On March 27, the Internal Revenue Service (“IRS”) extended the deadline by which most school districts and other eligible employers must restate their 403(b) plan documents. The new deadline is June 30, 2020. This new deadline is a welcome reprieve for employers who were not aware of the deadline or who were unable to complete their new documents because of the recent COVID-19-related turmoil. Congratulations if your organization has already completed its 403(b) plan restatement. You can stop reading now.

403(b) Plan Document Requirements

In 2007, the IRS issued final 403(b) plan regulations which required that employers adopt a written plan document for their 403(b) plan. With subsequent guidance, the deadline to adopt such a plan document was eventually extended to December 31, 2009.

The process of preparing those documents often proved difficult because most employers had never thought of their 403(b) deferrals as a “plan.”  The process was also made more difficult by the fact that the IRS provided only one relatively useless sample document that didn’t reflect many common school district practices. As a result, employers typically used a mix of attorney-drafted documents, documents provided by investment vendors and a mix of other forms.

In 2013, the IRS finally announced that it would review and approve model plan documents in the same way that it has for 401(k) and other tax-qualified plans for decades. Specifically, the IRS extended the program for obtaining pre-approval on plan documents to 403(b) plans. As a result, employers who use a pre-approved plan document can rely upon an IRS advisory letter and know that the terms of the plan document comply with the applicable Internal Revenue Code requirements. Because this program was open to virtually all professional service providers, the plan documents were much more robust and flexible than the earlier IRS sample document.

In an effort to help employers comply with the plan document requirements, the IRS said that an employer which adopts a pre-approved plan document could do so before March 31, 2020 and apply the terms of that document retroactively to 2009. If properly prepared, the employer could also rely on the IRS advisory letter for that entire time.

The “remedial amendment period” provides a great opportunity for employers to review their own 403(b) plan, confirm the plan document reflects its actual practices and conform the document to those practices.

Common Drafting Problems

We have our own pre-approved 403(b) plan document and we have reviewed plan documents from most of the major record keepers and service providers. In the process of preparing and reviewing 403(b) plan documents for many Wisconsin school districts, we found that most vendor-drafted plan documents:

• Were written to wrongly exclude employee WRS contributions from the definition of compensation;
• Allowed multiple catch-up provisions that the employer was not prepared to calculate;
• Wrongly provided that any employer contributions or matching contributions would be allocated equally to all employees instead of limited groups of employees (e.g., administrators or teachers);
• Included improper or inaccurate in-service, loan and/or hardship provisions.
• Included summary plan descriptions and other documents that governmental employers do not need to distribute to their employees (in many cases, these documents referenced federal laws that do not apply to governmental employers).

Whether your organization has completed its restatement or not, now is also a good time to review the number of investment providers allowed to operate under your 403(b) plan.

Conclusion

Employers who have not completed their 403(b) plan restatement should take advantage of this opportunity to prepare, carefully review and finalize those documents before June 30, 2020.

If you have any questions or concerns regarding your 403(b) plan or completing the plan restatement process, please contact Matthew Flanary at mflanary@buelowvetter.com or (262) 364-0253 or Brett Schnepper at bschnepper@buelowvetter.com or (262) 364-0262 or your Buelow Vetter attorney.