Pension Protection Act Blog

Today’s news is that there is no news on whether there will be an extension of time to comply with the Final 403(b) Regulations. The announcement made by IRS Senior Tax Law Specialist Bob Architect during the IRS’ webcast today was that the Service has received comments requesting an extension and that the IRS will be responding to those comments about the effective date of the Final 403(b) Regulations in some form in the next 2-3 weeks. No hints were given on whether the response would be to extend the January 1, 2009, deadline to comply with the written plan requirement, or that the Service has decided not to extend the deadline.

With just 27 days left in December, I am hoping that the announcement is made sooner rather than later. When the IRS released Notice 2005-95 at the end of December in 2005 extending the deadline for the Automatic Rollover amendment, it felt like administrators who had spent the summer and fall of 2005 diligently getting amendments signed were being punished while their procrastinating colleagues were being rewarded. In 2005, if the announcement had been made in late November or early December, any ill feelings about the extension may have been alleviated. Instead, because the IRS announced the extension past the point when any reasonable plan would have signed the extensino, the only plans able to take advantage of the extension were plans that had made no attempt to comply.

This time, complying with the written plan requirement contained in the Final 403(b) Regulations is a little different because the entire plan industry is now in the position of creating plans to comply with the deadline without the necessary guidance from the IRS. Agent Architect said that guidance will be forthcoming before the end of the December in the form of a proposed revenue procedure and LRMs containing 65-70 pages of guidance and proposed plan language. While it makes perfect sense to extend the deadline so that, in this tight economy, the guidance is released before the plan sponsors spend money for compliance, the IRS still isn’t providing any indication on which way they will go.

Some other items covered during today’s webcast:

- Treas. Reg. 1.414(c)-5 is effective Jan. 1, 2009, and is worth reviewing for the entire tax exempt community, especially for plan sponsors who may be in a controlled group situation. It applies a controlled group determination of who the employer is for the first time to the tax exempt community.

- The model plan contained in Rev. Proc. 2007-71 will not be supplemented or updated to include more sophisticated plan provisions, such as matching contributions or non-elective contributions. In the first half of 2009, the IRS will be opening a pre-approved program for approving prototype and volume submitter plan documents containing these types of provisions. In the second part of 2009, the IRS will be opening a determination letter program for 403(b) plans to review plans which are using sophisticated provisions but are not using a pre-approved prototype or volume submitter plan document. I was really excited to hear this because my firm will be submitting both prototype and volume submitter 403(b) plans as soon as the program opens.

- The EPCRS program is being updated to include a future correction program for 403(b) plans.

- Freezing contributions to a 403(b) plan does not terminate the plan. If a plan freezes contributions but does not terminate by Jan. 1, 2009, the plan is required to comply with the written plan requirement contained in the Final 403(b) Regs. Terminating a 403(b) plans means that the plan is liquidated and distributed in a timely manner. For some plans, because the plan sponsor does not have the power to liquidate and distribute the assets held in individual accounts, it is not possible for the plan sponsor to terminate the plan.

- A plan with only salary deferrals is still required to comply with the written plan requirement of the Final 403(b) Regs.

- The Final 403(b) Regs do not restrict rollovers, and rollovers should not be confused with in-service contract exchanges.

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