What You Need to Know about the 403(b) Pre-Approved Plan Program - Phone Forum - June 25, 2013
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Note - Any federal tax advice contained in this transcript is intended to apply to the specific situation described and should not be considered official guidance independent of the presentation. The tax advice and statements contained herein should not be relied upon for retirement planning purposes without first consulting a tax or retirement planning professional. This transcript has been edited for technical accuracy and may differ slightly from the audio recording of the "What You Need to Know about the 403(b) Pre-Approved Plan Program." This information is current as of June 25, 2013. Since changes may have occurred, no guarantees are made concerning the technical accuracy after that date.
John: Hello everyone! As she mentioned, I am John Schmidt. I'm the acting director of IRS Employee Plans Customer Education Outreach. I'd like to welcome you all to our phone forum entitled "What You Need to Know the about 403(b) Pre-Approved Plan Program." Today, we'll be hearing from two tax law specialists, Anne Bolling and Patrick Gutierrez, along with EP Group Manager Jason Levine. Thank you all for joining us today.
Before we start, I'd like to point out a couple of things. Everyone registered for this forum will receive certification of completion by email in about a week as long as you attend the entire live forum. Enrolled agents, enrolled retirement plan agents and enrolled actuaries are entitled to continuing education credit for this session. Other types of tax professionals should consult their licensing organization to see if today's session qualifies for continuing education credit. As with all of our presentations, the comments expressed by our speakers should not be construed as formal guidance from the IRS
As always, we have an array of retirement plan resources available for you. For example, please check out slide two of the handout, which contains a link to the retirement plans home page on IRS.gov, along with information on how to subscribe to our newsletters. In addition, slide 58 of the handout has links to additional online resources on 403(b) plans, including the 403(b) Fix-It Guide and our videos featuring the 403(b) Pre-Approved Plan Program. Please take the time to check them out.
That's enough from me so without further ado, I'd like to turn the microphone over to Jason.
Jason: Thank you, John.
This is Jason Levine. I'm the group manager of employee plans technical group two. Before I get started with our presentation, I just wanted to mention a couple of additional resources or at least avenues to resources for you to utilize, if you have any questions about anything we discuss here today or anything 403(b) related. There are two ways you can address questions to us. One would be through the email and another would be to use the phone and call us.
The first, which is an email address. I'm going to read it to you, all one word, email@example.com. You can simply type your email no matter how short or how long you want to do it and send it to that email address or you can call 877-829-5500. I assure you that the way these work is they eventually, if they're 403(b) related, they'll get routed to any of the three of us here in this room or another member of the 403(b) cadre here in Washington D.C. so you will get a response eventually from a human being. I just want to assure you of that.
As John mentioned, slide number two of your presentation talks about our retirement plan resources and I would really encourage a lot of you on the phone who has questions about what we're doing here and what's going on with the pre-approved program for 403(b) programs or just 403(b) plan questions in general, to avail yourself of these resources. A lot of time and thought went into putting the materials together and they really do cover the majority of questions that we typically get so that should be your first stop when wondering about an answer to a specific question.
Because of the nature of this phone forum, I know you all, maybe you're all on your computer, if you have the PowerPoint slideshow in front of you, what we'll do is as we're speaking, we'll prompt you to move to the next slide so try that out right now.
Please advance to your slide number three, which is scope of presentation. We're going to briefly cover what we're going to cover today. I'll begin with a background and overview of the pre-approved program. It's a brief history of 403(b) and how we got to the point where we have this pre-approved program. We're going to jump around. The three of us are going to speak on different topics and, hopefully, we'll keep you all awake by jumping all around with different speakers here.
Patrick, he'll talk about the types of pre-approved plans and then we're going to go to required provisions after that with Anne speaking about that. I'll jump back into the conversation with talking about a couple of special cases, plans of churches and mass submitters. Patrick will then go back to discussing the scope of a favorable letter and employer reliance on those letters and Anne will be discussing duties of the pre-approved plan sponsor and we'll finish up with how to apply for this pre-approved program. We'll briefly show you a slide of additional resources that you can look at to get further information about this program.
Please advance to the next slide. Okay. This next slide is about background. Many of you are probably aware of this, but just to make sure that everyone on the call, and there's a lot of you on the call, are aware as to where we are right now. I'm going to give you a real quick primer about the history of the 403(b). 403(b) was added to the Internal Revenue Code by Congress and we'll just refer to the Internal Revenue Code as the Code from now on, was added way back in 1958 and the IRS issued regulations on 403(b) in 1964.
Now, a Code section 403(b) plan is essentially a retirement plan that was intended for individuals employed by public schools, 501(c)(3) organizations and church ministers to save for retirement and the situation has existed for many years. As I've mentioned before, the regulations were issued back in 1964. Over the years, since 1964, a lot of bits of guidance were issued by the IRS over the years with new rulings, new provisions that need to be in these plans and just new guidance for how to operate and maintain your 403(b) plan and how to work your 403(b) through your employees.
After 43 years, we updated the regulations in 2007. These regulations were generally effective on January 1, 2009. During the interim, for many of these years, many of the 403(b) plan sponsors did not really actively administer the 403(b) plans. They viewed themselves simply as the facilitator between their employees and the various annuity or mutual fund providers that offered contracts to their employees.
The first set of big changes really came in 2004, when we issued proposed regulations, which, again, became finalized in 2007. Now, these proposed regulations, and later final regulations, really explicitly signaled that there would be greater employer responsibility expected over these plans. A number of big changes were included in those regulations.
Please go to the next slide, slide number five, for these updated regulations was, as the 403(b) marketplace was evolving over the years, there really became a much more similar product, a much more similar retirement plan to the other salary deferral vehicles out there such as 401(k)s and 457(b)s. The regulations sought to really make the 403(b) plan world more in line with those other types of plans. Now, mind you, they're still important differences that will exist and currently exist but the plans are now more similar than they used to be years and years ago.
Also, the lack of a central repository of regulations was causing employers and other 403(b) interested parties some difficulty in making sure that they were following all of the rules and were aware of all the relevant rules. That is in the slide I referred to before about there were a lot of guidance that came out in between the regulations in 1964 and then the 2007 regulations.
The 2007 regulations in part really start to bring all of that guidance together. Of course, new stuff was added as well. Some of these new features, perhaps the most significant, arguably the most significant new feature that was included in the final regulations was the written plan document requirement.
Please turn to slide number six. Now, historically, there was never any Internal Revenue Code based written plan document requirement prior to the final regulations requiring them. Some of you on this call may be familiar with ERISA and you may be involved with 403(b) plans that are covered by ERISA. If so, if you have a 403(b) plan that's been covered by ERISA. ERISA requires retirement plans to be reduced to writing, there needs to be a written documents for those, so 403(b) plans that have been covered by ERISA all these years have needed written plan documents, so some of you on this call may be thinking, "Yes, I've needed a written plan for years, well before these regulations you're talking about." That's an ERISA based requirement. We're talking about for the first time an Internal Revenue Code based requirement for a written plan requirement.
Now basically what the written plan document requirement involves is it must set forth the basic and major plan provisions of the plan and these types of provisions that are required to be covered by the written plan document requirement will be discussed later on in the presentation. Originally, the written plan was supposed to be in place by January 1, 2009, when the regulations became effective. However, realizing that this was a big change in the 403(b) world, the IRS issued transitional relief for 2009, and I'm going to start with the bottom of this slide here, slide six and the next several slides, walking you through some of the guidance items that have been released since the regs to try to get you caught up to where we are right now.
This first one was Notice 2009-3. Please turn to the slide seven. Notice 2009-3 provided transitional relief for the 2009 calendar year only if you did three things. That you adopted a written plan, that you put it in place before the end of 2009 and that was intended to satisfy 403(b) including the final regulations. Then, during that 2009 calendar year, the plan was operated in accordance with a reasonable interpretation or 403(b) in the regulations. Finally, on or before the end of 2009, you would make best efforts to retroactively correct any operational failures during 2009 to conform with that written plan that you had adopted. As long as these three things were in place, we allowed you to adopt a written plan as late as 12/31/09, as long as it was effective retroactive back to 1/1/09.
Now, after 2009-3 we also released another item which was Announcement 2009-89 and this is on the next slide. 2009-89 signaled our intention to publish a revenue procedure that would allow plan sponsors to obtain opinion letters for prototypes or other pre-approved plans. We finalized a draft revenue procedure that was contained in the Announcement 2009-34. I'll get to that in a few slides.
Also, the ability to obtain determination letters for individually designed plans. You'll notice in that sub-bullet point with the determination letter for individually designed plans, there's an asterisk there. I'll get to that in a moment. I just want to highlight that for you. Of course, 2009-89 also included a remedial amendment period beginning on January 31, 2010, when certain conditions were met.
Please go to the next slide. The next couple of slides are going to discuss really the remedial amendment period that was detailed I should say in 2009-89, and I'll describe that 2009-89 remedial amendment period, but I'm also going to talk about the current remedial amendment period that's provided for in the revenue procedure that lays out the pre-approved program.
That revenue procedure which we have cited later on is Revenue Procedure 2013-22, okay? We'll say Revenue Procedure 2013-22, we'll say pre-approved program, while talking about the same thing. It's the revenue procedure that lays out this pre-approved program for 403(b).
The remedial amendment period described in 2009-89 is largely carried over in the revenue procedure and I'll discuss it here and then I'll tell you what the differences are now. The remedial amendment period is retroactive to January 1, 2010, and employer reliance starts on January 1, 2010, if - and this is what we said back in 2009 - if you adopted a written plan document no later than the end of 2009 and either timely adopted a pre-approved plan with a favorable letter or timely applied for an individual determination letter when available. The last bullet talks about how employers may correct form defects in their plan documents retroactive back to 1/1/2010.
The next slide, we can flip back and forth between nine and 10 here. The next slide talks about how the new plans that are established after 1/1/2010, it's essentially the same rule but the retroactive date of that remedial amendment period is the plan's effective date because that's after 1/1/2010.
Now, again, this reflected where we were in 2009. Things have changed since then. Right now in 2013, we have issued the revenue procedure and we're about to open this program. Section 21 of Revenue Procedure 2013-22, section 21 describes the remedial amendment period and it's largely the same but an important omission is the time where you apply for an individual determination letter because at this time, we're not contemplating an individual, separate, individual determination letter program at this time.
What the current remedial amendment period provides for is that the first day of the remedial amendment period is either the later of January 1, 2010, or later, when you first adopt your plan. Okay, it's on or before that date you adopt a written plan and then and on or before the last date of the remedial amendment period, the employer amends its plan to the extent necessary to correct any form defects retroactive back to the first day of the remedial amendment period, you will have reliance that the form of your document is good, okay.
Now, couple of things about that. That number two, the second part, that on or before the last day of the remedial amendment period, you amend the plan to the extent necessary to correct form defects, you will be deemed to have automatically satisfied that if you adopt a pre-approved plan that has received a favorable letter going through this program that we're describing today.
Okay, another thing is that last day of the remedial amendment period, we haven't defined that last day yet. That will be the subject of subsequent guidance. We will provide what the last day of the remedial amendment period will be.
The third point is the remedial amendment period available to correct form defects only. It's not available to correct operational failures. Now, a point on that and this may be reiterated again later in the presentation, a form defect is essentially the same thing as some of you who are familiar with the Employee Plan Compliance Resolution System, the EPCRS, the EPCRS plan correction program. A form defect here is essentially the same as a plan document failure under that correction program.
What is a form defect? Form defect is either a provision that doesn't meet the requirements of 403(b) or it's an absence of a provision that's needed that means the plan fails 403(b). Let me give you an example of something that is not a form defect and something that is a form defect so we're all clear about what you can correct within a remedial amendment period.
Many of you are aware of universal availability, which is the rule that essentially if any employee is allowed to defer salary, then all employees must be allowed to defer salary, other than specific categories that can be excluded pursuant to the statute or the regulations. Just say you have a plan document that excludes all employees that normally work fewer than 20 hours per week. Okay, one of the statutory exclusions, okay? That's what your plan document says. And in operation, you're not excluding anyone, okay? Your plan document actually complies with 403(b). The operation of your plan also complies with 403(b). The problem is the operation of your plan and your plan document are not consistent. That's a problem, okay, that's an operational failure but it's not a form defect.
A form defect would be the plan document not conforming to 403(b). That would be saying, "All safety patrol workers are excluded from the plan." Now, that's not an excludable category, that is a form defect that can be corrected under the remedial amendment period.
Okay, please go to slide 11. Slide 11. How did we get to a pre-approved program? As I mentioned earlier, Announcement 2009-34, which was issued in April of 2009, talked about a draft revenue procedure for this upcoming pre-approved 403(b) program and we also solicited comments at that point. It also included a draft of this thing, of required modifications or LRMs. They were provided at this time, giving potential plan sponsors and adopting employers some sample plan provisions to look at. We received many, many comments in response to the draft pre-approved program as well as the draft LRMs. Many of those comments were integrated into the final product that you see today that came out in 2013-22.
Please go to slide 12. Revenue Procedure 2013-22, which was issued in April of this year, this establishes the 403(b) Pre-Approved Program, which we'll refer to simply as the program because the first time what this does is this provides 403(b) plan sponsors the ability to obtain assurance for the IRS that the form of their written 403(b) plan document meets applicable requirements. That's important. What we're getting you assurance on is that the form of your document meets 403(b) in the regulations. We're not saying anything about the operation of your plan, it's the form of your plan. Those of you on the call that are familiar with the qualified plan world like the 401(k) world and things of that nature, this is the same concept that's existed in the qualified plan world for years.
Now, the benefits of this program, when you get a pre-approved plan, a plan sponsor has drafted that and they submitted it and they're getting the letters so if you're an adopting employer looking to get a plan document, wanting to have a plan document that's received IRS approval, this is generally a lower cost way of doing it and an easier to administer type of way of doing it. Also, as we discussed at length in prior slides, there's a remedial amendment period included in this program.
We go to the next slide. The main changes from the draft revenue procedure which many of you are familiar with because it's been out there for a few years. The first bullet point, I talked about it already, the individually designed plan determination letter program is not contemplated by the program at this time. Eligible individually designed plans, you still have a remedial amendment period during which you're permitted to amend your plan to correct retroactively the form defects, the issue is you just won't have reliance. You won't be able to obtain reliance like you will if you adopt a pre-approved plan. As we said earlier, the IRS will announce in future guidance the last day of that remedial amendment period, the last day that you can amend that plan. And, the last bullet point I just described already.
Okay, you can go to the next slide, please. Additional changes. Volume submitter plans are now included in addition to prototype plans. Only prototype plans are provided for in the draft revenue procedure. Now, it's possible to have a volume submitter plan approved as a pre-approved plan that does not contain an adoption agreement. Also minor modifiers of mass submitter 403(b) prototype plans - that's a mouthful - are permitted regardless of expected number of adopting employers. Also, we allow for vesting schedules for employer contributions and on the next slide, slide 15, the program now includes church-related organizations sponsoring 403(b)(9) retirement income amount plans, regardless of the number of eligible employer expected to adopt the plan.
Basically, in short, we've arrived at this point that you need to have a written plan document. If you want to adopt your plan in which you have IRS assurance that the form of the plan meets IRS requirements, you're really going to have to basically go in the direction of a pre-approved plan.
With that in mind, let's move to the discussion to the different classes of pre-approved plans available in the program. We turn to Patrick for this discussion.
Patrick: Thank you, Jason.
We are now on slide 16, types of pre-approved plans.
There are two general types of pre-approved plans that a person can sponsor under the program - prototype plans and volume submitter plans. In other EP context, the term plan sponsor sometimes means the employer who is offering a plan to its employees but I want to make clear that here we're using sponsor to mean the person applying for a pre-approval of a plan under this program. Once a sponsor's plan has been pre-approved, the sponsor can offer the plan to employers to adopt as an employer's plan.
We also use different terms when referring to prototype plans versus volume submitter plans. For prototype plans a prototype sponsor applies to receive an opinion letter that his prototype plan satisfies the requirements of 403(b) by submitting the plan's basic plan document and the adoption amendment which I will discuss shortly.
In contrast, for volume submitter plans, a volume submitter practitioner applies to receive an advisory letter that its sponsored plan satisfies the requirement of 403(b) by submitting the plan's specimen plan and if it has one, an adoption agreement. A volume submitter plan is not required to have an adoption agreement but may have one.
One of the key differences between prototype plans and volume submitter plans is that the prototypes are required to have certain provisions that volume submitter plans are not required to have. A prototype plan must either be a standardized plan or a non-standardized plan. We'll get into a discussion of what the required provisions are.
Additionally, if certain criteria are met, as I will discuss later, employers who adopted a prototype plan may be entitled to greater reliance on the opinion letter received by the prototype sponsor. As Jason noted, an employer will not be able to apply for an individual determination letter for its actual plan.
Now, please turn to slide 17.
A prototype plan consists of two required parts, a basic plan document and an adoption agreement.
A basic plan document contains all the non-elective provisions of the plan. In other words, the standard provision that applies to all adopting employers. There must not be any options or fill-in-the blanks in the basic plan document. An employer who adopts a prototype plan will use a sponsor's pre-approved basic plan document as its actual plan document with no changes permitted to the basic plan document.
The adoption agreement contains all the available options an employer may select under the basic plan document. Selecting from the options in the adoption agreement is how an employer may customize his plan. For example, the adoption agreement might let the adopting employer choose one of several possible formulas for matching contributions. Additionally, the adopting agreement must specific whether the plan is a standardized plan or a non-standardized prototype plan and is required to have additional provisions which Anne will discuss later.
There may be multiple adoption agreements that can be used with a given basic plan document but only one basic plan document can be used with a given adoption agreement.
Each basic plan document and adoption agreement pair, is considered a separate prototype plan and requires a separate application under the program so if a sponsor has one basic plan document to be used with three different adoption agreements, then that is considered three different prototype plans and requires three separate applications.
Now please turn to slide 18.
As I mentioned, prototype plans must either be a standardized plan or a non-standardized plan. A standardized plan is one that either permits only salary deferrals, or if the plan permits an employer to elect any other contributions, such as employer matching contributions, the plan will be a standardized plan if the terms of the plan satisfy uniform coverage and non-discrimination requirements with respect to those other contributions.
Specifically, the requirements under the second prong with regard to other contributions are that the other contributions must generally be provided to all employees except section 410(b) excluded groups. Example of such exclusions are employees who don't meet permitted minimum age and service requirements or non-resident aliens with no U.S. source income.
The second requirement is that all plan benefits, rights and features must be available to all employees.
The third requirement is that any non-elective employer contributions other than matching must satisfy design based safe harbor.
Lastly, compensation must be defined as total compensation as provided under the program and which is defined in the revenue procedure.
Now, please turn to slide 19.
Simply put, a non-standardized plan is any prototype plan which does not need the requirement to be a standardized plan. For example if a prototype plan provides for employer non-elective contributions but the adoption agreement of the plan does not offer a designed based safe harbor to allocate them, then the plan would be a non-standardized prototype.
I want to note that the standardized versus non-standardized determination is not based on what a particular employer chooses but what the form of the plan offers, so even if an employer chooses to offer only salary deferrals, the employer will still have a non-standardized prototype plan if the employer adopts a prototype plan that allows for non-elective contributions and a compensation definition for the non-elective contributions that is not total compensation.
Plans of a 501(c)(3) that are not governmental plans or plans of churches or QCCOs who use standardized plans may, in certain circumstances, be entitled to greater reliance on a favorable opinion letter received by the prototype sponsor as I will explain when we discuss employer reliance.
Now, please turn to slide 20.
The second type of pre-approved plan of the program is a volume submitter plan. A volume submitter plan consists of a specimen plan and may also include an adoption agreement but it's not required to have one.
A specimen plan is simply a model plan document and an employer who adopts a volume submitter plan may make changes to the specimen plan. However, the adopting employer's actual plan must still be substantially similar to the approved specimen plan. Any changes must not be so extensive or complex as to be incompatible with the pre-approved program.
Again, I know that there is no determination letter program so employers who make changes to a volume submitter specimen plan cannot submit their plans to the Service for review and approval.
In contrast to a volume submitter specimen plan, a prototype plan approved basic plan document is the actual plan document an adopting employer will adopt with no changes permitted to be made by the employer.
Volume submitters may also have an adoption agreement but they're not required to have one. If an adoption agreement is used, it must have the same general required provisions as adoption agreements for prototype plans which Anne will discuss later.
Like prototype plans, if a volume submitter plan has an adoption agreement, each specimen plan in an adoption agreement pair is considered a separate volume submitter plan and requires a separate application under the program.
Although we don't have a slide for it, I will now discuss requirements to be either a prototype plan sponsor or a volume submitter practitioner.
To sponsor either type of plan, you must first be a person who has an established U.S. place of business where you are accessible during every business day. Second, you must expect at least 30 eligible employers to adopt your basic plan documents in the case of a prototype sponsor or at least 30 eligible employers to adopt your volume submitter plans, in the case of a volume submitter practitioner.
Eligible employers are those eligible to adopt a 403(b) plan.
A prototype sponsor may request opinion letters for more than one basic plan document or adoption agreements. Likewise, a volume submitter practitioner may request advisory letters for more than one volume submitter specimen plan.
As Jason will discuss later, this 30-eligible-employer requirement does not apply to a person sponsoring either type of plan if that plan is intended to be a retirement income account plan under Code Section 403(b)(9).
Now, please turn to slide 21 now. I will turn the discussion over to Anne Bolling to discuss the required provisions of a pre-approved plan.
Anne: Thank you, Patrick.
The Revenue Procedure describes provisions that every pre-approved plan must contain. We'll begin, as Patrick said, on slide 21. The plan must describe all material terms and conditions regarding eligibility, contributions and benefits, applicable limitations, the timing and form of distributions and the available investment arrangements. These required terms must be contained in the plan document itself, not just in the investment contract.
Now, in slide 22, we discuss eligibility and non-discrimination provisions. If the plan has elective deferrals, the plan's provisions must satisfy the universal availability rules unless the adopting employer is a church or qualified church controlled organization, a QCCO. Jason will be discussing special rules for churches and QCCOs a bit later.
The plan also needs to include a definition of compensation and must apply the 401(a)(17) limit to all contributions other than elective deferrals. Churches and QCCOs are exempt from this requirement and governmental plans can use the special transition rule that's described in the regulations.
If the plan permits matching contributions, it either has to set out the 401(m) test or have terms that satisfy a 401(m) safe harbor. This rule is a bit different from these other provisions. Under the other provisions, a prototype plan could have a carve out for entities not subject to the universal availability rule. But this rule applies to all pre-approved plans, unless the plan is available for adoption only by government entities, churches or QCCOs
Now, on slide 23, we'll get into the vesting provisions. The plan must describe the vesting rules. The plan can use a vesting schedule for employer contributions. However, the schedule must satisfy the vesting rules under section 411 for qualified plans. Now, while 403(b) plans are not directly subject to the vesting rules under 411, many 403(b) plans with employer contributions are subject to the same vesting rules under ERISA. We are requiring all prototype plans to comply with those vesting rules. A prototype plan cannot give an employer the option to use a non-ERISA vesting schedule, even if the employer's plan is not subject to ERISA. However, a volume submitter plan can permit the use of a non-ERISA vesting schedule, if it's designed for use by governmental plans and other non-ERISA employers.
If a plan uses a vesting schedule, the Revenue Procedure sets out rules for separate handling of the non-vested portion of a participant's account. This includes the requirement that employer contributions must be 100% vested upon termination of the plan.
The plan must also include all applicable limits. In particular, the plan must specify the aggregation rules for purposes of the 415 limits. The plan must also provide the terms governing all provisions relating to benefits, including the events that entitle participants to a distribution, any hardship distributions, loans, contract exchanges, etc., but the plan can incorporate many of the specific terms and conditions for those benefits by reference to the investment arrangements.
Moving on to slide 24. The plan must incorporate the terms of the investment arrangements by reference. But it must also provide that the terms of the plan governed over any inconsistent terms in the investment contract. The IRS does not review the investment contracts, just the plan document.
Moving on to slide 25. As we said, all required terms must be in the plan document or the adoption agreement, not just incorporated by reference from the investment contracts. However, it's okay for different investment arrangements to have different features. For example, one investment option may permit loans and hardship distributions while another does not. That's okay, but the plan would have to provide for that difference.
For example, the plan could provide that loans are available only to the extent permitted by each investment arrangement, but the plan itself would have to contain the plan-wide limit on loans and all the other loan requirements from the regulations. Similarly, the plan could refer to the investment contracts to set out the forms of distribution available, but the plan would need to specify the events that permit distribution, the 401(a)(9) limits on distributions and other legal requirements.
The point here is that we need to be able to tell from the plan documents that all the distributions, loans, hardship withdrawals, etc., will be made in accordance of the legal requirements.
Now, on slide 26, we see that the plan document must contain a procedure for the plan sponsor to amend the plan. The plan sponsor needs to be able to make plan amendments apply to all eligible employers who've adopted the plan. The plan must also require the sponsor to notify the employer of plan amendments and to notify the employer if the sponsor discontinues the plan.
Now on slide 27, we discuss the appendix. Each plan must have an appendix, which each adopting employer will need to complete. The appendix must identify the parties responsible for various administrative functions, such as ensuring compliance with various limits and non-discrimination tests, and approving loans, hardship withdrawals or distributions. The appendix must also list all of the investment vendors offered under the plans. It must include sufficient information to identify the available investment arrangements, such as a group number, contract number or similar information. What we're looking for here is information that helps identify which contracts issued by the vendor are part of the employer's plan. The employer can amend the appendix without affecting the plan's status as a pre-approved plan or its ability to rely on the advisory or opinion letter.
Now, slide 28 deals with special requirements for prototype plans. These are special requirements that apply to prototype plans but not to volume submitter plans. A prototype plan must have default provisions spelling out how the 415 limits are coordinated with other prototype plans of the employer and related employers. As I'll discuss shortly, the employer will have the opportunity to override that default language. However, the plan itself must have language that works if the employer maintains more than one prototype plan. The prototype plan must also have a description of the type of amendments and other circumstances that would make the plan lose its status as a pre-approved plan.
A plan will no longer be treated as a pre-approved plan and the employer will not be able to rely on the opinion or advisory letter if the employer makes any amendments to the plan other than changing the choice of options in the adoption agreement, adding overriding language to the adoption agreement about the 415 limits for aggregated plans, to change the information in the appendix, or to adopt sample model amendments that the IRS has put out that says, "This is fine for prototype employers to adopt without losing preapproved status."
The plan will also no longer be treated as a pre-approved plan if the employer choses to discontinue participation in the plan as amended by the prototype sponsor without substituting another pre-approved 403(b) plan.
Finally, a prototype plan must also have an adoption agreement which is addressed on slide 29. The adoption agreement for a prototype plan must require the employer to indicate specifically what type of employer it is. Thus, to show that it's eligible to maintain a 403(b) plan, the employer must check off a box to indicate whether it's a 501(c)(3) tax-exempt entity, a public school, etc. This should help to prevent erroneous adoption of the plans by employers who are not eligible to maintain a 403(b) plan.
In addition, to determine what non-discrimination rules apply to the plan, the employer will have to check a box to indicate whether it is a church, a QCCO or a government entity. The adoption agreement must allow the employer to add overriding language to coordinate the 415 limits among aggregated plans of the employer and related employers.
The adoption agreement must also contain an employer signature line with a date. The employer has to sign the adoption agreement when it first adopts the plan and when it adopts any restatements. In addition, the employer must complete a new signature page whenever it makes any changes to the elections made in the adoption agreement. The signatures can be made electronically, provided the electronic system reliably authenticates and verifies the adoption of the document.
There are a few administerial requirements as well, which are on slide 30. The adoption agreement for a standardized prototype plan must warn the employer that the failure to properly fill out the adoption agreement to cause the plan to fail to satisfy 403(b). It must state that it can be used only with one specific plan document, and it must identify that document.
We expect prototype plans to be written in a way that would make it easier for an adopting employer to get it right. The adoption agreement must also include the prototype sponsor's name, address and telephone number.
Now, on slide 31, we have some additional requirements that apply to non-standardized prototype plans. Remember, for employer contributions, a non-standardized prototype plan can permit the employer to exclude additional categories of employees or to allocate contributions in ways that don't satisfy a non-discrimination safe harbor.
The adoption agreement must warn the employer that the plan must satisfy the 410(b) coverage tests and the non-discrimination requirements for employer contributions on a continuing basis. The adoption agreement must also advise the employer that it can't rely on the plan's opinion or advisory letter for satisfaction of those requirements.
Now, we'll turn to Jason who will explain special rules for certain types of church-related plans and mass submitter plans.
Jason: Thank you, Anne.
Please turn to slide 32 and you'll see it says, "Plans of churches." The next section of slides deals with subject matter that is a big departure from the draft revenue procedure. As many of you have pointed out in your comments to us, the draft revenue procedure or the announcement, 2009-34, which set forth the draft pre-approved program, didn't have the flexibility to allow for pre-approved plans of churches or 403(b)(9) retirement income accounts which I'll talk about in a moment. Now, the program itself, 2013-22, is now flexible enough to accommodate a lot of these comments.
If you look at slide 32, we're talking about how there are certain rules specifically for 403(b) plans of churches, however, the content here is more narrow than the church plan concept that many of you are familiar with or that you've heard the phrase church plan. I'm putting here on the slides so you have this verbiage out there, there are different types of church organizations. There are churches, there are church-related organizations, there are qualified church controlled organizations or QCCOs and then there are non-qualified church controlled organizations or non-QCCOs. There are also ministers which I didn't put a bullet for that. Just to be clear, we're not going to go through an in-depth discussion of what each one of these terms means. We're not going to discuss really a lot about church plans here. Really, that's outside the scope of this discussion today. Really, what we're trying to do here is describe the program and how it relates to this world, what's relevant about this program in this world.
In slide 33, as you'll see, it says the program now permits opinion and advisory letters to plans that contain provisions applicable only to churches, QCCOs, church-related organizations or ministers. Also, opinion and advisor letters issued to plans containing provisions acceptable only in a plan of a church or QCCO. For example, those particular entities are not required to follow universal availability. In the draft revenue procedure, that wouldn't be allowed. We would not have issued a favorable letter to a plan that did not include universal availability provisions. Now, we're saying if you're submitting a plan that's going to be administered by a church or a QCCO, you can have a plan that doesn't have those provisions in it.
Two big changes happen with the final revenue procedure, the final program. One is it is making, there's built in flexibility for plans that are adopted by entities that have special type of morals applied to them, those being churches and QCCOs. Also, now the program is flexible enough to allow for 403(b)(9) retirement income accounts that certain entities that can also sponsor so it's two different things going on here.
I just want to mention at the bottom of slide 33, got a couple of bullet points there. It says churches and QCCOs may not need opinion or advisory letter for non-discrimination of coverage. Really, they don't need advisory letters to show they satisfy non-discrimination of coverage because they're exempt from certain non-discrimination and coverage requirements. Patrick will talk about that a little bit later on when he discusses the scope of favorable letter and employer reliance. However, it's important to note that non-QCCOs, they still must meet the non-discrimination and coverage rules.
Now, if you look at slide 34, we're talking about church-related organizations here. Church-related organizations are entities that can adopt either your regular 403(b) prototype plan although, again, they may have special rules that apply to them within a regular 403(b) plan or these church-related organizations also have the ability to adopt what's called a 403(b)(9) retirement income account plan.
Now, the 403(b) retirement income account plan does have some special requirements that are not present in other types of plans. If you turn to slide 35, it lays out what needs to be included in every prototype plan that receives a favorable opinion or advisory letter from us that's a 403(b)(9)retirement income account pre-approved plan and may be sponsored under the program is either a prototype or volume submitter so you can chose either format under the program but you cannot have both a 403(b)(9) account and non-403(b)(9) account in the same plan.
The 403(b)(9) retirement income account plan requires separate plan document from any other type of plan you might be sponsoring. 403(b)(9) sponsors do not need written records of adopting employers and 403(b)(9) sponsors do not need 30 adopting employers. If you recall, Patrick had mentioned earlier, to be a plan sponsor of a prototype plan or a volume submitter practitioner, you have to have the expectation that your basic plan document or your volume submitter specimen plan will be adopted by at least 30 403(b) eligible employers. That requirement does not need to be met for these 403(b) plans.
Slide 36 talks about what required provisions are necessary to be included in each pre-approved document that's in a 403(b)(9) retirement income account plan. It needs to state its intention to be a 403(b)(9) retirement income account plan, and it must satisfy a separate accounting investment performance and exclusive benefit requirements of 1.403(b)-9(a)(2)(i). That cite there is to the final regulation that we talked about earlier, that one effective in 2009. Also, if a life annuity benefit is provided, the plan document must satisfy the present value and benefit guarantee requirements of 1.403(b)-9(a)(5).
Okay, moving along from the church-related subject matter, the program also allows mass submitters which you may remember those of you on the call familiar with a qualified plan. There are also mass submitters in the qualified plan pre-approved program and its substantially similar to that. A mass submitter may sponsor either a prototype or a volume submitter plan if it has an established place of business of the U.S. where it can be reached every day of the year and submit opinion or advisory letter applications on behalf of at least 30 prototype sponsors or 30 volume submitters, each of which sponsors on a word-for-word identical basis the same basic plan document or specimen plan.
A person may sponsor a plan of a mass submitter regardless of the number of adopting employers. Prototype plans may be sponsored as a word-for-word identical adopter or as a minor modifier. Now, a modern modifier, what that means is you're sponsoring on a word-for-word basis but for minor changes that do not require in-depth technical review. Again, that document will be submitted for us for our review. Now, volume submitter plans may be sponsored only on a word-for-word identical adopter basis.
Moving to slide 38, the plans of a mass submitter must include language that designates the mass submitter as the agent of the sponsor for all of the amendments. The mass submitters and their sponsors are subject to different user fees than regular sponsors. Again, this is the user fee and the bulk nature of these mass submitters try to take advantage of economies of scale and that's really what is going on here with mass submitters.
With that, we're going to turn back to Patrick who will discuss the scope of a favorable letter.
Patrick: Thank you, Jason.
We're now on slide 39.
I'll now be discussing the scope of a favorable opinion or advisory letter issued to a sponsor under the program. I will then discuss the extent to which an employer who adopts the sponsor's pre-approved program may rely on the favorable letter received by the plan's sponsor.
A favorable communion or advisory letter is a determination that the form of the submitted plan document satisfies the requirement of 403(b) but it is subject to certain limitations regarding reliance by an adopting employer that I will discuss shortly.
In reviewing an application for a letter, the service will only review the basic plan document or specimen plan and the adoption agreement if there is one. We will not review any other documents such as the terms of a specific investment arrangement, whether or not they are incorporated by reference into the plan. An opinion or advisory letter also will not cover whether a plan is subject to ERISA or whether that satisfies any ERISA requirements.
Now, please turn to slide 40.
The Service will not be issuing any opinion or advisory letters for the following types of plans.
The first excluded type is certain defined benefit plans of church-related organizations which were in effect on September 3, 1982, and which were permitted to be treated as 403(b) plans under TEFRA, the Tax Equity and Fiscal Responsibility Act of 1982.
The second excluded type is plans grandfathered under Revenue Ruling 82-102, which covers certain plans that were established on or before May 17, 1982.
Third excluded type is plans with fill-in provisions that don't also include set parameters that are meant to ensure employer compliance with 403(b).
The fourth excluded type is plans that incorporate only by reference Code Sections 415 or the ACP test for 401(m). The Service also may, at its discretion, decline to issue a favorable letter for other types of plans not described here.
Please go to slide 41.
Moving on to the extent of which an adopting employer may rely on a sponsor's favorable letter. If the adopting employer's plan is a governmental plan that's defined in Code Section 414(d), the adopting governmental employer may rely on a favorable opinion or advisory letter that the form of the plan will satisfy 403(b).
I want to note that under the 403(b) regs, governmental plans are not subject to either the non-discrimination requirement of 401(a)(4) or the minimum coverage requirement of 410(b). Accordingly, governmental plans do not need to rely on a favorable letter with regard to those issues.
Additionally, an adopting employer may not rely on the sponsor's favorable letter, as a determination by the Service that the employer's plan actually is a 414(d) governmental plan.
Finally, if the governmental plan has adopted a volume submitter's pre-approved plan, it cannot rely on the sponsor's favorable advisory letter with regard to any changes that the governmental plan has made to the approved specimen plan, except for selecting options permitted under the approved specimen plan. This makes sense since the Service will not have reviewed any changes made.
Now, please turn to slide 42.
A church or QCCO has similar employer reliance as a governmental plan, so if the adopting employer is a church or a QCCO, they may rely on a favorable opinion or advisory letter that the form of the plan satisfied 403(b).
Like governmental plans, under the 403(b) regs, a church or QCCO is not subject to the non-discrimination requirements of 401(a)(4) or the minimum coverage requirements of 410(b), so a church or a QCCO does not need to rely on the favorable letter for those issues.
An employer may not, however, rely on the response of a favorable letter as a determination that the employer actually is either a church as defined in Code Section 3121(w)(3)(a) or a QCCO. Also, if the church or QCCO has adopted a volume submitter's pre-approved plan, it also cannot rely on the sponsor's favorable letter regarding any changes that have made to the approved specimen plan.
Please turn to slide 43.
Reliance on a favorable letter by a 501(c)(3) that is not a governmental plan nor a plan of a church or a QCCO is a little more complicated. The 501(c)(3) generally may rely on the letter that the form of the plan satisfied 403(b). However, if the plan has non-elective contributions, the 501(c)(3) cannot rely on the letter that those non-elective contributions satisfy either the non-discrimination requirements of 401(a)(4) or the minimum coverage requirements of 410(b), unless the plan is both one, a standardized prototype plan and two, all the employers in the adopting 501(c)(3) controlled group are eligible to have a 403(b) plan.
This is the distinction for participating employer reliance between standardized prototype plans and plans that are either non-standardized prototype plans or volume submitter plans. Like governmental plans, churches and QCCOs, if the 501(c)(3) had adopted a volume submitter's pre-approved plan, it cannot rely on the sponsor's favorable letter with regard to any changes that it has made to the approved specimen plan.
Please turn to slide 44.
Regardless of the type of adopting employer, whether it is a governmental plan, a church, a QCCO or 501(c)(3), an employer cannot rely on a sponsor's favorable opinion or advisory letter for any inherently factual issues.
Also, if the employer or any related employer maintains another 403(b) plan that covers any of the same participants as the employer's plan, the employer generally cannot rely on the sponsor's favorable letter with regard to Section 415 limitations.
However, an adopting employer of a prototype plan, as opposed to a volume submitter plan, can rely on the opinion letter with regard to the Section 415 requirement if other plans covering any of the same participants are prototype plans regardless of whether or not the prototype plans are standardized or non-standardized. This is a distinction for purposes of employer reliance between prototype plans and volume submitter plans and applies regardless of the type of employer.
Now, please turn to slide 45 and I will turn this over to Anne to discuss sponsor's duties.
Anne: Thank you, Patrick.
The Revenue Procedure outlines the duties of a pre-approved plan sponsor. The sponsor must keep a written record of all eligible employers who have adopted the plan. The list must include the names, addresses and employer identification of all those employers. The list must be provided to the IRS upon request. However, when you provide the list to the IRS, you can exclude any employers who have stopped maintaining the plan as a prototype plan more than three years before the IRS requested the information. As Jason mentioned, this requirement does not apply to 403(b)(9) retirement income account plans.
The sponsor of a pre-approved plan is also responsible for keeping the pre-approved plan qualified. The sponsor must timely amend the plan for changes in the law or guidance. It must also apply for a new opinion or advisory letter when required.
We have more of the duties on slide 46. The plan sponsor must also provide adopting employers a copy of the plan, all amendments, restatements and opinions or advisory letters. In addition, it must have procedures for complying with the requirements for notices to adopting employers.
Now, slide 47 discusses these notice requirements. The pre-approved plan sponsor must notify adopting employers of plan amendments and restatements, and the time deadline for the initial adoption of plan, as well as any restatements. The sponsor must notify the employer that there can be adverse tax consequences if the employer fails to timely adopt a plan or restatement, or fails to operate the plan in compliance with plan amendments.
In addition, the sponsor must notify the employer of any known qualification defects in the employer's plan. This requirement is discussed in more detail on slide 48. The duty to notify an employer about a qualification problem with the employer's plan arises when the plan sponsor knows that an adopting employer's plan may not satisfy 403(b) and the employer does not or cannot correct the problem through the IRS correction program, the Employee Plans Compliance Resolution System, or EPCRS.
In that case, the sponsor must notify the employer of the problem, warn that there could be adverse tax consequences and inform the employer that the IRS correction program may be available to correct the problem. This notice is not required where the employer corrects the problem through EPCRS.
This requirement does not impose a duty on the plan sponsor to monitor the employer's plan. This duty applies only where the sponsor has knowledge of the problem.
Now, as outlined on slide 49, the failure to comply with these duties may result in a plan sponsor becoming ineligible to sponsor a pre-approved 403(b) plan. It can also result in the revocation of any opinion or advisory letters issued to the sponsor. The sponsor must comply with these duties until it withdraws from the program by notifying the IRS and the adopting employers that it is abandoning the plan, or until it withdraws its application for pre-approval or the IRS revokes the opinion or advisory letter.
Okay, now slide 50. We've been talking up to now about the responsibilities of a pre-approved plan sponsor, but we know that some of the listeners today may be employers who are considering adopting a pre-approved plan. Here we want to talk just a little bit about some of the responsibilities an employer has when using a pre-approved plan.
An employer who adopts a pre-approved plan must fill in the adoption agreement correctly. You need to make sure your document matches what you actually do, and if you're making any changes you need to amend the adoption agreement. As we talked about before, there's signature lines and dating that's required now under our program. Unless you're using a standardized plan or are a government, a church or a QCCO, you have to make sure that any employer contributions meet the 410(b) coverage and 401(a)(4) non-discrimination tests.
There are some methods of making contributions that will automatically satisfy the non-discrimination rules. We call those safe harbors. But if you use a different method, you have to make sure your method passes the non-discrimination tests.
You must also ensure that the plan's investment arrangements comply with the plan and 403(b).For example, under our program, an investment contract cannot provide that its terms govern over contrary terms of the plan. If it did, you would not be able to rely on the plan sponsor's opinion letter.
If your plan permits hardship distributions, for example, the plan must provide that the participant's contributions must be suspended for six months. That means that your agreement with the vendor needs to provide that they will timely notify you of any hardship distributions so that you can suspend those contributions. You must operate the plan in compliance with its terms, and you need to timely adopt the plan and restatements.
Now, we'll turn back to Patrick to discuss how to apply for pre-approval as a pre-approved plan.
Patrick: Thank you, Anne.
I will now discuss the basic logistics for a sponsor for applying for pre-approval of a prototype plan or a volume submitter plan.
Applications may be submitted starting this Friday, June 28.
A separate application is required for each separate 403(b) plan.
As I said earlier, if more than one adoption agreement is used for the basic plan document or specimen plan, then each pairing of basic plan document or specimen plan and adoption agreement is considered a separate 403(b) plan. For example, one specimen plan with three adopting agreements are considered three separate volume submitter plans and require three separate applications.
Please turn to slide 52.
The application form is found in the appendix to Revenue Procedure 2013-22 and consists of 16 items. Please note that for applications for sponsors of a mass submitter's plan (meaning the word-for-word identical adopters or the minor modifiers of a mass submitter's plan), both the sponsor and the mass submitter must sign the penalties of perjury statement of item 16.
I also wanted to point out that item 16 penalties of perjury statement incorrectly references line seven in two places when it should refer to line eight. Please make that correction when you submit an application for identical adopters or minor modifiers.
The program will use the user fee schedule that is used for a 401(a) qualified prototype or volume submitter pre-approved plan and for mass submitters of such plans. The user fee schedule is found in sections 6.03 and 6.04 of Revenue Procedure 2013-8.
I've also included the address to send the applications.
Please turn to slide 53.
This slide essentially summarizes the same ideas that we have said earlier and reflects item four of the application, which is what type of applicant you are.
An application for an opinion letter for a prototype plan may be filed by either a prototype sponsor for a prototype plan, a mass submitter for the mass submitter's prototype plan or a mass submitter on behalf of either a word-for-word identical adopter or a minor modifier of the mass submitter's prototype plan.
Likewise, an application for an advisory letter for a volume submitter plan may be filed by either a volume submitter practitioner for its own volume submitter plan, a mass submitter for the mass submitter's volume submitter plan, or a mass submitter only on behalf of a word-for-word identical adopter of the mass submitter's volume submitter plan.
Please turn to slide 54.
Mass submitters have additional requirements when they file an application as Jason had discussed.
In addition to its own application, a mass submitter must also submit applications on behalf of at least 30 word-for-word identical adopters of a mass submitter's plan.
A mass submitter may submit multiple basic plan documents or multiple volume submitter specimen plans and the 30 identical adopter requirement only needs to be met by one of the mass submitter's plans.
For a prototype plan of a mass submitter, once the 30 identical adopter requirement is met, the mass submitter can submit applications for minor modifier adopters for its prototype plan.
Please turn to slide 55.
As Jason had previously discussed, we have provided sample plan language which may be found at the web address I've listed here. It can be found by using the search terms, "listing of required modifications" on the IRS website.
Use of this language is not required but it is encouraged and it would be helpful if you identify in a cover letter if this sample plan language is being used.
Please turn to slide 56.
The slide lists some additional issues regarding applications for pre-approval.
First, a failure to disclose a material factor or a misrepresentation may adversely affect the reliance a sponsor or applicant can have on a favorable letter received. A failure to provide accurate information may negate any reliance entirely.
Second, the Service may request additional information as it reviews applications and such information should be provided within 30 days of the request.
Third, the Service may return any plans that are not in substantial compliance with the program requirements or are excessively deficient.
Fourth, a sponsor's favorable letter is not transferrable to any other entity. However, this does not apply to a simple change of the name of a sponsor but the sponsor must still notify the Service.
Finally, a sponsor may withdraw an application prior to receiving a letter but must notify EP Rulings and Agreements and each employer who has already adopted the plan and such plans will then be deemed individually designed plans.
Even after with withdrawal, EP Rulings and Agreements may still refer any approval concerns to EP Exams.
Please turn to slide 57.
After a sponsor's plan is pre-approved, if the sponsor wants to abandon a pre-approved plan, he must first notify any employers that have adopted the plan and such plans will become individually designed plans unless the employer adopts another pre-approved plan. Second, the sponsor must notify EP Rulings and Agreements.
One final point. The Service may revoke an opinion or advisory letter if it's found to be in error or not in accord with the current views of the Service but such revocation will generally not be retroactive. Sorry for that background noise.
The final slide we have here is … Please turn to slide 58, the final slide for additional 403(b) resources. You click on the links to the individual items. It will take you to the specific items.
We've now concluded the slide portion of the presentation.
Jason: Yes, thanks, Patrick.
We've received a number of questions prior to the deadline last week for submitting questions and we'll get to those in a minute. Hopefully, we'll be able to answer all of them. I know we have about 20 minutes left, 15-20 minutes left.
I just want to reiterate, hopefully our presentation today answered more questions than it created but we can all acknowledge that there's a lot of material here. If you do have any questions, I just want to reiterate again that there's a couple pathways for you to contact us to ask us questions related to this program or 403(b) in general.
I'll say it one more time, first is an email address, firstname.lastname@example.org or call 877-829-5500. Make sure you mentioned 403(b) and it'll get routed to either one of us.
Okay, to get to the questions, we have several here and I think the first question's going to be handled by Anne.
Anne: The first question starts with the suggestion that the IRS consider doing 403(b) LRMs, list of required modification taken, drawn from the 401(k) plan rules or defined contribution LRMs. The answer is actually we did that. As Patrick mentioned, they are LRMs at the end of the revenue procedure and we looked at the defined contribution LRMs in preparing those, so they should work well with that.
Jason: Okay, great. Thank you. This is Jason again. Another question related to the phrase, "separate accounts." The regulations and the revenue procedure mentioned a separate account requirement for non-vested amounts. The question is could we verify that all that is required is "separate accounting," or a separate bookkeeping record of non-vested amounts, as is the case under section 1.403(b)-8(d)(4) of the regulations. All I can really say on this is we've received a number of comments on this particular issue. I want to just ensure everyone on the phone call that as we work through this program and as it evolves, we will read and consider all the comments that we get on this issue and on other issues as well.
Patrick I think you had a question as well.
Patrick: Yes. We had two related questions. The first is would you discuss what is meant by substantially similar with regard to volume submitter plans. The next one is whether the new program will be similar to the 401(k) program in requiring a Form 5307 for minor modifiers of volume submitter plans.
Just to give you background. In the context of 401(a) qualified pre-approved plans, Form 5307 is used by an adopting employer of a volume submitter plan to receive a determination letter for the employer's plan, where the employer has made changes to the volume submitter specimen plan. Again, this is used for qualified plans and not for 403(b) plans.
Now, getting back to the questions. I want to note that we are talking about two separate concepts here. First is the use of the substantially similar standard used for volume submitter plans. The second is a minor modifier concept which is used for mass-submitter prototype plans.
First, there's the volume submitter substantially similar standard for an adopting employer of a volume submitter plan. An employer's actual plan may be different than the terms of the pre-approved specimen plan but still must be substantially similar to the pre-approved specimen plan. Substantially similar is simply defined in the revenue procedure to mean that the differences cannot be so extensive or complex as to be incompatible with the pre-approved program. Unfortunately, we can't expand upon that at this point.
Since there is no determination letter for 403(b) plans, there will be no application process analogous to Form 5307. Accordingly, as I said before, any changes by an adopting employer to it's actual plan will not be reviewed by the Service and an adopting employer will not be able to rely on a volume submitter's favorable letter for any of the changes that the adopting employer makes.
Then, there's the minor modifier concept. A sponsor wants to adopt a mass submitter prototype plan. He may adopt it as a minor modifier of the mass submitter's prototype plan and the sponsor will apply for a separate opinion letter for the sponsor's plan. So the changes will actually be reviewed under the pre-approved program and the sponsor will receive an opinion letter on the modified prototype plan.
A minor modifier is defined, as Jason has said, as minor changes to a mass submitter's pre-approved prototype plan that do not require in-depth technical review for the Service to issue an opinion letter.
I think, Jason, you're handling the next question.
Jason: Yes. Thanks, Patrick. The question wanted us to address what the remedial amendment period is for discretionary amendments for a 403(b) plan, what will be the general remedial amendment period after the special remedial amendment period has ended for 403(b) plans and will it be the same as for qualified plans, i.e. end of the plan year for discretionary amendments and the tax filing date for regulatory amendments unless Congress provides another remedial amendment date?
All I can say on this right now is the remedial amendment date we have now, which is the one that's contained in section 21 of the program of Revenue Procedure 2013-22 in which we described earlier today in the presentation. As far as discretionary amendments versus regulatory amendments, that's a dichotomy that applies at the current time only to qualified plans, okay, and the sources for that are really revenue procedures and other guidance that are specifically just for qualified plans. At this point in time, the only remedial amendment period we have, again, is the one in section 21 of Revenue Procedure 2013-22. As far as what's going to happen after this remedial amendment period, that will be the subject of later guidance.
Patrick: Okay, the next question we had was simply why can't we borrow from our 403(b) plan? The answer to that is the 403(b) regs permit loans to be offered to plan participants but the regs do not require the loans be offered under a 403(b) plan. This is the same general rule as with 401(k) plans, so a particular plan or even a particular investment arrangement may choose not to permit loans and you're bound by that.
Jason, I think you have the last question.
Jason: Yes, it was a question regarding 403(b) auto enrollment and when basically the timing of when participants have to be allowed to start deferring under the plan what time, what is the time in which they can start deferring and where I would point the questioner or anyone else is wondering about that question. Look at LRM number 29 (Listing of Required Modification number 29). Again, Patrick and Anne had mentioned in the first question here, we do have a bank of sample plan language, the listing of required modifications. You can go to irs.gov and click on or do a search for 403(b) listing of required modifications and it'll take you through a very extensive document that has a number of, basically a whole plan document there, of plan provisions and LRM number 29 talks about this.
Basically when you're deciding as drafter of a plan, you can use that as a guidance as a safe harbor but if you're looking at something that deviates from that, what you need to consider is the effective opportunity: is what you're doing proving your eligible employees an effective opportunity to defer? An effective opportunity can be found, the rule for that in 1.403(b)-5 of the regulations. Ultimately, it's a fact and circumstances test but you need to make sure that no matter what arrangement you're structuring, it has to provide them an effective opportunity to defer salary.
Okay, with that I think that fills out both the official slide portion and the question portion. Once again, just wanted to reiterate, we do have the ability to answer questions. Again, either email us at the email@example.com email address or at the phone number that I gave earlier, 877-829-5500 and we'd just all like to thank you for taking the time out of your afternoon or late morning, early afternoon, to listen to us on this. Thank you very much.