If the end of 2008 saw you feverishly trying to comply with the new 403(b) rules, you likely breathed a sigh of relief when the IRS decided to delay the requirement to adopt your new plan by the end of the year. While you now have until December 31, 2009 to adopt the new plan, non-profits must still comply with other facets of the law. A few highlights:
- 403(b) plans must now have a written plan document. The document should contain the terms and conditions of the plan, like eligibility, benefits, investments, and how and when distributions occur;
- The plan may not delegate administrative responsibilities to employees, but they may use third parties to provide administration and compliance services;
- Employers have a “reasonable time” to forward plan contributions to the proper investment companies. According to the regulations, “reasonable time” could mean within 15 days following the end of the month in which the salary reduction amounts would have otherwise been paid;
- Groups of employees may not be excluded from participating in the plan by classification, unless they are eligible for another salary reduction plan, they normally work fewer than 20 hours per week for the employer, or they are unwilling to contribute at least $200 per year to the plan; and
- A “meaningful notice of their right to participate in the 403(b) plan” must be provided to employees at least once a year.
IRS Notice 2009-3 extended the date by which the plan document must be adopted to December 31, 2009. Be aware, though, that the IRS expects non-profits to comply with the law in the interim, using a reasonable interpretation of the rules. Good faith effort seems to be important here. The IRS says it will view the plan as compliant during 2009 if the submitted document is written as if it is “intended to satisfy” the requirements of the final regulations.
Before the end of 2009, employers must make reasonable efforts to correct any deficiencies in the operation of the plan, based on the written document. It is likely that the IRS will issue a draft revenue procedure on the subject of 403(b), and request public comments on it.
“The IRS extension should be viewed for what it is – an extension that makes it clear that the expectation is that non-profits generally must comply with the 403(b) regulations during 2009, even though they now have until December 31, 2009 to adopt a written plan,” said David Ray, vice president at Diversified Investment Advisors. “The objectives of the 403(b) regulations are still the same, which is to shift compliance responsibilities squarely on the backs of plan sponsors and to eliminate differences between 403(b) plans and their more popular cousins, 401(k)s.”