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It’s time for the Roth Discussion

By Ellie Lowder

This article originally appeared in the Fall 2013 issue of 403(b) Advisor Magazine. To view a PDF version of this article, please click HERE.

On March 28, 2013, the IRS released the long-awaited ruling (Revenue Procedure 2013-22) on when prototype and volume submitter 403(b) plans can be submitted for IRS approval. The same day they also released sample language (that is, Listing of Required Modifications, or LRMs) for consultants, attorneys and document providers to begin drafting new 403(b) plan documents.

The approval process may take a few years before we see approved 403(b) plans for purposes of restating your clients’ plans. The process began on June 28, 2013; the deadline to submit new 403(b) pre-approved plans (PAPs) is set to expire on April 14, 2014.

While we welcome finally having something to review and digest, there are some concerns — including some that ASPPA/NTSAA has raised with the IRS (see below).

How Does this Affect your clients’ 403(b) plans?

Most employers will need to restate their 403(b) plans after the IRS approves the new plan documents and corresponding forms (by a deadline that will be announced later) sometime during or after the submission process. As mentioned above, the timing of the required restatement will be announced by the IRS after they complete the review process of the documents that will be submitted between June 28, 2013, and April 14, 2014.

Must an Employer Adopt a Prototype/ Volume Submitter Plan?

Maybe. While it is not required, in most instances it is probably a good idea to adopt a plan that has received IRS approval as to form. This avoids any questions should the employer be audited. Employers can continue to use the various documents provided by trade associations or the model under Revenue Procedure 2007-71, but remember that these have not been updated for any changes in the law after 2007. Also, an employer that has any significant failures (i.e., mistakes that affect a large percentage of employees) must adopt a PAP in order to correct the errors. A PAP will ensure that the employer is operating under an up-to-date document and that the provider of the document or the TPA or vendor providing the plan will have the responsibility to update when necessary or as required — taking that responsibility off of the employer’s plate.

Speaking of Responsibilities

Under the new PAP 403(b) documents, there is a new form that will serve as an attachment to the plan, called an “Administrative Appendix.” This appendix will list all of the responsibilities under the plan, including:

  • Government reporting (1099R/1042S)
  • Authorizing transactions (i.e., hardship, loans, distributions, QDROs, exchanges and transfers)
  • Performing the annual audit of vendors (this includes policies and procedures, transaction and distribution forms, withholding notices, custodial agreements and annuity contracts, to name a few)
This appendix will also be the form that will list all of the vendors under the plan (active and deselected), which are listed currently under what most firms call a “vendor attachment.”

One of the changes from the draft revenue procedure was the renaming of the form from “Memorandum of Understanding” to “Administrative Appendix.” This appendix will be an attachment to the plan documents, not a part of the plan. Therefore, if the plan is being amended and the vendors are not changing, this form need not be readopted.

Do Your Clients Know What You Do for their Plans?

If they don’t, they will now. The Administrative Appendix will begin to separate the “men from the boys.” Employers typically don’t know all that is involved in the administration of their retirement plans, but rather live in a comfort zone where they assume that all is taken care of. Once we are in the restatement period (probably a few years away), however, employers will know what everybody under their plan does and what they don’t do. Any responsibility that is left blank will be the responsibility of the employer.

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