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Guest Blog: Linda Segal Blinn on 403(b)
Writing a blog on technical/legal/regulatory issues can be daunting. You want the information to be right, but you also want it to be understandable (and in as few words as possible) to the professional who wants to be able to use the information you are trying to provide. This is why the writings of Linda Segal Blinn caught my attention. A well known professional in the 403(b) world, her technical writings are straightforward, accurate, understandable and make the point well. There are few technical writers who have this skill set.
Linda has graciously accepted my invitation to write something of importance for this blog, even getting corporate approval to do so. Her following piece on 403(b) plan documents is very timely particularly given that the IRS is now auditing for compliance with the new plan document rules.
Thank you Linda.
“Planning to Amend”
by Linda Segal Blinn, JD
Vice President of Technical Services, ING
“Just do it” may work as an athletic slogan, but it doesn’t always work so well with plan documents.
Certainly, “just do it” was the reminder to 403(b) sponsors in 2009. In that year, the IRS’ 403(b) regulations became effective and, with it, the written plan requirement, regardless of an employer’s ERISA status. As a result, with the limited exception of certain church plans, 501(c)(3) organizations and public schools were reminded – whether through IRS outreach efforts, industry associations, service providers and/or their own counsel – of the importance of adopting a 403(b) plan that folded in these IRS requirements no later than December 31, 2009.
And so, by and large, sponsors have done what the IRS has asked of them by adopting a written 403(b) plan that reflects the IRS regulations. In doing so, these employers also had choices to make – did they want to offer a Roth 403(b) feature? What about loans, hardships, rollovers in, and the like? Decisions were made, and employers were able to check off that they had timely adopted their 403(b) plan by the IRS’ regulatory due date.
But a 403(b) plan document is not a “set it and forget it” kind of document. Yes, it will need to be updated periodically to reflect new tax laws. To that end, the IRS, industry associations, service providers and tax advisors will again reach out to these employers to remind them of new deadlines to do so. However, lost in the flurry of paper as employers rushed to adopt their 403(b) plan documents is this important reminder: if an employer wants to tweak plan design, rather than regulatory provisions, the plan document must be amended for that as well.
I was reminded of this recently when reviewing a 403(b) plan document. While the plan document stated that an IRS safe harbor definition would be used, it turned out that, in fact, the plan had just switched over to using a homegrown definition that was perfectly acceptable, given the employer’s objectives.
“Is that a problem?” was the predictable question when the discrepancy between plan in form and plan in operation was pointed out. Well, yes and no. Both the Internal Revenue Code and ERISA provide that an employer must operate its plan in accordance with the terms of that plan. Yes, deviating from plan terms is technically not allowed and would make the plan defective. But adopting a simple amendment to the plan would resolve the matter. So, perhaps this is not so much a problem as a need for a minor repair.
And this is where the word needs to get out to 403(b) sponsors. Choice is good and choosing the design features that best fit your plan’s needs is important. But just as important is not losing sight that if you decide to revisit those choices, you will also need to make sure that you fold those changes into the 403(b) plan document to remain compliant with IRS and ERISA rules. While “just do it” should create a healthy environment, “just renew it” may be an even better motto for avoiding a plan document defect.
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(This material was created to provide accurate information on the subjects covered. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. These materials are not intended to be used to avoid tax penalties, and were prepared to support the promotion or marketing of the matters addressed in this document. The taxpayer should seek advice from an independent tax advisor.)
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Linda Segal Blinn is Vice President of ING’s Technical Services. In this capacity, Blinn supervises the provision of legislative, regulatory, and compliance information to assist employers in operating their retirement plans. Linda’s expertise includes administering and designing defined contribution plans in conformance with the Internal Revenue Code and ERISA.