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Pre-Approved 403(b) Plans

Q: We read the article entitled “The Birth of the First Ever IRS Pre-Approved 403(b) Plan Document,” but found the dates to be confusing. We are having trouble understanding why an employer would adopt a plan on Dec. 20, 2017, with a Jan. 1, 2010 effective date. Here is the excerpt from the article:

On Dec. 20, 2017, the employer executes the new IRS approved plan. In this case the employer would sign the restated plan with the effective date of Jan. 1, 2010. The employer must also indicate in the adoption agreement, the effective dates of the amendments that have occurred since 2010. The employer would use the restatement effective date addendum (or whatever it may be called in your client's document) to outline amendments (between 2010 and Dec. 20, 2017), as follows:

  • Participant Loans: Effective June 30, 2010

  • Nonelective Contributions: Effective Jan. 1, 2012

  • 1-year eligibility for Nonelective Contributions: Effective Jan. 1, 2012

  • Post-employment contributions: Effective Jan. 1, 2014

Without these being indicated as the interim amendments, the employer will not have ‘reliance’ back to Jan. 1, 2010. The IRS has already indicated that they will be reviewing this portion of the adoption agreement.

Please help us understand how the restatements for the pre-approved 403(b) program will work.

A: Let’s pull this process apart:

First, as long as there was a document adopted by the end of 2009, they have reliance for the 2009 year and can then move forward to obtain reliance going forward.

Next the new document (remember this is the first remedial amendment period, so that all interim amendments that may have been required for qualified plans were not required to be adopted):

There are two choices depending on the plan that you will be using –

1. Adopt the new restatement to be effective Jan. 1, 2010 (or the initial effective date if later). This will make sure that provisions that were required in 2010 are now part of the plan. Then on the Restatement addendum, indicate all provisions that changed from Jan. 1, 2010 through the date of restatement. Provisions added through the years.

2. Adopt the new restatement with an effective date being the year executed. The employer will need to add the dates as above based on the years that the provisions changed.

We used the first method, which is what the article indicates. Either way is acceptable, as long as the IRS can see when various provisions were added to the plan or operations. You will need to look at the plan you will be using to see which method works for your clients.