A number of years ago, I was in-house ERISA counsel for Kellogg Company (yes, the home of Tony the Tiger). The company’s CEO was in charge of the food manufacturer’s trade group at the time, and he sent me to DC to review and help “fix” the retirement plan for its employees. This was a time prior to even the IRS’s Administrative Policy on Self Correction (“APRSC”-I am showing my age). As I explained to the group’s Executive Committee the issues and the list of horribles which could result, the V.P. for Taxes of Kellogg stopped me in the middle of my presentation and blurted out: “Toth, this s**t’s hard!”

And so it is now, with the new “state of the 403(b) world.”  Through fits and starts, and in efforts often delayed, the IRS now has mostly in place a set of comprehensive rules for dealing with 403(b) plans following the unfortunate issuance of the unnecessarily complex regulations in 2007.   In reviewing the recently issued package of 403(b) efforts, including the new EPCRS; the ”pre-approved” plan rules under Rev Proc 2013-22; and the new sample plan language, I think back to that vulgar, but accurate, comment made to me many years ago:

This stuff’s hard.

When considering these new plan document rules and the new EPCRS together, there is a massive volume of sometimes difficult detail in the guidance.  Much of it is thoughtful, some of it controversial and, I would suggest, some of it innovative. For example, it ventures into the world of effectively requiring pre-approved plans while staying within its regulatory bounds (as we’ll be discussing in future blogs).  And for those of us wonks, sadly, it’s all very interesting as well.

The most striking aspect of this effort, however, is what seems to be a newly institutionalized view that 403(b) plans are, in fact, much different than 401(a) plans, and often demands much different treatment. Here is language from the Rev Proc:

“The program described in this revenue procedure is similar in many respects {comment: note NOT the “same”} to the Service’s pre-approved plan program for plans qualified under § 401(a), which is described in Rev. Proc. 2011-49, 2011-44 I.R.B. 608. For example, two categories of pre-approved plans — prototype plans and volume submitter plans, which are described in section 5 and section 7 of this revenue procedure, respectively — are available under both programs…..Although the program described in this revenue procedure is similar in many respects to the program described in Rev. Proc. 2011-49, there are differences between the two programs, beyond those that result from the differences in the Code requirements under § 401(a) and § 403(b).”

This is so different from the early days of this regulatory effort, where Reader, Bortz and Architect would all insist that there were few (nor should there be any) fundamental differences between 403(b) and 401(a) plans, a bias that is still reflected in the 2007 regs.

Now, instead, we may be finding ourselves in a much better position of working through the details on how to apply the rules differently (and where) in an environment that is now willing to recognize this reality. Hopefully, we seem to be at the beginnings of the implementation of a regulatory scheme that adequately deals with that  403(b) uniqueness.

This is relatively uncharted territory for all of us.  Lou Campagna said it well when he commented on how the DOL also went into unfamiliar grounds with the new 408(b)(2) regs. He noted that sometimes they just aren’t going to get it always right, but the effort is well worth it.

That’s going to be the case here, as it really is breaking into new ground. The IRS now has established a coordinated structure by which we can reasonably attempt to develop compliance. We are not going to like some of the IRS’s choices; and there still is quite a bit of institutional learning about 403(b) plans that still needs to be had. But we now see some sanity in dealing with this calamity. I think we’re going to find, in spite of some of the bumps we all see in this right now, that this was nicely done.