Pre 2005 Contracts

[Randy Watson]

If some contracts were issued prior to 2005 by a former provider and those providers ceased to receive contributions prior to 2005, do those contracts have to be included as part of the plan under the final regs? Do we still need to make a "good faith" effort to include them or can they be ignored?

[J Simmons]

The 2007 regs only specify a 403b contract that receives contributions needing to be maintained pursuant to an employer's 403b plan in order to exclude contributions from the employee's taxable income. The general effective date of 1/1/2009 would apply to this provision. Treas Reg § 1.403(b)-3(d)(3).

However, Notice 2007-71, section 8.01 suggests that to meet the document requirement, a plan that has received contributions since the end of 2004 needs to either be maintained pursuant to an employer's 403b plan or deemed to as a result of the employer (or perhaps the vendor) making a reasonable, good faith effort to include the 403b contract in the employer's 403b plan.

There does not seem to be any suggestion that 403b contracts that received no contributions since 2004 need to be included as part of the employer's 403b plan, or the subject of a reasonable, good faith effort to be so included.

[Randy Watson]

So how would these pre-2005 contracts come into play with regard to a plan termination? Are these contracts not considered to be part of the plan for purposes of plan termination?

[J Simmons]

It is hard to fathom what the IRS argument would be that would have plan assets include 403b contracts that are not included in or maintained pursuant to the employer's 403b plan. But then that begs the question, what plans are in fact included or maintained? That is part and parcel to this October 22 letter whereby many practitioners and industry groups sought a delay of the 1/1/09 effective date due to lingering uncertainties. It seems easier to freeze and wait (and hope) for a practical plan termination solution in future IRS guidance than to attempt to terminate now.

[Guest mjb]

So how would these pre-2005 contracts come into play with regard to a plan termination? Are these contracts not considered to be part of the plan for purposes of plan termination?

You are ignoring the most basic question which is how does the institution even know of the existance of these pre 2005 contracts which were not maintained under written plans but were subject to either a salary reduction agreements or a direct contribution by the employer to an individual annuity contract for which no records exist. The employees are long gone.

If the employer has no record of the existance of the contract how can it ever make a good fatih effort to comply with the regs or the notice?

The entire process of compliance with the termination regs for 403b contracts in which contributions were discontinued prior to 2005 is based on the assumption that the contracts can be identified (How does the employer make a good faith effort to contact companies that no longer exist such as Mutual Benefit life and executive life?).

What degree of effort must the employer make to locate these contracts or arrangements for which no writeen documentation was preserved?

[zimbo]

What about the situation where an employer has a non-ERISA 403b plan that has not received any employee contributions since before 1/1/2005? In fact, the only participants are terminees who left prior to 2005.

Is it necessary for that employer to adopt a written plan document for that 403b by 12/31/2009? I cannot find a definitive cite in the regs or in Rev Proc 2007-71 with regards to whether it is necessary in that instance to adopt a written plan.

[Guest mjb]

What about the situation where an employer has a non-ERISA 403b plan that has not received any employee contributions since before 1/1/2005? In fact, the only participants are terminees who left prior to 2005.

Is it necessary for that employer to adopt a written plan document for that 403b by 12/31/2009? I cannot find a definitive cite in the regs or in Rev Proc 2007-71 with regards to whether it is necessary in that instance to adopt a written plan.

See section 8 of IRS Rev Proc 2007-71.

[zimbo]

See section 8 of IRS Rev Proc 2007-71.

Actually I keep reading this section and it doesn't say the magic words that I am looking for..."No Plan Document is required". But it may indeed say enough. It seems to say that contracts issued after 12/31/04 and before 1/1/09 under certain conditions need not be part of a written plan. It then says for contracts with no contributions after 1/1/05, you need not make any effort to collect information that satisfies the 403b regulations. Is it safe to assume that taken in combination, this section of Rev Proc 2007-71 is actually saying that no Plan Document need be adopted for a plan that received no contributions after 1/1/2005? Many thanks.

[J Simmons]

And apart from Rev Proc 2007-71, § 8, the new 403b regs merely require a plan document in order to keep contributions out of the EEs' taxable incomes, and those regs did not apply until 1/1/09. Treas Reg §§ 1.403(b)-3(a) and (b), and § 1.403(b)-11(a)