December 6, 2007

IRS Issues Model 403(b) Plan

In July, 2007, the final 403(b) regulations were issued.  These regulations require that all 403(b) plans be governed by a written plan document.  Often, plans exempt from ERISA have not maintained a written plan document governing their programs. 

Public schools are particularly affected by this new requirement.  To assist public schools in their compliance effort, the IRS and Treasury issued a model plan document  that can be adopted by a school to satisfy the plan documentation requirement.  If a school adopts the model plan, or a document substantially similar to the model plan, it will be deemed to satisfy the 403(b) plan document requirement. 

It is, of course, essential that the terms and conditions of the plan be followed.  Adoption of the model plan will be given the same credence as an IRS Private Letter Ruling (PLR).  Alternatively, a school can individually draft a plan, and seek a PLR from the IRS, approving the plan. 

Other nonprofit entities can adopt the model plan with appropriate modification, for their particular circumstances.  Unlike school districts, a non-school 403(b) sponsor cannot rely on this model plan as though a PLR has been issued. 

The plan document requirement becomes effective for tax years beginning after 12/31/08. 

The IRS pronouncement also addresses matters relating to contract exchanges and provides guidance for contracts issued prior to January 1, 2009.


The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.