4037 / What is the written plan requirement for 403(b) plans?
Editor’s Note: Beginning January 1, 2023, Revenue Procedure 2022-40 allows plan sponsors to submit determination letter applications for individually designed 403(b) plans with respect to initial plan determination, plan terminations, and other issues that the IRS has yet to announce. Plans sponsored by schools, churches and tax-exempt organizations will be permitted to apply in substantially the same way that is already available for individually designed qualified plans.
Planning Point: Plans are not required to participate in the determination program. However, the program allows the plan to receive assurance from the IRS that the plan’s written form complies with the Internal Revenue Code. Applying also makes it easier for the plan to correct any errors under the EPCRS program.
According to final regulations, a contract does not satisfy the requirements for exclusion from gross income ( Q 4035) unless it is maintained pursuant to a plan. For this purpose, a plan is a written defined contribution plan that in both form and operation satisfies the requirements set forth in the regulations.1 Thus, a plan must contain all of the material terms and conditions for eligibility, benefits, applicable limitations, the contracts available under the plan, and the time and form under which benefit distributions would be made.2
A plan may contain optional features that are consistent with, but not required, under IRC Section 403(b), including features with respect to hardship withdrawal distributions, loans, plan-to-plan or annuity contract-to-annuity contract transfers, and acceptance of rollovers to the plan. If a plan contains any optional provisions, the optional provisions must meet, in both form and operation, the relevant requirements.3
A plan may allocate responsibility for performing administrative functions, including functions to comply with the requirements of Section 403(b) and other tax requirements. Any allocation must identify responsibility for compliance with the requirements of the IRC that apply on the basis of the aggregated contracts issued to a participant under a plan, including loans under IRC Section 72(p) and conditions for obtaining a hardship withdrawal. A plan is permitted to assign responsibilities to parties other than the eligible employer, but not to participants.4