. PenServ Plan Services,

5 Timeframes Submitting Mass Submitter Plans, or Non- Mass Submitter Plans A Mass Submitter is a company that will have at least 30 clients that will adopt their plan document on a word-forword basis. Opening Day June 28, 2013! Deadline to submit April 14, 2014 (There has been a push by some trade associations to ask for an extension) PenServ Plan Services,

6 Timeframes Assuming the April 14, 2014 deadline remains here is how we would get to the actual restatements for the 403b plans IRS begins their review when the base plan and Adoption Agreements are submitted (anywhere from 6/28/2013 4/14/2014) If anyone waits until 4/14/2014, then there will be some plans that will need review after that date. If it takes the IRS 1 year instead of 2 (there will be considerably less in numbers) that takes us to 4/14/2015. At some point in this process, the IRS will notify the Mass Submitter that their plan is virtually approved but will not release an approval letter yet. (anywhere from 6/2013 4/14/2015) IRS will pick a date and ALL approval letters will be printed and mailed on the same day! (Pick a date 12/31/2015 maybe??) All Employers will need to restate within a 2 year period (12/31/2017) PenServ Plan Services,

7 Timeframes and Structure Remember these are estimated dates! Pre-approved plans can be either Prototype Plans or Volume Submitter Plans Prototypes Either Standardized or nonstandardized Public Schools and churches will have reliance on nonstandardized Plans There can be multiple Base Plan Documents with a number of Adoption Agreements Minor Modifiers Permitted Receive IRS Opinion Letter Volume Submitter Plans Substantial Similar need clarification on this from IRS Receive IRS Advisory Letter PenServ Plan Services,

8 A New Memo of Understanding Under the draft LRMs there was a new addition referred to as the Memorandum of Understanding (MOU) In the new LRMs this is replaced with an Administrative Appendix No longer a part of the Plan, meaning that you can amend this and not have a plan amendment. Also contains the list of vendors (was the vendor attachment which was a part of the plans since the regs in 2007) This is lay out the responsibilities of all of the parties under the Plan with respect to: authorizing transactions (hardships, loans, QDROs and other distributions), the annual review of all vendor contracts and forms, reporting, etc. Any item not outlined or where no name is indicated will be the responsibility of the Employer! PenServ Plan Services,

9 RAP Period The Remedial Amendment Period, which may prove to be the longest in the history of plans will be the deadline to: Restate Employer Plans Amend the underlying contracts/custodial agreements to reflect the new rules/language. Remember one of the top ten failures the annuity contract! The basic rule is that if there is a conflict between the Plan and the underlying agreements or any other form, the Plan will govern! This is language that has always applied in the qualified plan area, but with 403(b) plans there are other concerns. Some plan language will refer by way of reference to the underlying agreements and vice versa. We are working with the IRS to come up with a chart that we all agree can be the structure of which way the reference goes! PenServ Plan Services,

10 Structure If you are using PenServ Plan as your mass submitter or are using our 403(b) documents now You will be receiving within the new few weeks information on the structure of the Plans We will be submitting multiple documents One specifically for public schools Remember our package will include the custodial agreement so that the references will match. We will be submitting this year! We are not waiting for the deadline so that we can deal with the problems head on! PenServ Plan Services,

11 Individually Designed Plans Rev. Proc. Indicates that this is not an option Staffing considerations Possibility in the future but no guarantee PLR is a possibility for the portion of the Plan that is amended (language added to the pre-approved plan) This will allow attorneys, consultants who need to amend certain language to still receive a form of a determination letter but only with respect to the added language. The balance of the plan (along with the advisory or opinion letter) will have reliance. PenServ Plan Services,

12 IRS Clarifies Some provisions Meeting on April 8 th at the National IRS Office 30 IRS personnel in attendance 1 person from Treasury 9 Industry Individuals The agenda consisted of 6 pages of discussion bullets ranging from the structure of the pre-approved plans (PAPs) to the technical provisions under the LRMs On the following pages we have highlighted some of the answers that were provided by the IRS on outstanding issues concerning 403(b) Plans PenServ Plan Services,

13 We Ask IRS Answers! Below are some of the issues that were addressed. We will start with the ones that have answers and then move on to the list of items that the IRS will get back to us on a future date. 20 hour rule for Elective Deferrals Entry dates added for Elective Deferrals Notice 30 days after hire; and then 30 days after notice 90 days Question can we just use 90 days? Impact of Revenue Procedure for grandfathered orphan vendors; regular grandfathered orphans and deselected vendors good news for plans not for EPCRS. PenServ Plan Services,

14 We Ask IRS Answers! Vesting and separate accounts LRMs and Rev. Proc. require a separate account for the nonvested amounts! For annuity contracts 403(c) contract For 403(b)(7) custodial 401(a) account IRS is considering separate accounting The language in 403(b) that deals with all accounts must be nonforfeitable is causing the problem. PenServ Plan Services,

15 We Ask IRS Answers! Many incorrect definitions Our comment letter will address the corrections that IRS needs to make Some of these were: Severance from Employment Public School definition Definition of Disability must be section 72(m)(7) for elective deferrals in all plans; and must be the definition for all Custodial accounts Exchange Mistake of Fact 500 hours for a Year of Service PenServ Plan Services,

16 Updated 403(b) Correction Procedures and the ½ Price Sale! The IRS issued the new Employee Plans Compliance Resolution System (EPCRS) under Rev. Proc , which supersedes Rev. Proc , and was generally effective April 1, This is an update to the IRS program where Employers can correct defects in their plan documents and in the operations of their 403(b), 401(a), SEP and SIMPLE plans and also for some 457 plans. PenServ Plan Services,

17 The New EPCRS 403(b) Plan document failures If you have a client that did not adopt an updated 403(b) plan by 12/31/2009, the new procedure contains an easy method to correct this by adopting a plan now. If you submit this to the IRS by 12/31/2013 it will only cost you ½ of the normal IRS compliance fee. We are suggesting a different fee structure for the nonprofits and an extension of the end of the year PenServ Plan Services,

18 403(b) Plan Document Failures Correction Procedures Issued Highlights 1. For Plan failures after 12/31/2008, the new Revenue Procedure will apply 2. Revenue Procedure will continue to be used to correct errors that occurred before 1/1/2009; 3. Deadline for ½ Price Sale is 12/31/2013 PenServ Plan Services,

19 403(b) Plan Document Failures Plan/Program Established Written Plan Type of Plan Rev. Proc Correction Options Before 12/31/2009 Adopted after 12/31/2009 NonERISA 501(c)(3) NonERISA Pubic School First Time Document Required 12/31/ Submit Adopted Plan Document by 12/31/ If possible use Paper Clip Rule and create document as of 12/31/2009, then adopt accordingly Before 12/31/2009 Adopted after 12/31/2009 ERISA Plan ERISA Plans were always required to have a written Plan document. Submission under EPCRS should be made and all previous documents and amendments should be submitted back to the inception of the Plan. Prior to 2009 Adopted by 12/31/2009 NonERISA 501(c)(3); NonERISA Public School Not required to amend for any law changes until the end of the remedial amendment period. No EPCRS Submission necessary. However Employer should keep track of when amendments apply and were made operationally so that the restated Plan document can reflect these amendments. Prior to 2009 Adopted by 12/31/2009 ERISA Plan Not required to amend for any law changes until the end of the remedial amendment period. No EPCRS Submission necessary. However Employer should keep track of when amendments apply and were made operationally so that the restated Plan document can reflect these amendments. [1] Reduced Fee only applies if the sole failure is the Plan Document Failure [2] Proceed cautiously, IRS has indicated that this does not always pass IRS audit. [3] The remedial amendment period allows sponsors to retroactively fix a written plan failure back to January 1, PenServ Plan Services,

20 403(b) Plan Document Failures Remedial amendment Safe Harbor for Adopting a Plan. Applies to Plans in existence on 12/31/2009 if: Written Plan Document Actually Adopted on or before December 31, 2009; or A VCP compliance statement was requested; or IRS audited Plan and Employer received closing agreement; and During 2009, the plan was operated in accordance with a reasonable interpretation of the final regs; and On or before 12/31/2009 the Employer made every effort to retroactively correct operational failures during 2009 to conform to the plan provisions; and The Employer must adopt a prototype 403(b) by the end of the remedial amendment period PenServ Plan Services,

21 403(b) Plan Document Failures Correction Procedures Issued Number of Participants* IRS VCP Fees Fee if filed after 12/31/ or fewer $750 $375 ½ Price Sale - Fee if filed on or before 12/31/ to 50 $1,000 $ to 100 $2,500 $1, to 500 $5,000 $2, to 1,000 $8,000 $4,000 1,001 to 5,000 $15,000 $7,500 5,001 to 10,000 $20,000 $10,000 Over 10,000 $25,000 $12,500 PenServ Plan Services,

22 403(b) Plan Document Failures Correction Procedures Issued Will the Paperclip Rule Work? 1. Preamble to the final regs indicates rule; 2. Gather all documents including annuity contracts, mutual fund company custodial agreements; 3. All policies and procedures (loan and/or hardship policies) PenServ Plan Services,

23 403(b) Plan Document Failures Correction Procedures Issued Will the Paperclip Rule Work? Once paper clipped Create a document that reflects all of the items that were treated as a part of the plan; Correct any operational errors ASAP. (this should have been corrected by the end of Check all policies and procedures (loan and/or hardship policies) PenServ Plan Services,

24 Other 403(b) Failures It is extremely important to note that the remedial amendment period only addresses written plan failures. It does not provide an extension of time to fix other failures like failure to follow the written plan, operational, demographic and employer eligibility failures. These failures should be analyzed and addressed by EPCRS. PenServ Plan Services,

25 Vendors Assistance A new requirement for a 403(b) Employer that is correcting through EPCRS is a certification from all vendors that they will cooperate with the Employer in the correction of the failure(s) as outlined by the IRS. The certification also includes providing the needed data for the VCP application. PenServ Plan Services,

26 ?? Questions?? If you have a question that was not addressed in this webinar please send your question to webpresentation@penserv.com Thank you for attending! PenServ Plan Services,

The New 403(b) Plan Documents Part I: Why March 2020 Is Important to 403(b) Employers. Susan D. Diehl, QPA President PenServ Plan Services, Inc.

The New 403(b) Plan Documents Part I: Why March 2020 Is Important to 403(b) Employers Susan D. Diehl, QPA President PenServ Plan Services, Inc. Agenda for Today This is Part I of a three-part series on