SECTION 2. BACKGROUND

.01 Contributions for an annuity contract purchased for an employee by an eligible employer are generally excluded from the employee’s gross income if the requirements described in § 403(b) are met. Amounts paid by an eligible employer to a custodial account which satisfies the requirements of § 401(f)(2) are treated as contributed to an annuity con

tract for an employee if the requirements of § 403(b)(7)(A)(i) and (ii) are met. For purposes of this revenue procedure, and except where otherwise indicated, an eligible employer is a public school or an employer described in § 501(c)(3) which is exempt from tax under § 501(a).

.02 Final regulations under § 403(b) (“the 2007 regulations”) were published on July 26, 2007 (72 FR 41128). The 2007 regulations are generally effective as of January 1, 2009.

.03 Section 1.403(b)–3(b)(3) of the 2007 regulations provides that a contract (or custodial account) does not satisfy the requirements of § 403(b) unless it is maintained pursuant to a plan. A plan means a written defined contribution plan which, in both form and operation, satisfies the requirements of the 2007 regulations.

.04 The Service has not heretofore maintained a program for the issuance of determination or opinion letters as to the acceptability of a plan under § 403(b). However, the Service did on occasion issue private letter rulings regarding the excludability of contributions to a contract under § 403(b).

.05 The Service has received comments from the public recommending ways to assist eligible employers in complying with the written plan requirement of the 2007 regulations. Among the recommendations have been the publication of model plan language for § 403(b) plans of public schools, the establishment of a determination letter process for individually designed § 403(b) plans, and the expansion of the scope of the Service’s master and prototype plan opinion letter program for the pre-approval of plans qualified under § 401(a) to include § 403(b) plans.

.06 In Rev. Proc. 2007–71, 2007–2 C.B. 1184, the Service provided guidance regarding compliance with the 2007 regulations and published model plan language that may be used by public schools either to adopt a written plan to reflect the requirements of § 403(b) and the 2007 regulations or to amend a § 403(b) plan to reflect the requirements of § 403(b) and the 2007 regulations. Rev. Proc. 2007–71 also provides that other eligible employers may use the model language as sample language to comply with one or more of the requirements imposed by the 2007 regulations. Rev. Proc. 2007–71, including its provisions regarding the extent to

2009–18 I.R.B. 918 May 4, 2009

plication procedures, and sections 8 and 11 through 15 regarding the duties of sponsorship.

.06 One of the Service’s goals in establishing the § 403(b) prototype plan program is to ensure that § 403(b) prototype plans will be broadly suitable for the majority of eligible employers. The Service does not intend that prototype plans be suitable for every eligible employer or every circumstance. Thus, the revenue procedure does not permit § 403(b) prototype plans to include certain provisions that the Service believes do not apply to most eligible employers, such as vesting schedules and provisions applicable only to churches and organizations described in § 3121(w)(3). See section 5.06 and section 9. .07 While the Service intends to establish a determination letter program for § 403(b) plans in the future, the § 403(b) prototype plan program is designed to enable eligible employers that adopt a § 403(b) prototype plan to obtain assurance (referred to in section 10 as “reliance”), without the need to apply for an individual determination letter, that the Service has determined that the terms of the eligible employer’s § 403(b) prototype plan satisfy § 403(b) and the 2007 regulations. However, if the adopting eligible employer is neither a governmental entity nor a church, the extent to which the employer may rely directly on the § 403(b) prototype plan’s opinion letter without applying for an individual determination letter depends on the form of the eligible employer’s § 403(b) prototype plan, as explained in section 3.08 (next paragraph).

.08 There are two forms of § 403(b) prototype plan under this revenue procedure: a “standardized plan” and a “nonstandardized plan.” A plan is a standardized plan if the only contributions the employer may choose to provide under the plan are elective deferrals or if the plan automatically satisfies uniform coverage and contribution standards with respect to any other contributions under the plan. A nonstandardized plan is a plan that is not a standardized plan. An eligible employer that adopts a standardized plan generally may rely directly on the opinion letter for the plan. An eligible employer that adopts a nonstandardized plan generally may rely directly on the opinion letter for the plan except with respect to whether the plan sat

ance that the form of a plan satisfies the requirements of § 403(b). Eligible employers that utilize either the opinion letter program or the determination letter program will be able to retroactively correct defects in the form of a written § 403(b) plan for years after 2009 by timely adopting remedial amendments.