Employee Benefits-IRS Announces A Remedial Amendment Period and Safe Harbor Reliance Rules for 403(b) Plans

In Announcement 2009-89 (the “Announcement”), the IRS said that it expects to publish, during the next few months:

– a revenue procedure for obtaining an opinion letter from the IRS that the form of a prototype or other pre-approved plan (a “pre-approved plan”) meets the requirements of Section 403(b) of the Internal Revenue Code (the “Code”); and

– a revenue procedure for obtaining an individual determination letter from the IRS for a 403(b) plan.

The IRS reminds us that, as part of the relief provided by IRS Notice 2009-3 from the requirements of Code Section 403(b) and the underlying regulations, a written 403(b) plan, intended to meet those requirements, must be adopted on or before December 31, 2009. The Announcement provides that, if the employer adopts a written plan by that date, the employer will have a remedial amendment period, starting on January 1, 2010, during which the employer will have reliance that its 403(b) plan satisfies those requirements, so long as, during this remedial amendment period:

 the employer adopts a pre-approved 403(b) plan, which has received a favorable opinion letter from the IRS, retroactive to January 1, 2010; or  applies for an individual determination letter on its 403(b) plan, and amends its 403(b) plan to correct any defects in form retroactive to January 1, 2010.

An employer that first establishes a 403(b) plan after December 31, 2009, by adopting a written plan intended to satisfy the requirements of Code Section 403(b) and the underlying regulations, will also have reliance, as to the satisfaction of those requirements, beginning on the effective date of the plan and throughout a remedial amendment period. This reliance is conditioned on the employer, during the remedial amendment period, either adopting a pre-approved 403(b) plan with a favorable opinion letter from the IRS, or applying for an individual determination letter and correcting any defects in the form of its 403(b) plan retroactive to the effective date.

The revenue procedures to be issued by the IRS will provide the details on the remedial amendment period, e.g., its length and the conditions an employer must satisfy in order to use it.