The new 403(b) compliance picture seems to be getting clearer. Much needed light was provided on the new regulations at the February 6, 2009 Tax-Exempt and Government Entities Joint Council Meeting in Baltimore attended by senior IRS officials and tax practitioners.  

Attorney Bob Toth, of counsel at Giller and Calhoun was at that meeting. Bob, you may recall, was a guest contributor to our series of blog posts, the 403(b) Crunch Time Series, to help 403(b) plan sponsors get ready for the January 1, 2009 effective date for the IRS final 403(b) regulations.

We had intended to have the series run until year-end, but only got to #6 before the IRS issued IRS Notice 2009-3 (see Plop plop, fizz fizz, oh what a 403(b) relief it is: IRS Notice 2009-3) that extended the plan document requirement to December 31, 2009.

So now two months into the year, just exactly where are we regarding compliance with the new regulations. Here are some highlights of what the IRS had to say about compliance issues.
Plan sponsors were urged to use the extension of time to have the plan document in place by year-end constructively.

  • Plan sponsors should adhere to the principles of universal availability and non-discrimination, and to retroactively correct and operational mistakes prior to December 31, 2009.
  • While the voluntary correction program under Revenue Procedure, 2008-50 does not include specific correction procedures for 403(b) plan documents, a future release will include such procedures. In the meantime, Section 6 should be reviewed for the general principles of restoring appropriate benefits to participants who did not receive them during the year. 
  • A revenue procedure is being drafted to create a determination letter program and prototype program for pre-approved Section 403(b) plans.

The tax practitioners had observations about some unresolved issues and how to resolve them. Bob Toth who was at this meeting commented that

  • More guidance is required from the Department of Labor to determine when a 403(b) plan is covered by Title I of ERISA which generally governs disclosure, reporting, and fiduciary aspects of retirement plans.
  • Employers should be very careful of adopting 401(k) language for a 403(b) plan since the operating rules are different and could inadvertently cause the plan to be covered under ERISA.

The compliance picture isn’t exactly hi-def yet, but then we don’t need rabbit ears either.