Groups Ask IRS to Clarify Definitions

The American Society of Pension Professionals & Actuaries (ASPPA) sent a comment letter to the Internal Revenue Service (IRS) about the definitions of vesting and severance for pre-approved 403(b) plans.

The IRS is assisting plan sponsors in drafting section 403(b) pre-approved plans in order to expedite the review and approval of these plans. However, according to ASPPA’s letter, “certain sample language recently provided by the IRS to plan sponsors for this purpose adds confusion more than clarity.” The organization recommends two rewordings to solve this problem and improve the sample language.

The letter addressed the wording that determines “Related Employer” status and how to determine whether a separation from employment has taken place. The new example should be excluded or modified to specifically note that all public schools within the same state are not necessarily Related Employers under the special rules of IRS Notice 89-23. “This change would eliminate confusion as to the inconsistency between LRM 22 and LRM 24 [the previous definition and the new one],” the comment letter said.  This would eliminate confusion and inconsistencies between the two definitions.

The letter addressed some confusion in another example (listing of required modifications 65) about recordkeeping requirements for non-vested amounts. “Specifically, the suggested revision should make it clear that non-vested amounts require appropriate separate recordkeeping entries (i.e., “separate accounting”) and not a physical segregation of assets or investment in a separate insurance contract or custodial account.”

The National Tax Sheltered Accounts Association (NTSAA) was a joint signer of the comment letter, which can be downloaded here.

The IRS modifications can be downloaded here.