In the pension geek handbook, Chapter Three is devoted to Urban Plan Legends. You know those stories – someone worked at a firm with an ERISA attorney who went to law school with another ERISA attorney who knows a guy who….. One of my favorite Urban Plan Legends is the one about the 403(b) prototype plan document. This one goes something like this – they know someone who is using a 403(b) prototype plan document approved by the IRS, or they know a guy who knows a guy who has a determination letter issued for their 403(b) prototype plan document. Every now and then, I will see a copy of a Form 5500 filed with the IRS for a 403(b) plan containing Code 3E on Line 8, which is the plan sponsor letting the IRS know that they wrongly believe that they are using a 403(b) plan document which has been pre-approved by the IRS.
The reason this is an Urban Plan Legend is there are no 403(b) prototype or volume submitter plan documents. They do not exist. The IRS does not issue opinion/advisory letters, or determination letters, for 403(b) plans.
The IRS has tried to bust this myth on several occasions. In 2004, Carol Gold, when she was Director of Employee Plans for the IRS, addressed this 403(b) urban legend in a Special Edition of Employee Plans News, released by the IRS on November 17, 2004. The article was titled “A Determination Letter Program for 403(b) Plans?”, and was prefaced by this Editor’s Note:
- With the long-anticipated issuance of guidance on 403(b) plans now a reality, Carol Gold, Director of EP, wanted to address a related topic that has received some public interest: Will EP establish a DL program for 403(b) plans? Ms. Gold has prepared some comments below on this subject.
Ms. Gold went on to discuss that, while a determination letter program for 403(b) plans is on the distant horizon, it is not coming soon. That was in 2004. Jump forward to the Spring 2008 edition of Employee Plan News, released by the IRS just a few weeks ago, and it says:
- Andrew E. Zuckerman, Director, Employee Plans Ruling and Agreements, has indicated that Employee Plans is developing programs for 403(b) plans that are similar to the current programs offered for 401(a) tax-qualified plans (i.e. a determination letter program and a pre-approved plan program). While it is unlikely that the new 403(b) programs will be in place by December 31, 2008, the effective date of the 403(b) final regulations, the plan sponsor must have a written plan by January 1, 2009. Thus, employers maintaining 403(b) plans should take appropriate steps to ensure their programs are in writing by December 31, 2008.
With the written plan document requirement contained in the Final 403(b) Regs becoming a reality in several months, this Urban Plan Legend is taking on new life. For pension geeks trying to explain why their 403(b) plan does not have an opinion/advisory letter or a determination letter, a quick trip to Rev. Proc. 2005-16 and Rev. Proc. 2008-6 provides all the explanation needed to debunk this plan myth. Section 6.03(6) of Rev. Proc. 2005-16 states:
- “.03 Areas Not Covered by Opinion Letters – Opinion letters will not be issued for:…(6) Annuity contracts under section 403(b).”
Section 16.02(6) of Rev. Proc. 2005-16 states:
- “02. Areas Not Covered by Advisory Letters – Advisory letters will not be issued for:…(6) Annuity contracts under section 403(b).”
Section 3.02 of Rev. Proc. 2008-6 states that determination letters will not be issued for issues involving Code section 403 other than 403(a).
With no opinion/advisory letters, or determination letters, issued by the IRS for 403(b) plan documents, there can be no prototype or volume submitter 403(b) plan documents because, for a plan to be considered a prototype or volume submitter plan by the IRS, the plan document must have been issued a valid opinion/advisory letter. No valid opinion/advisory letter = no prototype or volume submitter plan document. Thus, the existence of the 403(b) prototype plan document is just another urban plan legend which really should be put to rest before more plan sponsors are confused into using Code 3E on Line 8 of Form 5500.
My firm writes some terrific 403(b) plan documents, and when the IRS does open the opinion/advisory letter program for 403(b) plans later this year or early next year, my firm plans on being one of the first to file and receive opinion/advisory letters for our 403(b) plan documents.
[tags]Pension Protection Act, ppa, 403(b), Rev. Proc. 2005-16, Rev. Proc. 2008-6, IRS, ERISA[/tags]
