IRS Provides Relief for Sponsors of 403(b)

December 18, 2008

On December 11, the IRS issued Notice 2009-3, which announced an extension of time (until December 31, 2009) for public schools, colleges and universities, and other tax-exempt organizations to complete written 403(b) retirement plan documents. The previous deadline was January 1, 2009.

This does not mean there is a delay in compliance rules; it merely postpones the requirement that a plan document be signed by January 1. There is no delay in the requirement that the employer monitor contribution limits, loans and distributions. The extension is for the plan document outlining all of this, which now does not need to be in place until December 21, 2009.

The IRS will treat these plans as meeting the requirements of Internal Revenue Code section 403(b) and the regulations for new written plans or amended existing plans during the 2009 calendar year if the following are satisfied:

By December 31, 2009, the plan sponsor of the plan has adopted a written 403(b) plan that is intended to satisfy the requirements of section 403(b) and the regulations.
During 2009, the plan sponsor must operate the plan in accordance with a reasonable interpretation of section 403(b) and the related regulations. (This will help immensely when deciding what contracts will be "grandfathered" and in determining what distribution will be when terminating a plan.)
By the end of 2009, the plan sponsor makes its best effort to retroactively correct any operational failure during the 2009 calendar year to conform to the written plan. The corrections must follow the general principles set in the IRS’ Employee Plans Compliance System (EPCRS)--in some cases without having to notify the IRS.

Note that this relief applies only to the 2009 calendar year, which implies that plan sponsors operating their plans on a basis other than calendar year must adopt a plan no later than December 31, 2009, regardless of whether the end of the plan year occurs outside of 2009.

Resources:
IRS Notice 2009-3
IRS 403b Regulation
Employee Plans Compliance System
HR Horizons article (1/1/2008)

NACUBO contact
Mary M. Bachinger, director tax policy
Tadu Yimam, policy analyst