NTSAA Guidance: Extension of Written Plan Requirement
The Internal Revenue Service posted IRS Notice 2009-3 which delayed the requirement for 403(b) plan sponsors to have a written plan document in place until December 31, 2009. Unfortunately, some have interpreted this guidance as delaying compliance with the final 403(b) regulations until December 31, 2009.
It is important for members to understand that this conclusion is not accurate. Notice 2009-3 simply provides additional time for employers to actually adopt the written plan. It does not delay the effective date of the regulations! The Notice includes the requirement that in order to qualify for the later plan document deadline, the plan sponsor (starting January 1, 2009) must operate their 403(b) plan under a reasonable interpretation of the 403(b) final regulations.
The relief provided under Notice 2009-3 simply means that employers can execute the written plan on or before December 31,2009, at which time, it must be adopted retroactively to the January 1, 2009 effective date of the final regulations (for most employers). Thus, 403(b) plan sponsors must make a good faith effort to comply with final 403(b) regulations on January 1, 2009 in order to qualify for the later plan implementation date.
Additionally before the end of 2009, employers must make efforts to retroactively correct any operational failures that took place during the 2009 calendar year to conform to the terms of their written 403(b) plan. Correction procedures must be based on the principles of correction provided in the Employee Plans Compliance Resolution System (EPCRS) currently set forth in Revenue Procedure 2008-50.
Discussions with IRS staffers indicate that the IRS is hopeful that a plan document approval program and a newly revised revenue procedure outlining correction procedures specific to the final regulations will be ready before the end of 2009 - however, cannot guarantee that both will occur before the end of the year.
It is also important to note that the relief offered to plan sponsors under Revenue Procedure 2007-71 relating to "orphan accounts" was NOT modified by Notice 2009-3. Therefore, if an employer makes contributions to a vendor after 12/31/08, any accounts held by that vendor will NOT be orphan accounts and the plan sponsor must include those vendors under its plan document, at least for the period in which contributions were sent to that vendor. The Notice does not give plan sponsors more time to select vendors or to delay decisions about the 403(b) plan. Any transaction that occurs after 12/31/08 under the 403(b) plan must be reflected in the plan document when executed. Failure to do so can result in an operational violation of the plan.
Bottom line? To avoid potential operational failures, a "best practices" approach for employers would be to adopt their written plans consistent with the general effective date of the final 403(b) regulations to assure that the terms of the written plan are followed at the outset. If that is not feasible, then, as a best practice measure, employers should adopt and conform to the written plan requirement as early as possible in the 2009 calendar year.