SECTION 4. OVERVIEW AND

PRINCIPAL CHANGES FROM THE DRAFT REVENUE PROCEDURE

.01 Overview. (1) This revenue procedure establishes a program for the pre-approval of § 403(b) plans. This program offers employers that maintain a § 403(b) plan an alternative to adopting an individually designed plan in order to satisfy the written plan requirement of the 2007 regulations. Under this program, the Service will issue an opinion or advisory letter as to whether the form of a § 403(b) prototype plan or a § 403(b) volume submitter plan, respectively, meets the requirements of § 403(b). An employer may satisfy the written plan requirement and obtain assurance that its plan meets the requirements of § 403(b) by adopting a plan that has received an opinion or advisory letter under this program.

(2) The program described in this revenue procedure is similar in many respects 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.

(3) 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). Under the pre-approved plan program for qualified plans, adopting employers may be able to obtain individual determination letters under certain circumstances. The

Service is not establishing a determination letter program for § 403(b) plans at this time and an employer who adopts a pre-approved § 403(b) plan will not be able to apply for an individual determination letter for the plan. The extent of the adopting employer’s reliance on the opinion or advisory letter may be limited, based on the type of pre-approved § 403(b) plan the employer has adopted, as explained in sections 4.01(6) and 4.01(8). A § 401(a) volume submitter plan may provide that the volume submitter practitioner can amend the plan on behalf of adopting employers, but the plan is not required to include such a provision. Under this revenue procedure, a § 403(b) volume submitter plan must provide that the volume submitter practitioner can amend the plan on behalf of adopting employers so that changes in the Code, regulations, revenue rulings, or other guidance published by the Service, or corrections of prior approved plans, may be applied to all eligible employers that have adopted the plan.

(4) As more fully described in section 5, a § 403(b) prototype plan is a two-part plan document intended to satisfy the requirements of § 403(b) that a vendor or other entity (referred to as “the prototype sponsor”) provides to eligible employers that wish to adopt a written § 403(b) plan. The prototype sponsor submits the document to the Service for approval that the form of the document meets the requirements of § 403(b). Approval is provided in the form of an opinion letter issued to the sponsor by the Service.

(5) The first part of a § 403(b) prototype plan document, called the basic plan document, contains provisions that apply to the plan of any eligible employer that uses the document to adopt a written § 403(b) plan. An eligible employer may not modify the provisions of a basic plan document. The second part of the document, called the adoption agreement, is the part of the plan document which is completed and signed by an eligible employer in order to establish a written plan. The adoption agreement gives the eligible employer elections and options from which to choose in order to customize particular features of its plan. Thus, different eligible employers can use the same § 403(b) prototype plan document to adopt a written § 403(b) plan, with the plans differentiated by the choices each eligible employer makes in its plan’s

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A program for the pre-approval of prototype and volume submitter plans is a practical way to help large numbers of adopters of § 403(b) plans understand and comply with the tax rules regarding their plans. A pre-approval program will utilize the Service’s resources efficiently. A determination letter program for individually designed § 403(b) plans, on the other hand, is costly and less efficient. Given the Service’s limited resources, it is not feasible for the Service to establish such a program at this time. Furthermore, issuing individual determination letters to adopters of pre-approved § 403(b) plans would greatly increase the Service’s cost of administering the pre-approved plan program with minimal additional benefit to plan sponsors and plan participants. Therefore, this revenue procedure does not contemplate the issuance of individual determination letters to sponsors of § 403(b) plans. Thus, a sponsor of a § 403(b) plan will be able to obtain reliance as to the acceptability of the form of its plan only if the plan is a pre-approved plan as described in this revenue procedure or if the employer is a public school that has adopted the model plan language included in Rev. Proc. 2007–71 and is entitled to reliance under that revenue procedure. In addition, the extent of a plan sponsor’s reliance on an opinion or advisory letter will depend in some cases on the type of pre-approved § 403(b) plan that the sponsor adopts. See sections 4.01(6) and 4.01(8). (3) Announcement 2009–89 and the draft revenue procedure contained a remedial amendment provision that would allow sponsors of § 403(b) plans to amend their plans retroactively to satisfy § 403(b) and the 2007 regulations by either adopting a pre-approved plan or amending an individually-designed plan and applying for a determination letter. Although a determination letter program for § 403(b) plans is no longer contemplated, sponsors of both pre-approved § 403(b) plans and individually designed § 403(b) plans will be permitted to amend their plans retroactively to satisfy § 403(b) and the 2007 regulations. An individually-designed § 403(b) plan that is eligible for remedial amendment under this revenue procedure must be amended to the extent necessary to correct, retroactively, any defects in the form of the plan by the time described in section 21.05. Employers using individ

ter plan, which is described in section 7. Under this component of the pre-approved plan program, a § 403(b) volume submitter practitioner may apply for an advisory letter that a § 403(b) volume submitter specimen plan (that is, a sample plan of the practitioner rather than an employer’s plan) satisfies the requirements of § 403(b). A § 403(b) volume submitter plan is not required to have an adoption agreement, but may have one.

(8) An adopting employer of a § 403(b) volume submitter plan can rely directly on the advisory letter for the approved specimen plan, except to the extent that the employer’s plan is not identical to the approved specimen plan, disregarding any differences attributable solely to the employer’s choices of options provided under the specimen plan, and except with respect to the requirements of §§ 401(a)(4) and 410(b) (unless those requirements do not apply to the plan, for example, because the only contributions under the plan are elective deferrals). See section 15 regarding employer reliance on an advisory letter.

(9) Under the § 403(b) pre-approved plan program, the Service will review the basic plan document and adoption agreement, or the specimen plan, as applicable, but will not review any investment arrangements or any other documents that may form a part of an employer’s plan. The terms of the pre-approved plan must therefore satisfy the requirements of § 403(b), independent of the terms of the investment arrangements under the plan. In addition, every § 403(b) pre-approved plan must provide that in the event of a conflict between the terms of the pre-approved plan and the terms of any investment arrangements under the plan, the terms of the plan will govern. Section 8 describes this and other provisions that must be included in every § 403(b) pre-approved plan. Sections 9 and 10 describe additional provisions that must be included in every § 403(b) prototype plan and in every § 403(b) plan intended to be a retirement income account under § 403(b)(9), respectively. Also see section 13 regarding the scope of an opinion or advisory letter.

(10) Some of the provisions described in section 8 that must be included in every § 403(b) pre-approved plan reflect procedural requirements of the § 403(b) pre-approved plan program. One of those re

quirements is that each § 403(b) pre-approved plan allow the prototype sponsor or volume submitter practitioner, as applicable, to amend the § 403(b) pre-approved plan on behalf of each eligible employer that has adopted the plan. Under this revenue procedure, each pre-approved plan sponsor must carry out certain duties, among them to keep the document up to date for changes in law and to notify adopting employers of amendments to the document. See section 11 for eligibility to sponsor a § 403(b) pre-approved plan, section 17 for opinion and advisory letter application procedures, and sections 12 and 16 through 20 regarding the duties of sponsorship.

(11) As indicated in Notice 2009–3 and Announcement 2009–89, this revenue procedure, in section 21, includes a remedial amendment provision that allows eligible employers to retroactively correct defects in the form of their § 403(b) plans for certain years through the timely adoption of remedial amendments. This provision applies to eligible employers that timely adopt a § 403(b) pre-approved plan or that otherwise timely amend a § 403(b) plan. No inferences should be drawn from this provision regarding the application of § 401(b) to retroactive changes in plans qualified under § 401(a).

.02 Principal changes from the draft revenue procedure.

(1) This revenue procedure incorporates a number of changes to the program described in the draft revenue procedure. Some of the changes reflect the changes to the qualified plan determination letter program described in Announcement 2011–82 and the Service’s need to more efficiently direct its limited resources. Others are based on the Service’s consideration of the comments submitted in response to Announcement 2009–34. The following are the principal changes to the draft revenue procedure that are incorporated in this revenue procedure:

(2) Announcement 2009–34 stated the Service’s intent to establish a program for the issuance of determination letters for individually designed § 403(b) plans following establishment of the prototype program described in the draft revenue procedure. The draft revenue procedure provided that adopters of prototype § 403(b) plans would also be able to obtain individual determination letters in certain cases.

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(c) A § 403(b) prototype plan that is a standardized plan as defined in section 6.01 of this revenue procedure limits the adoption agreement elections available to the adopting employer with respect to nonelective contributions to safe harbors that automatically satisfy the nondiscrimination requirements of §§ 401(a)(4) and 410(b). A § 403(b) nonstandardized prototype plan or a § 403(b) volume submitter plan may allow the employer to make elections with respect to nonelective contributions that require testing of the coverage and benefits under the plan to determine if the plan satisfies the nondiscrimination requirements of §§ 401(a)(4) and 410(b).

(d) An employer that adopts a § 403(b) volume submitter plan may modify the terms of the approved specimen volume submitter plan, in addition to selecting among options under the plan, without causing the employer’s plan to be treated as an individually designed plan, provided the employer’s plan is “substantially similar,” within the meaning of section 7.01 of this revenue procedure, to the approved specimen plan.

(11) Taking into account the factors in the preceding paragraph, this revenue procedure provides in general that:

(a) Any eligible employer that adopts a standardized § 403(b) prototype plan may rely on an opinion letter for the plan.

(b) An eligible employer that adopts a nonstandardized § 403(b) prototype plan may rely on an opinion letter for the plan if the plan is a governmental plan or if the employer is a Church or QCCO.

(c) Any other eligible employer, including an employer that is a Non-QCCO, that adopts a nonstandardized § 403(b) prototype plan may rely on the opinion letter for the plan, except with respect to whether nonelective contributions under the plan satisfy the requirements of §§ 401(a)(4) and 410(b).

(d) An eligible employer that adopts a § 403(b) volume submitter plan may rely upon an advisory letter for the plan, except (i) to the extent that the employer modifies the terms of the approved specimen plan (other than by selecting options that are permitted under the terms of the approved specimen plan); and (ii) if the plan is not a governmental plan or a plan of a Church or QCCO, with respect to whether any nonelective contributions under the plan sat

ually designed plans will not be entitled to reliance that their plan terms comply with the requirements of § 403(b) unless they timely restate their plans in the form of a pre-approved plan. As a result, after the deadline described in section 21.05, the sponsor of an individually designed § 403(b) plan will not have reliance that the terms of the plan document meet the applicable requirements for favorable tax treatment.

(4) The scope of the § 403(b) pre-approved plan program has been expanded under this revenue procedure to provide for the issuance of advisory letters for § 403(b) volume submitter specimen plans, including mass submitter specimen plans, in addition to opinion letters for § 403(b) prototype plans. This change will provide eligible employers that choose not to use an adoption agreement format in their plans access to pre-approved § 403(b) plan documents.

(5) The provisions of the draft revenue procedure regarding mass submitter plans have been modified in this revenue procedure to provide for the issuance of opinion letters for § 403(b) prototype plans that are minor modifiers of a § 403(b) prototype plan of a mass submitter, regardless of the number of eligible employers expected to adopt the minor modifier plan.

(6) The scope of the program has been expanded under this revenue procedure to provide for the issuance of opinion and advisory letters for retirement income accounts.

(7) The definition of who is eligible to sponsor a § 403(b) pre-approved plan has been modified to include a Church-related organization that sponsors a retirement income account, regardless of the number of eligible employers expected to adopt the plan.

(8) This revenue procedure eliminates the provision of the draft revenue procedure that would have prohibited the issuance of opinion letters for plans that include provisions applicable only to Churches and QCCOs, Church-related organizations, or ministers described in § 414(e)(5)(A).

(9) This revenue procedure also eliminates the provision of the draft revenue procedure that would have prohibited the issuance of opinion letters for plans that include terms that are acceptable under § 403(b) only in a plan of a Church or

QCCO. Thus, for example, the Service will not decline to issue an opinion or advisory letter for a plan merely because the plan does not require universal availability of § 403(b) elective deferrals if the plan is available for adoption only by a Church or QCCO.

(10) This revenue procedure clarifies an adopting employer’s ability to rely on an opinion or advisory letter for a § 403(b) pre-approved plan. The provisions of the revenue procedure regarding reliance take into account the following factors:

(a) Generally, a § 403(b) plan must satisfy both (i) the universal availability requirement of § 1.403(b)–5(b) with respect to elective deferral contributions and (ii) the rules of § 1.403(b)–5(a) that require any nonelective contributions under the plan to satisfy the nondiscrimination requirements of §§ 401(a)(4), 401(a)(17), 401(m), and 410(b) in the same manner as a qualified plan under § 401(a). However, pursuant to § 1.403(b)–5(d), the universal availability and nondiscrimination requirements of § 1.403(b)–5 do not apply to a § 403(b) contract purchased by a Church or QCCO. In addition, pursuant to § 1.403(b)–5(a)(5), a governmental § 403(b) plan must satisfy the universal availability requirement with respect to elective deferrals under § 1.403(b)–5(b), but such a plan is not required to satisfy the nondiscrimination rules for nonelective contributions under § 1.403(b)–5(a), other than the requirement to limit compensation taken into account under the plan in accordance with § 401(a)(17).

(b) Section 8 of this revenue procedure generally requires every § 403(b) pre-approved plan to satisfy the requirements of the 2007 regulations. Under section 8.06(2) and (3) of this revenue procedure, every § 403(b) pre-approved plan must satisfy the universal availability requirement with respect to elective deferrals under § 1.403(b)–5(b) and must limit compensation taken into account under the plan with respect to nonelective contributions in accordance with § 401(a)(17), unless the adopting eligible employer is a Church or QCCO. Under section 8.06(4), a § 403(b) pre-approved plan that permits contributions subject to § 401(m) must include terms that satisfy § 401(m), unless the plan is available for adoption only as a governmental plan or by a Church or QCCO.

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that is incorporated by reference into the plan, the terms of the basic plan document and adoption agreement would control. After considering these comments, the Service has concluded that a provision of the type described in the draft revenue procedure is fundamental to proper operation of a § 403(b) pre-approved plan program, particularly since the investment arrangements and other documents that may be incorporated by reference will not be reviewed by the Service, and since the change recommended by commentators would result in an unacceptable degree of uncertainty as to which terms control in the event of conflict. Accordingly, this revenue procedure requires every § 403(b) pre-approved plan to incorporate by reference the terms of the investment arrangements under the plan and to provide that, in the event of any conflict between the terms of the basic plan document and adoption agreement or volume submitter plan and the terms of investment arrangements (or of any other documents incorporated by reference into the plan), the terms of the basic plan document and adoption agreement or volume submitter plan shall govern. Furthermore, an eligible employer may not rely on an opinion or advisory letter for the employer’s § 403(b) pre-approved plan if the terms of any investment arrangement under the employer’s plan provide that such arrangement’s terms govern in the event of a conflict with the basic plan document and adoption agreement or volume submitter plan. The Service recognizes that this requirement will require vendors to be aware of and follow pre-approved plan provisions that may affect them. The Service made certain other changes, as described in section 4.02(17), that, in conjunction with the requirement to incorporate by reference the terms of investment arrangements, are intended to address concerns expressed by commentators regarding the requirement that the terms of a pre-approved plan’s basic plan document and adoption agreement or volume submitter plan govern if there is a conflict with the terms of an investment arrangement under the plan. (Also see section 8.03.)

(17) In some cases, the objections described in section 4.02(16) (to the requirement that the terms of the basic plan document and adoption agreement or volume submitter plan govern in case of conflict)

isfy the requirements of §§ 401(a)(4) and 410(b). Other limitations on employer reliance on opinion and advisory letters are described in sections 14 and 15 of this revenue procedure.

(12) This revenue procedure eliminates the provision of the draft revenue procedure that would have required every § 403(b) prototype plan to provide for full and immediate vesting of all contributions under the plan. Under this revenue procedure, a § 403(b) pre-approved plan may provide a vesting schedule for nonelective employer contributions, rather than full and immediate vesting of such contributions. Except in the case of certain volume submitter plans, as described below, nonelective employer contributions (and earnings thereon) under a § 403(b) pre-approved plan must vest at least as rapidly as would be required to satisfy the minimum vesting requirements of § 411(a)(2)(B), if the plan were a qualified plan under § 401(a), even if the plan is not subject to the parallel minimum vesting requirements under section 203 of ERISA. A volume submitter plan document that is designed to be used for a plan that is not subject to the minimum vesting requirements of section 203 of ERISA (for example, because the plan is a governmental plan) is not required to provide that nonelective employer contributions will vest at least as rapidly as would be required to satisfy § 411(a)(2)(B). Every § 403(b) pre-approved plan that provides that an employee’s right to nonelective employer contributions is forfeitable must also satisfy the following requirements: (i) the portion of a participant’s interest in the plan that is not vested is maintained in a separate account for the participant that is treated as a separate contract to which § 403(c) (or, in case of a custodial account, § 401(a)) applies; (ii) as amounts in the participant’s separate account become nonforfeitable, they are removed from the separate account and treated as amounts held under a § 403(b) plan, to the extent permitted under § 1.403(b)–3(d)(2)(ii); and (iii) all nonvested amounts remaining in the participant’s separate account become nonforfeitable upon termination of the plan.

(13) The preamble to the 2007 regulations notes that a written plan facilitates the allocation of responsibilities among vari

ous parties to a plan, helping ensure that these responsibilities are met. This revenue procedure therefore requires every § 403(b) pre-approved plan to provide that an appendix to the plan identify the parties responsible for the various administrative functions under the plan necessary to comply with the requirements of § 403(b) and other tax requirements, including such requirements that apply on the basis of the aggregated investment arrangements issued to a participant under the plan, and list all the vendors of investment arrangements approved for use under the plan, including sufficient information to identify the approved investment arrangements. This requirement replaces the requirement in the draft revenue procedure that this information be set forth in the adoption agreement of a § 403(b) prototype plan. Changes to the information in the required appendix will not affect the employer’s ability to rely on an opinion or advisory letter.

(14) This revenue procedure requires every pre-approved plan sponsor to timely notify adopting eligible employers of amendments and restatements of the plan and, in general, to inform employers of the need to timely adopt the plan in the case of both initial adoption and restatement of the plan. This requirement replaces the provision in the draft revenue procedure that would have required sponsors to have both a procedure to verify that adopting employers have timely adopted and signed the plan when required and a procedure for employers to acknowledge receipt of plan amendments if the employer is not required to complete a new adoption agreement.

(15) This revenue procedure clarifies that, under the remedial amendment provisions of the procedure, retroactive amendments that are permitted to correct defects in the form of the plan include amendments to investment arrangements and any other documents that are incorporated by reference into the plan.

(16) A number of commentators urged the Service to modify the provision in the draft revenue procedure that would have required every § 403(b) prototype plan to provide that in the event of any conflict between the terms of the basic plan document and adoption agreement and the terms of any investment arrangement under the plan, or of any other document

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tion agreement. Each plan (that is, each basic plan document/adoption agreement pair) must be either a standardized plan or a nonstandardized plan. (See section 6 for an explanation of the difference between a standardized plan and a nonstandardized plan.) This is because a standardized plan may not include certain options that are available to adopting employers of nonstandardized plans. Therefore, each adoption agreement must specify whether it is a standardized plan adoption agreement or a nonstandardized plan adoption agreement.