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403(b) Plan Sponsor Checklist: Written Plan vs Plan Document

Understanding key compliance areas can help ensure your plan complies with 403(b) regulations. 

Did you know that, technically, the IRS 403(b) regulations do not require an employer to adopt a 403(b) plan document? A public school or a 501(c)(3) nonprofit organization with a 403(b) plan must maintain a written 403(b) plan which meets the IRS regulatory requirements, both in form and in operation. (Note that there is a special exception to this requirement for certain church-related entities unless they offer a 403(b) retirement income account.)

In other words, the IRS guidance does not state that there must be a 403(b) plan document.

Written 403(b) Plan vs Plan Document

The term “written 403(b) plan” has a broader scope than the “403(b) plan document.”  A “403(b) plan document” contains all of the plan and IRS rules in a single written text.

So, what then, does the IRS mean by a “written 403(b) plan”?

According to the IRS 403(b) Examination Guidelines, a written 403(b) plan can consist of “multiple documents, including documents that are incorporated by reference. All of these written materials collectively may serve as the written 403(b) plan, provided that all material terms and optional features are captured within these materials.”

“A written 403(b) plan must include both required elements and any optional feature offered by that employer’s 403(b) plan.”

What are the required elements of the written 403(b) plan?

The IRS requires that a written 403(b) plan include the following elements (known as material terms): 

1. Terms and conditions for eligibility to participate in the 403(b) plan;
2. Benefits available under the 403(b) plan;
3. IRS limits on contributions (and loans, if permitted under the plan);
4. Forms of distributions available; and
5. Time for accessing distributions.

What are 403(b) optional plan features?

Some plan features are optional, meaning that an employer may choose—but is not required—to offer these elements. Examples of optional features include:

  • Roth 403(b) and catch-up contributions,
  • loans; and
  • hardships.

If an employer permits an optional feature, its terms and conditions must be part of the written 403(b) plan.
There must be proof the employer has adopted the written 403(b) plan. 

If the employer has adopted a 403(b) plan document, “adoption” means that the plan document was signed by an authorized individual of that employer. The employer may have a board resolution identifying the individual(s) authorized to execute documents on behalf of the 403(b) plan.

If the written 403(b) plan consists of a collection of various documents, “adoption” means that the employer has put a written 403(b) plan in place, in a timely manner, which is intended to satisfy the IRS regulatory requirements. Proof of timely adoption may include:

  • Date-appropriate employee handbooks providing 403(b) plan highlights,
  • Employer communications about the 403(b) plan (such as the employer’s intranet webpage), annuity contracts and custodial account agreements,
  • Salary reduction agreements, and
  • Employment contracts.

Key 403(b) Plan Best Practices

1. Keep all written plan materials, including any updates, in a secure place. 

An employer’s 403(b) plan provides the rules of the road for plan participants. The written 403(b) plan and all related materials (such as board resolutions and plan amendments) should be maintained with the employer’s permanent plan records. If the IRS were to audit the 403(b) plan, the IRS examiner would request documentation that the written 403(b) plan was timely and effectively adopted. 

2. Periodically review and confirm that the written 403(b) plan aligns with the employer’s protocols. 

A written 403(b) plan should be consistent with internal procedures used by the employer’s payroll and human resources areas. For example, the most recent version of the employee handbook should be compared against the terms of the written 403(b) plan. Similarly, payroll protocols that address initial salary reduction contributions or modification of existing salary reduction contributions should be consistent with the terms of the written 403(b) plan and the IRS regulations. 

3. Update the written 403(b) plan. 

Maintaining a written 403(b) plan means periodic updates to:

  • Optional plan design changes (for example adding a Roth 403(b) and/or employer  contributions); or
  • Required updates to reflect federal legislative and regulatory guidance. The IRS identifies an annual list of changes and the corresponding deadline for those changes. In addition, IRS guidance notes that written 403(b) plans will be subject to a 6-year cycle of regularly scheduled restatement period to address plan document issues and to update 403(b) plan provisions. 

Linda Segal Blinn is Vice President of Voya’s Technical Services for Tax-Exempt Markets. 

Opinions expressed are those of the author, and do not necessarily reflect the views of the NTSA or its members.

Used by permission. The original appeared here.