The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Ohio is representative of a common inquiry regarding requirements for 403(b) plan documents. The advisor asked:
“I have a 403(b) plan who failed to timely adopt a written plan document for the plan. Is there a way to correct this?”
Highlights of Discussion
As luck would have it, yes, there is a way to correct this error and preserve the plan. The IRS just released guidance in the form of Revenue Procedure (Rev. Proc.) 2013-12, which updates its Employee Plans Compliance Resolution System — a three-segment plan correction system. Included in the updated guidance is a new section for 403(b) plan sponsors who have failed to timely adopt a written plan document for their arrangements.
The deadline for 403(b) plan sponsors to adopt new written plans or amend their existing written plans for rule changes was Dec. 31, 2009.
Generally, a plan sponsor may use the Voluntary Correction Program (VCP) segment of the EPCRS to correct a failure to timely adopt a written 403(b) plan. Under the VCP, a plan sponsor, at any time before the audit, may pay a limited fee and receive the IRS’ approval for correction of a covered failure involving a qualified plan, 403(b) plan, simplified employee pension (SEP), or savings incentive match plan for employees (SIMPLE) IRA plan.
To correct the failure to timely adopt a 403(b) plan document, the plan sponsor must adopt a written plan document retroactive to the later of either:
• the effective date of the final 403(b) regulations; or
• the initial effective date of the plan.
The sponsor must enclose a copy of the signed and dated 403(b) plan with its VCR submission to the IRS.
Conclusion
Ever since 2007, when the IRS released final 403(b) Treasury regulations that required 403(b) plan sponsors to have written plan documents, the industry has struggled to comply with the mandate. Because a number or 403(b) plan sponsors failed to implement a written document, the IRS included a means of correction in Rev. Proc. 2013-12. Financial advisors who understand the importance of having a compliant plan document for 403(b) plans set themselves apart from the average advisor, and are better positioned to support their clients.
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2013 Columbia Management Investment Advisers, LLC. Used with permission.
