In April, The Plan Sponsor Council of America launched 403(b) Day to effectively help nonprofit employers promote 403(b) plans and engage plan participants in retirement planning, similarly to 401(k) Day. Now, in an effort to engage more employers in offering a 403(b) to their employees, the Internal Revenue Service has expanded opportunities to simplify compliance and reduce administrative costs by adopting an IRS-pre-approved 403(b) plans.
All 403(b) plans (except church plans that don't contain any retirement income accounts) must satisfy the written plan requirement, which includes eligibility requirements, benefits, limitations and investments.
Typically, the cost for a pre-approved plan is less than for an individually designed plan. Employers “generally have peace of mind that the form of the pre-approved plan meets the legal requirements,” according to the IRS. If a law change is necessary, the pre-approved plan sponsor /provider must amend the plan and notify employers of the amendment, or updated plan document.
However, the IRS cautions, that employers cannot rely on a 403(b) pre-approved plan's favorable opinion or advisory letter for whether the plan's investment arrangements meet all legal requirements, which includes annuity contracts, custodial accounts, or retirement income accounts.
In addition, employers can't rely on a 403(b) pre-approved plan's favorable opinion or advisory letter for whether the plan is subject to, or satisfies ERISA requirements.
According to a recent Plan Sponsor Council of America’s 403(b) Plan Survey, 90% of all nonprofit employees are eligible to participate in retirement plans, likely expanded due to SECURE 2.0 provisions allowing long-term part-time employees to participate.
Related: SECURE 2.0’s auto-enrollment: Driving participation in nonprofit 403(b) retirement plans
Some of IRS' 403(b) pre-approved plan sponsors may offer employers additional support with plan administration, but the IRS cautions that employers need to “carefully review and select any offered service agreement options,” said the IRS.
The IRS has published a complete list of nearly 600 403(b) pre-approved plans, which have received a favorable opinion or advisory letter from the IRS.
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