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NTSA to IRS: Accommodate Differences Affecting Pre-Approved 403(b) Document Use

  1. The NTSA has made two recommendations to the IRS concerning IRS Announcement 2015-19 and how the announcement affects 403(b) plans. In an Oct. 1 comment letter, the NTSA says that the IRS should create an accommodation to address the most common differences that can affect the utilization of pre-approved 403(b) plan documents.

    The NTSA’s recommendations are:

    1. The IRS should permit each 403(b) plan with the opportunity to apply for one determination letter in addition to the exceptions for initial adoption and plan termination. There is no current procedure for an employer sponsoring a 403(b) plan to obtain a favorable determination of its qualified status.

    2. The IRS should grant all current 403(b) plans a “clean slate” start using a pre-approved plan going forward. Since 403(b) regulations require the 403(b) plan document to cover all prior plan features and operational requirements beginning in 2009, it may be impossible for most 403(b) plans to utilize a pre-approved plan because of legacy issues. If a plan included features not included in the listing of required modifications (LRMs) or operated in a manner inconsistent with procedures included in the LRMs, it would be ineligible to use a pre-approved product without violating the “tell all” requirement. Therefore, if NTSA’s first recommendation is not feasible, then we support permitting 403(b) employers to obtain reliance retroactive to Jan. 1, 2010.

    The NTSA argues that the IRS should provide such an accommodation because of the unique history of 430(b) plans.

    Unlike other qualified plans, the NTSA writes, all 403(b) plans have been individually designed under available IRS guidance and have been ineligible for IRS approval on such documents. In addition, since there was no requirement for a written plan document to evidence 403(b) plans before the final 403(b) regulations were issued, says the letter, “there are thousands of 403(b) plans that have been custom written to describe plan features based on guidance available at the time. Because of the legacy requirements, provisions had to be included without regard to LRMs, model language or other pre-approved plans.”

    Furthermore, the NTSA argues, a specific group of employers that operate with public funds or charitable donations adopt 403(b) plans, which limits their resources. In addition, these employers often employ individuals that provide services in a different manner than regular businesses that sponsor 401(a) plans. “Compensation and benefits have been more flexible to accommodate the unique working situations,” says the letter, adding, “current 403(b) plan documents reflect these differences, but the pre-approved plan program does not.”

    The NTSA letter complements a comment letter on Announcement 2015-19 filed Oct. 1 by the American Retirement Association, which focused on the announcement’s proposed changes to the IRS’ Employee Plans Determination Letter program.