It has been a while since I jumped on the blogging trail, but the question "What comes first, the Written Plan or the Implementation Date?" seems more and more like… "the Chicken and the egg."
Taking this one step at a time, there are a significant number of employer/plan sponsors, administrators and others tackling this question. I have had a number of conversations with individuals and groups that began pulling together the "Written Plan" for their 403(b) plan(s) and were simply stumped when posed with defining the original start date of the plan. I have found this question alone can be the primary reason a "written plan" was not finalized for some 403(b) plans.
Once we get past the "chicken and egg" conversation, the conversation progresses to somewhat of a dart board effect. Well, a reasonable guess would be to date the plan as of 01-01-2009, but your investments would possibly age prior to that date. Another reasonable guess is the oldest date on the first investment contract or account holding current assets. There is a solid argument for this approach, but it can result in a bit of an art, rather than a science.
Sometimes the right answer is very much tied to your facts and circumstances, within reason. If you can identify the date of the first contribution or funding to your 403(b) plan, begin there and work forward. Read on for additional challenges that have surfaced while capturing the "written plan"…
"Never say never" refers to albums, songs, movies and so many things. It also applies in the world of a 403(b) "written plan". If you have found that crafting your 403( b) "written plan" leaves you believing it would be easier to learn a complicated new computerized art form, than I encourage you to take the "Big Paper Clip" approach. Gather any and all written materials such as board meeting minutes, e-mails showing approval or execution of the plan, copies of all sample investment contracts, historical and current, and any prior informal plan documents and summary plan descriptions or employee handouts that contain defining elements of your plan.
Those plan sponsors that found it was absolutely necessary to formally craft a plan document that satisfied their "written plan" and satisfied their auditor’s request to review such plan document may have resulted in "the square peg in a round hole" syndrome. Using a plan document and adoption agreement originally meant for a 401(k) or 401(a) plan has left some plan sponsors with a "written plan" that does not accurately define "Universal Eligibility" correctly. Or, they find the age 50 catch-up contribution language was in the original document and simply added the 15 year catch-up language without understanding there is a priority and sequence in utilizing these catch-up contributions. Other areas overlooked would fall with defining compensation and actually checking the control in place that supports the payroll department actually uses the same compensation definition.
It would be so much easier to stick our heads in the sand as the circumstances of the 403(b) "written plan" unfold and evolve. However, never pulling the information together or taking your best efforts to craft a "written plan" will only make the situation much worse. I’ve heard the proverbial saying "Well, I’m waiting for the approved 403(b) prototype". REALLY? Don’t wait, it won’t make it any easier and you will still need to gather the same types of materials to complete your plan document when the 403(b) Prototype Plans are available later this year.
And please don’t fall into this trap. If you have someone who identified a possible concern or issue suggesting you need to file with the Voluntary Correction Program, (VCP), put on the brakes before you incur unnecessary expenses. There are several submissions for 403(b) retirement plan failures that are just not currently eligible for correction through VCP. Ineligible submissions include cases where:
- the plan failed to adopt a written plan program before December 31, 2009; or
- the plan’s "written plan" did not satisfy the legal requirements under Code §403(b) and the 403(b) final regulations, or
- the plan failed to operate according to its written program’s terms.
These VCP submissions (including fees) containing ineligible failures are currently and will continue to be returned until we receive further modifications and expansion to EPCRS. Yes, the submissions will be returned including filing fees is good news. However, the expenses you may have incurred by the firm or organization that prepared your submission will still expect to be paid for their time and contribution for creating your submission and unlikely willing to refund that expense. These expenses can run well over $10,000 to $15,000 dollars.
See the March newsletter from the Internal Revenue Service Tax Exempt and Government Entities Division located at:
An employer sponsoring a 403(b) plan may currently use VCP to correct employer eligibility and demographic failures,and the operational failures listed in Revenue Procedure 2008-50 §5.02(2)(a). Revenue Procedure 2008-50 is currently in the process of expanding EPCRS to include post-December 31, 2008 failures. Stay tuned!