In their letter to Thomas W. Reeder, Office of Benefits Tax Counsel, Department of the Treasury, David W. Powell, Groom Law Group, and G. Daniel Miller, Conner & Winters, said that after working with sponsors and financial institutions, they believe the January 1, 2009, deadline is not sufficient time to get into compliance.
The letter specifically requests that:
- A plan sponsor not fail to satisfy the 403(b) regulations if it makes a reasonable, good faith effort to comply with the regulations on and after the January 1 deadline until the later of January 1, 2010, or a reasonable time after the Employee Plans Compliance Resolution System (EPCRS) is updated to include specific correction rules for 403(b) plans.
The written plan document requirement be delayed until the later of January 1, 2010, or a reasonable time after the Service opens a procedure for obtaining approvals for prototype 403(b) plans.
- The attorneys recognized that EPCRS corrections and a pre-approved plan program are being worked on (see “IRS Developing Pre-approved Plan Program for 403(b)s“), but as a result efforts made for compliance may have to be redone once these programs are finalized which could cost employers more when their financial resources are already stretched in these uncertain economic times.
- “We appreciate the goal of the Treasury and Service to bring about better compliance by 403(b) plans with the rules of the Code. Many of the provisions of the final 403(b) regulations are beneficial, and we do not request a broad delay of the final regulations. However, we urge patience and forbearance in what amounts to a “sea change’ in the design of retirement programs for the entire charitable employer and public school environment,” Powell and Miller said in their letter.
Gaps in Guidance
In their letter requesting a delay in the 403(b) effective date, the attorneys claimed sponsors do not have complete transition rules to adequately handle compliance.
Issues still to be addressed, cited in the letter, include:
- continuing uncertainty with respect to which contracts are to be treated as part of the plan and which contracts may be subject to reasonable good faith relief under Rev. Proc. 2007-71;
- when an information sharing agreement (ISA) is required and when it is not;
- the tax consequences to employers, participants, and investment providers of a failure to have an ISA in place on January 1, or to have contracts not treated as part of the plan on January 1 for contracts required to be treated as part of the plan on that date, and the reporting duties of issuers of such contracts;
- what it means to have a plan “maintained pursuant to” a written plan, including how and when it should be adopted, and how and when it may be amended;
- apparent difference between the Service and the Department of Labor regarding which contracts are part of the 403(b) plan and whether and how 403(b) plans can be terminated and assets distributed;
how to correct identified errors under EPCRS to preserve the tax-deferred status to the plan and contracts.