When the IRS released the Final 403(b) Regulations earlier this year, they also announced that they would be releasing model plan language, and potentially a model plan itself, for plan sponsors to adopt. In the past, the IRS has released Model amendments and sample amendments, and even suggested plan language for prototype plans contained in the List of Required Modifications (LRMs), but an entire model plan by the IRS was a novel and interesting idea.
With Rev. Proc. 2007-71, the Service has issued model plan language which may be used by public schools to either adopt a written plan which complies with the Final 403(b) Regulations, or to amend an existing plan to comply with the Final 403(b) Regulations. Since the Final 403(b) Regs imposed a written plan requirement, the IRS states that this model plan language is designed to alleviate, in part, the cost to public schools of complying with this requirement. As part of Rev. Proc. 2007-71, the IRS is also requesting comments by March 16, 2008, on these questions:
- While the model language has generally been prepared for use by employers based on provisions commonly found in defined contribution retirement plans, are there additional provisions which should be added to reflect features that are widely used?
- Are there changes that should especially be made to reflect the circumstances applicable to public schools, including not only revised versions of the model language, but also whether additional provisions are necessary or appropriate for them?
- Should the provisions found in section 7.3 of the model language, which have been prepared to satisfy the 2007 final regulations requirements for the plan document to reflect the available vendors, be expanded, including changes to reflect the special relief in section 8 of this revenue procedure?
Section 2.2(b) of the model plan language contains three paragraphs on automatic enrollment which are interesting in both their clarity and brevity. This Revenue Procedure is authored by Bob Architect, the IRS’ authority on all things 403(b), so it is not surprising that the language on automatic enrollment is brief, clear and concise. These paragraphs state:
(b) Special Rule for New Employees. (1) Automatic Enrollment for New Employees. For purposes of applying this Section 2.2, a new Employee is deemed to have elected to become a Participant and to have his or her Compensation reduced by [5%] (and have that amount contributed as an Elective Deferral on his or her behalf), at the time the Employee is hired, and to have agreed to be bound by all the terms and conditions of the Plan. Contributions made under this automatic participation provision shall be made to the Funding Vehicle or Vehicles selected for this purpose for all new Employees by the Administrator. Any Employee who automatically becomes a Participant under this Section 2.2(b) shall file a designation of Beneficiary with the Funding Vehicle or Vehicles to which contributions are made.
(2) Right to File a Different Election; Notice to Employee. This Section 2.2(b) shall not apply to the extent an Employee files an election for a different percentage reduction or elects to have no Compensation reduction, or designates a different Funding Vehicle to receive contributions made on his or her behalf. Any new Employee shall receive a statement at the time he or she is hired that describes the Employee’s rights and obligations under this Section 2.2(b) (including the information in this Section 2.2(b) and identification of how the Employee can file an election or make a designation as described in the preceding sentence, and the refund right under Section 2.2(b)(3), including the specific name and location of the person to whom any such election or designation may be filed), and how the contributions under this Section 2.2(b) will be invested.
(3) Refund of Contributions. An Employee for whom contributions have been automatically made under Section 2.2(b)(1) may elect to withdraw all of the contributions made on his or her behalf under Section 2.2(b)(1), including earnings thereon to the date of the withdrawal. This withdrawal right is available only if the withdrawal election is made within 90 days after the date of the first contribution made under Section 2.2(b)(1).
Note: Section 2.2(b) is an optional provision that provides for any new employee to be automatically enrolled in the Plan, with 5% of Compensation to be contributed to the Plan, unless the employee elects otherwise. See §§ 414(w) and 4979(f) of the Code for special relief that applies to a plan that uses automatic enrollment, as provided in Section 2.2(b). Plan sponsors should make any revisions in this optional provision that may be necessary in order to take into account any additional guidance that may be provided by the Treasury Department or the IRS regarding automatic enrollment under §§ 414(w) and 4979(f) of the Code.
Rev. Proc. 2007-71 states a public school employer who adopts the model language on a word-for-word basis or adopts an amendment which is substantially similar in all material respects will be deemed to satisfy the Final 403(b) Regulations for a written plan and will not need to apply for a private letter ruling. Of course, Rev. Proc. 2007-71 also contains the admonition that the written plan must also be operated in accordance with the written plan or amendment, from or after the effective date of the amendment.
The IRS could not have timed this better. In December, my company will be releasing our 403(b) plan updated for the Final 403(b) Regulations. We will also be releasing a pamplet on this IRS model plan language including annotations and commentary, along with a formatted version of the IRS model plan language.
[tags]Pension Protection Act, ppa, 403(b), 403b, model language, IRS, final 403(b) regs, amendment, Rev Proc 2007-71, ERISA, Bob Architect, Robert Architect[/tags]
