Duties of a Pre-Approved 403(b) Plan Sponsor

To view this page ensure that Adobe Flash Player version 11.1.0 or greater is installed.

Jason: Hi, I'm Jason Levine, a Senior Tax Law Specialist with the Employee Plans Rulings and Agreements Group.

Puneet:

And I'm Puneet Arora. I'm also a tax law specialist with the Employee Plans Rulings and Agreements Group.

We'd like to go over the role of the entity that sponsors a pre-approved 403(b) plan. Just to review, the plan sponsor is the entity that drafts the plan documents and applies to the IRS to get a favorable opinion or advisory letter for the pre- approved plan stating that the plan document meets the 403(b) rules.

Once a favorable opinion or advisory letter has been obtained, eligible employers may adopt the pre-approved plan without having to apply for a favorable letter of their own. Other than drafting the plan and obtaining a favorable letter, a pre- approved plan sponsor has some other duties and or responsibilities. First, the plan sponsor of a pre-approved plan must maintain a written record of the eligible employers that have adopted the plan and must be ready to provide the list to the IRS upon written request. The list of employers must include the name, address, and EIN of each adopting employer.

There's one exception to this rule. A church-related organization sponsoring a pre-approved plan intended to be a 403(b)(9) retirement income account does not have to keep a written list of adopting employers.

Second, the plan sponsor of a pre-approved plan must continue to maintain the plan in an approved status.

Third, the pre-approved plan sponsor must have a procedure for notifying adopting employers of plan amendments and restatements. The sponsor has to let the adopting employers know when to timely adopt such amendments and restatements. Sponsors should also let adopting employers know that failing to timely adopt the necessary plan amendments or restatements or failure to operate the plan consistently with such changes could have adverse tax consequences.

Fourth, plan sponsors must also let an adopting employer know if the sponsor determines that the employer's plan as adopted no longer satisfies the 403(b) rules. Fifth, plan sponsors need to understand that by filing an application to receive an opinion or advisory letter, the plan sponsor agrees to follow all of the pre- approved program rules. If a plan sponsor does not follow the Program's rules it may be disqualified from sponsoring 403(b) pre-approved plans and any previously issued opinion or advisory letters may be revoked.

Jason:

Now let's talk more about the plan sponsor's duty to maintain a pre-approved plan's approved status. There are several things a plan sponsor must do to maintain the approved status of a pre-approved plan. These duties include: One - timely amending the plan to reflect changes in the tax laws; Two - applying for a new opinion or advisory letter when required; Three - providing copies of the plan, amendments, and any opinion or advisory letters to each adopting employer; and Four - complying with all required notice procedures. It's ok for the plan sponsor to use electronic media to provide copies of the pre- approved plan, restatements, amendments, and opinion or advisory letters to the adopting eligible employers.

As for the requirement to restate the plan, the IRS expects to require 403(b) pre- approved plan restatements once every 6 years. Once a pre-approved plan receives its new favorable opinion or advisory letter, adopting eligible employers would have two years to adopt the restated plan.

If a pre-approved plan sponsor determines that the plan may no longer meet the applicable federal tax law requirements and the sponsor does not or cannot submit a voluntary plan correction request to the IRS, the plan sponsor must notify the adopting employers that the plan no longer complies with the tax laws. The sponsor must advise the adopting employers of the potential adverse tax consequences of such noncompliance, and inform them about the available IRS plan correction programs.

These responsibilities will cease if the plan sponsor withdraws its opinion or advisory letter application, or if it has notified the IRS and adopting employers that it is abandoning the plan. These responsibilities also cease if the IRS has notified the plan sponsor that its opinion or advisory letter has been revoked.

Puneet:

As Jason mentioned, it's possible for a plan sponsor to withdraw its opinion or advisory letter application. So what are the steps for doing that? And what if a plan sponsor abandons a pre-approved plan? The process for withdrawal is very straightforward. A pre-approved plan sponsor may withdraw its opinion or advisory letter request at any time prior to the issuance of the letter by notifying the IRS in writing. Each eligible employer that has adopted the plan must also be notified that the request is being withdrawn. Each adopting employer will then be considered to have an individually designed plan.

As far as abandoning a plan, the plan sponsor can do so by notifying the IRS in writing that its 403(b) pre-approved plan is no longer being used by any eligible employer and that it no longer intends to offer it for adoption.

A plan sponsor that intends to abandon a pre-approved plan that is still being used by at least one adopting employer must inform any such employer that the form of the plan has been terminated, that the employer's plan will become an individually designed plan unless it adopts another pre-approved plan, and that any employer reliance on the abandoned plan's favorable letter will not continue. After notifying all adopting eligible employers, the abandoned pre-approved plan sponsor must notify the IRS. Jason:

Well, that's it for our overview of the responsibilities of a 403(b) pre-approved plan sponsor. For more details on the 403(b) pre-approved plan program, see our other videos or visit us on the Web at irs.gov. Just search for "403(b) pre-approved plan."