Written plan requirement
One of the items causing a great deal of concern in the 403(b) retirement plan community is the requirement in the proposed 403(b) regulations that 403(b) plans must be in writing. It may be a surprise to you to know that, unlike qualified plans, currently there is no requirement that 403(b) plans be in writing. (There are some requirements that “contracts” must contain certain language that leads one to believe there may be such a requirement; however, the IRS maintains — even in their audit training manual — that 403(b) plans do not have to be written.)
Form and operation requirement
Of course, the best practice is to have retirement plans in written form, and GuideStone has provided 403(b) plan documents to its clients for decades. Thus, you might think this “new” requirement has little impact. However, one small part of the written plan requirement contained in the proposed regulations is the obligation that the plan be maintained “in both form and operation.” To translate from IRS-speak, this might mean that not only must the plan contain the right provisions; it could also mean the terms of the plan must be followed exactly as written in order for the plan to continue to be considered a 403(b) plan.
In the past, with respect to any Internal Revenue Code requirements, there has been some “wiggle room” when a plan’s operation did not match the terms of the plan. One could argue that, from the perspective of the IRS, a 403(b) plan was never required to be documented. (Of course, other considerations may apply, such as contract considerations.) However, once the final regulations are effective, possibly January 1, 2007, it may be more difficult to correct situations where the plan is operated differently than what is documented. We will have to wait and see what the final regulations say with regard to 403(b) plans, but the rules for qualified plans (e.g., 401(k) plans) require that the terms of the plan must be followed in order for the plan to remain a qualified plan.
Steps to take now
You may consider reviewing your plan document, or at least the plan summary, with the persons in your organization who perform administrative duties with respect to your plan. In GuideStone’s experience, sometimes the operation of the plan is based on “oral history” rather than the actual plan document. While an organization’s management may be very familiar with the terms of the plan document, sometimes the people actually processing the daily work of the plan are not familiar with the plan terms, or were familiar at one time, but the terms of the plan changed and the people in the back office are not aware of the change.
Remember that if you use Employer Access through GuideStone’s Web site, you can view your plan document, the basic plan document, the plan summary and the service agreement online. Learn more about Employer Access (Flash movie, 10 minutes).
View additional 403(b) Regulation updates and other compliance resources.