Efforts to implement major new health care and financial services laws are getting in the way of an Internal Revenue Service (IRS) initiative to update 403(b) retirement plan procedures.

Avaneesh Bhagat, a program coordinator with Employee Plans Voluntary Compliance at the IRS, talked about 403(b) plan procedure drafting delays at a recent Employee Plans Correction Resolution System teleconference aimed at retirement plan professionals.

Congress began letting schools and other nonprofit employers start 403(b) retirement plans in 1958, long before for-profit employers could offer 401(k) plans. The IRS let the sponsors run the plans without using formal documents.

Now, the IRS and the U.S. Labor Department are imposing many new plan document and report filing requirements on 403(b) plans. Plan advisors report that many sponsors have failed to create the required formal plan documents, and that the IRS has created no clear process for sponsors to use to make up for a lack of documents.

The IRS described procedures sponsors can use to correct many different types of plan problems in Revenue Procedure 2008-50, and 403(b) plan compliance experts have been hoping the IRS would explain what to do about 403(b) plans without plan documents in an update to Rev. Proc. 2008-50.

“We’ve received a lot of questions on when we might see the update to the current Revenue Procedure 2008-50,” Bhagat said during the recent teleconference, according to a transcript of the call provided by the IRS. “It’s very, very tough to pin a time to it, primarily because a lot of the work on it is done; but as far as the clearance process goes many of our resources and counsel have been devoted to other priorities such as guidance on health care and other recent legislation.”

In part because of the demands created by the Patient Protection and Affordable Care Act of 2010 (PPACA) and other new laws, “it is very hard to assign a time to when that revenue procedure will be issued,” Bhagat said.

When the Rev. Proc. 2008-50 update does come out, the primary purpose will be to reflect the new 403(b) plan written plan requirement, Bhagat said.

“Basically, once we get the new revenue procedure, we will be able to address issues such as the failure to adopt the written plan by the end of 2009,” Bhagat said. “And now that we have a written plan requirement the plan in operation has to operate in accordance with plan terms, so if you have a failure to operate the plan in accordance with plan terms you would be able to address that under the new revenue procedure.”

Bhagat recommended that 403(b) plan sponsors and advisors correct known problems now, rather than waiting for the revenue procedure update to appear.

“So, for example, if you have a situation where you have an employer that hasn’t adopted a written plan program yet then adopt it, have the employer adopt it,” Bhagat said. “Don’t wait until the program opens up before that particular action is taken.”

Stephanie Bennett an IRS voluntary compliance tax law specialist, noted that a 403(b) plan sponsor should not try to correct a failure to “timely adopt a written plan” by submitting a correction through the IRS Voluntary Correction Program (VCP).

“Those VCP submissions are treated as ineligible submissions and will be returned along with the submission fees,” Bennett said.

The best approach would be for a 403(b) plan sponsor without a written plan to “adopt a written plan now, and then go ahead and submit under VCP once the new revenue procedure is issued,” Bennett said.

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