December 16, 2008
Plan Document Must Now Be Adopted By December 31, 2009
Written Plan Document Required. On July 26, 2007, the Internal Revenue Service ("IRS”) published final regulations under § 403(b) of the Internal Revenue Code, including a requirement that all § 403(b) plans be maintained under a written plan document containing certain specific terms and conditions. These final regulations are generally effective January 1, 2009 and provide that the written plan document requirement must be met as of that date. In the past, many plan sponsors haven't had written plan documents for their § 403(b) plans and such plans have been governed only by annuity contracts and custodial agreements.
IRS Promises Guidance to Facilitate Compliance. In Notice 2009-3, the IRS recognizes that some § 403(b) plan sponsors may not have written plan documents in place by January 1, 2009. The Notice indicates that the IRS intends to issue sample plan language for drafting § 403(b) prototype plan documents and to establish procedures for IRS pre-approval of prototype plan documents. The Notice also indicates that the IRS ultimately intends to establish a determination letter program to approve individually designed § 403(b) plan documents.
IRS Issues Temporary Relief. In light of these realities and IRS initiatives, Notice 2009-3 provides temporary relief from immediate compliance with the written plan document requirement. The Notice states that the IRS will not treat a § 403(b) plan as failing to satisfy the written plan document requirement of § 403(b) and the final regulations for the 2009 calendar year, if three conditions are met:
- The plan sponsor adopts a written plan document on or before December 31, 2009, retroactively effective as of January 1, 2009.
- The plan sponsor operates its § 403(b) plan throughout 2009 in accordance with a reasonable interpretation of § 403(b) and the final regulations.
- Before the end of 2009, the plan sponsor makes its best effort to correct any operational failure occurring during the 2009 calendar year to conform retroactively to the terms of this written plan document. Any correction of an operational failure must be based on the general correction principles set forth in the IRS' Employee Plans Compliance Resolution System (“EPCRS”).
Relief for 2009 Calendar Year Only. The IRS stresses that the relief granted in Notice 2009-3 applies only to the 2009 calendar year. Specifically, the relief granted in Notice 2009-3 may not be relied upon with respect to the operation of a § 403(b) plan, or the correction of any operational failures, in prior or subsequent years.