403(b) Outlook Plan Document Requirements

November 21, 2008

403b Outlook Archive 403(b) Outlook Archive

What is the rule? Plans subject to the Employee Retirement Income Security Act (ERISA) have been required to have a written plan document since 1974. The final 403(b) regulations extend the written plan requirement to all 403(b) plans. There is no longer an exemption for governmental, most church, or non-ERISA salary reduction only, tax-deferred annuity plans (“TDA plans”). Written plans will have to include material plan provisions, such as plan eligibility and benefits (including the timing and form of distributions available), limits on contributions and benefits and a list of the annuity contracts and mutual funds offered under the plan.

A single plan document is not required by the final regulations. The final regulations recommend that where the 403(b) plan has multiple vendors, the plan sponsor adopt a single plan document. Plans may incorporate other documents, such as annuity contracts and custodial agreements, into their written plan by reference. Plans with multiple vendors will need to work with all of the vendors to ensure that their written plan accurately reflects the provisions of all the 403(b) contracts and custodial accounts used to fund their plans, and that, collectively, the documents meet these new regulatory requirements.

Salary Reduction-Only TDA Plans: According to DOL Field Assistance Bulletin 2007-02, a TDA plan sponsored by a private tax-exempt employer will not lose its ERISA exemption merely by creating a written plan document. Whether the manner in which an employer decides to satisfy the written plan requirement would cause any particular plan to lose its exemption will be determined on a case-by-case basis, taking into account the employer’s involvement in the plan’s administration, as outlined in the plan documents, and in operation.

Do you already have a written plan document? If you already have a plan document, review it to determine what amendments you need to make. You should also review the document to ensure that its provisions conform to your administrative practices and the terms of the underlying funding vehicles. If you do not have a plan document, you should take steps to prepare a written plan, or consider whether current contracts, custodial accounts, plan descriptions, and other related documents and agreements satisfy the written plan requirement of the final regulations.

What has changed? Governmental, most church and non-ERISA plans are not required to have written plan documents through Dec. 31, 2008.

How TIAA-CREF Helps: TIAA-CREF, in collaboration with Ascensus (formerly known as BiSYS), will be providing plan sponsors with specimen 403(b) plan documents (a basic plan document and an adoption agreement), updated for the final regulations. The specimen documents that we are developing, according to the Short Form Data alignment process or short-form PDQ, will help you ensure that your plan documents:

  • meet the requirements of the new 403(b) regulations and
  • are aligned with TIAA-CREF contracts

The language will be designed to accommodate institutions that offer ERISA employer-funded or matching retirement plans, non-ERISA private deferral-only TDA plans, employer-funded or matching governmental 403(b) retirement plans and governmental deferral-only TDA plans. (We suggest you also review these documents with your legal advisors.) In addition to a specimen plan document and adoption agreement, we will also provide a specimen board resolution and a specimen summary plan description (if your plan is subject to ERISA) which you can distribute to plan participants. Ascensus will begin contacting institutions for information needed to draft a written plan document in late spring/early summer.

Effective date: Jan. 1, 2009

What happens if you fail to comply? If you do not have a written plan document by January 1, 2009, all plan contributions could be fully and immediately taxable to the plan’s participants.

Read more about Consistency between Plan Documents and Annuity Contracts.

Next week’s issue: Vesting Requirements

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