IRS Model Plan Language for Public School §403(b) Plans

The Internal Revenue Service (IRS) has released Revenue Procedure 2007-71,¹which provides model plan language for Section 403(b) plans offered by public schools including all material terms necessary to comply with the written plan requirements under final regulations issued in July 2007.² (For this purpose, public colleges and universities are considered to be public schools.) This IRS guidance also provides limited relief from certain requirements under final regulations for §403(b) contracts issued before 2009.

MODEL PLAN LANGUAGE

The Appendix to Rev. Proc. 2007-71 contains model plan language designed primarily for §403(b) plans sponsored by public schools. The model plan language is intended to describe a basic §403(b) plan with pre-tax elective deferrals only. It does not include language regarding other types of contributions, such as matching or nonelective contributions. However, the Appendix does provide model language describing various optional provisions for §403(b) plans, including automatic enrollment, catch-up contributions, loans and hardships. In addition, §6.4(d) of the model language describes the type of information that would satisfy information-sharing requirements for contract exchanges under the plan.

Rev. Proc. 2007-71 indicates that adoption of the entire model language (i.e., word-for-word or language that is substantially similar) by a public school has the same status as a Private Letter Ruling to the effect that the written form of the plan satisfies requirements under Internal Revenue Code (IRC) §403(b). Eligible employers other than public schools — §501(c)(3) organizations — that sponsor a §403(b) plan may use applicable provisions of the model language to the extent appropriate, but additional or revised language may be necessary for such plans. For example, the model language does not contain provisions describing nondiscrimination rules, other than the universal availability rules for public schools.

Even public schools cannot simply adopt the model plan language and, therefore, satisfy written plan requirements under §403(b) regulations. There are several provisions in the model language that must be completed with a description of how the plan operates. In addition, optional provisions in the model language should only be included in a public school’s written plan to the extent they reflect how the plan is actually administered.

GUIDANCE FOR CONTRACTS ISSUED BEFORE 2009

In §8 of Rev. Proc. 2007-71, the IRS provides new guidance for §403(b) contracts issued before the effective date of the final regulations: January 1, 2009. This guidance allows limited relief from certain requirements in the regulations under the following circumstances:

• Contracts issued after December 31, 2004 and before January 1, 2009 by vendors not receiving contributions under the plan (either because they are discontinued vendors or vendors not part of the plan but which received a contract exchange after September 24, 2007) are not required to be part of the written plan that satisfies the §403(b) regulations. However, the employer is still required to make a good-faith effort to ensure those contracts comply with the final regulations, including collecting available information on the vendors and notifying them of the name and contact information of the person who coordinates information necessary for the plan to comply with IRC §403(b). The vendors must make a reasonable good-faith effort to contact this person before making a distribution or loan from their contracts.
• Contracts issued before 2009 for former employees or beneficiaries by a vendor not receiving contributions under the plan as of January 1, 2009 are also not required to be part of the written plan, so long as those vendors make reasonable efforts to gather information about outstanding loans of a former employee or beneficiary before making a new loan. The vendors can rely on information provided by the participant as to whether he/she is a former employee.
• If a contract exchange is made after September 24, 2007 and before January 1, 2009, as permitted under Rev. Rul. 90-24 (but not necessarily satisfying the information sharing requirements under final regulations), and before July 1, 2009, the contract is re-exchanged back into the plan either to a vendor receiving contributions under the plan or to a vendor who has an information sharing agreement in place with the employer, then the information sharing requirements do not apply to the initial exchange.

As with all issues involving the interpretation or application of laws, plan sponsors should rely on their legal counsel for authoritative advice on IRS Rev. Proc. 2007-71. The new IRS guidance on contracts issued before 2009 deals with a complex area of §403(b) administration, and therefore requires familiarity with the rules under final regulations. The Segal Company can be retained to work with plan sponsors and their attorneys on issues related to compliance with the final §403(b) regulations.

1	To see Rev. Proc. 2007-71, which was published on November 27, 2007, click here. (To return to the Compliance Alert, click here.)
2	For a summary of the final regulations, see The Segal Company’s Bulletin, "Final Regulations for Section 403(b) Plans." (To return to the Compliance Alert, click here.)

Compliance Alert, The Segal Company's periodic electronic newsletter summarizing important developments affecting benefit plan compliance, is for informational purposes only. It is not intended to provide authoritative guidance. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.

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