IRS Updates FAQs on 403(b) Pre-Approved Plan Program

The IRS on Nov. 28 updated the information it provides on its website concerning eligible adopting employers and reliance on letters regarding the IRS 403(b) Pre-Approved Plan Program.

Employers that can adopt a 403(b) plan — public schools, 501(c)(3) tax-exempt organizations, churches and certain self-employed ministers — can adopt a 403(b) prototype or volume submitter specimen plan.

The IRS will issue opinion or advisory letters for 403(b) pre-approved plans concerning whether that pre-approved plan satisfies the requirements of Internal Revenue Code Section 403(b). But the IRS adds a caveat that there are limits. For instance, the IRS will not issue such letters for:

• church defined benefit plans under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA);
• plans grandfathered under Revenue Ruling 82-102;
• plans that include blanks or fill-in provisions for the adopting employer to complete, unless the plan is designed in such a way to make it impossible for an eligible employer to complete the provisions in manner inconsistent with Section 403(b);
• plans that incorporate by reference Code Section 415 limitations or the average contribution percentage test of Section 401(m)(2); and
• any other plan the IRS determines is not suitable for an opinion or advisory letter.

There also are limits to what IRS opinion or advisory letters for 403(b) pre-approved plans signify: they do not cover the terms of any underlying investment agreements or any other ancillary document even if these documents are incorporated into the plan by reference, nor do the letters address whether a plan is subject to, or satisfies, the requirements of ERISA.

The IRS says that the extent to which an employer that adopts a 403(b) pre-approved plan can rely on the plan’s letter depends on the terms of the plan’s opinion letter and the type of employer. And it advises that an adopting employer carefully review the letter to understand its scope.