Dec 15, 2008

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Update: 403(b) Written Plan Adoption Postponed

Last Friday, the IRS published Notice 2009-3, which extended the deadline by which sponsors of 403(b) plans are required to adopt written plan documents to December 31, 2009. Note, however, operational compliance with the new 403(b) final regulations is still required as of January 1, 2009, and plan documents adopted next year must be retroactively effective as of January 1, 2009.  Although this delay may have been a welcome surprise, it does not let plans off the hook. It means simply that the plan document needs not be executed until the end of next year, but 403(b) plans must still operate under a “reasonable interpretation” of the final regulations as of January 1, and going forward.

403(b) plans are only available to 501(c)(3) non-profit organizations and public schools, and are generally funded through the purchase of annuity contracts.  The final regulations published last year under 403(b) were the first comprehensive regulations under 403(b) in 40 years. The regulations force 403(b) plans to operate more like a tax qualified 401(k). This increased burden on 501(c)(3) organizations sponsoring such plans may force many to become subject to the onerous requirements of Title I of ERISA (governmental plans, as defined under ERISA section 3(32), are exempt from ERISA). However, plan sponsors who satisfy the DoL safe harbor under 29 U.S.C. 2510.3-2(f), and so limit their discretion with respect to management and administration of the plan, may continue as non-ERISA plans.