(b)lines Ask the Experts – Must 403(b)s Adopt a Pre-Approved Plan Document?

“Our 403(b) plan recordkeeper wishes for us to adopt their pre-approved retirement plan document. However I am quite happy with our individually designed 403(b) plan document that was prepared by our outside retirement plan counsel. Do I have to use the recordkeeper’s document now or can I stick with the attorney-prepared document that I have?”

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

This is an excellent question, and many sponsors are under the misconception that they MUST adopt a pre-approved retirement plan document by the March 31, 2020, deadline to adopt pre-approved plans. However, this is NOT the case. Plan sponsors must adopt a 403(b) plan document by March 31, 2020, that reflects all changes in the Code and Regulations (and changes in the plan) dating back to January 1, 2010 (or, if later, the date the plan came into existence). However, a plan sponsor need not adopt a pre-approved document to satisfy this requirement; they can certainly utilize a individually designed plan document to do so. If you are currently utilizing an individually designed plan document, you will want to confirm with your outside counsel that such requirements have been met.

Having said this, even though adopting a pre-approved retirement plan document is NOT mandatory, the IRS webpage in this regard lists some reasons that you may wish to consider adopting a pre-approved plan instead of maintaining your individually designed plan document, including the following:

1) Cost—the cost for a pre-approved plan document can be less than that of an individually designed plan document

2) Reliance—since there is no determination letter program for individually designed 403(b) plans, the only way you can obtain IRS approval that your plan document satisfies all requirements as to form is to adopt a pre-approved plan. However, the scope of that reliance may be limited, so you should check the pre-approved plan’s opinion or advisory letter for details.

3) Updates—the process for updating pre-approved plans for changes in the law requires your recordkeeper to notify you of such changes and provide amendment for signature. Though the process may be the same with your outside counsel, it is possible that the pre-approved process may be more proactive in terms of notification.

The Experts have seen individually designed plans that would not qualify for restatement onto a pre-approved document since they contain plan provisions that are not included in the pre-approved document. So, for some plan sponsors, having a choice of documents will be a moot point, as their specific plan design will require them to maintain their individually designed plan document unless they remove the provisions in question. Thus, all plan sponsors should consult with outside counsel well-versed in such matters to determine if their plan provisions are such that it would be possible to adopt a pre-approved document, and whether adopting a pre-approved plan would make sense in their particular situation.

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.