Hooray! After years of waiting, the IRS has issued Rev. Proc. 2013-22. This procedure provides a way for service providers to get pre-approved 403(b) plan documents for their clients’ use.
Until now, sponsors of 403(b) plans had no cost-effective IRS program to help them review their plan document and ensure that it met all the necessary requirements. In 2009, the IRS teased us with an announcement that a prototype was coming with a proposed program that would have fallen far short, but it’s taken until now for the IRS to release the actual program. Please be aware, though, that the IRS just released the program. It will take some time for providers to draft the plans, file them with the IRS, and receive approval.
Hooray! This program can actually be used. The proposal in 2009 didn’t allow for vesting schedules, effectively making it useless for a large majority of 403(b) plans – but the new program in Rev. Proc. 2013-22 corrects that oversight, and plans under this program should be usable for a vast majority of 403(b) plan sponsors.
Hooray! Remember when the final 403(b) regulations required that 403(b) plan sponsors have plan documents in place by the beginning of 2009? Then additional guidance was issued, and ultimately plans were told they could amend retroactively once the IRS had a plan in place. Now that we have a viable program, those plan sponsors who might need this retroactive amendment will now have an instrument to do so.
Pbthhhh! There is still a significant difference between this program for 403(b) plans, and the comparable pre-approval program for qualified plans, like a 401(k). The biggest difference is that 403(b) plans cannot get individual letters from the IRS, known as determination letters, that say their particular plan meets all the requirements. It seems with all the efforts of Congress and the Treasury Department to make 403(b) plans more and more like 401(k) plans, it is odd that the plan approval programs aren’t more alike.
Overall, with this program, 403(b) plans will be better off than they were before. Some assurances to the plan sponsor is better than no program. I guess we have to recognize that the IRS is limited in their resources, and can’t allocate people to review thousands of individual plan submissions. It’s not exactly something to cheer about, but I guess it’s a reasonable compromise.
Friedman is the tax-exempt national practice leader with the Principal Financial Group, an investment management and retirement leader. A noted expert on 403(b) plan design, he has been consulting with tax-exempt organizations for over 20 years and has been in the retirement plan business since 1986. This blog originally ran on The Principal blog. Follow Aaron on Twitter @1AaronFriedman1
Insurance products and plan administrative services are provided by Principal Life Insurance Company. Securities are offered through Princor Financial Services Corporation, 1-800-547-7754, Member SIPC and/or independent broker dealers. Securities sold by a Princor® Registered Representative are offered through Princor. Princor and Principal Life are members of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.
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