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Section 8.02 of Rev. Proc. 2007-71


Guest Moona

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Can anyone shed any light on what Section 8.02 of Rev. Proc. 2007-71 means? I would like it to mean that a vendor does not need to make a good faith effort to bring a contract into the plan if the contract does not receive contributions after 1/1/09 and the participant severed from service before 1/1/09. The language is not all that clear, though, and this interpretation seems incongruous with the general intent of the regulations. Any thoughts would be much appreciated, as would insight as to what approach vendors are taking with regard to participants who sever before 1/1/09 and are part of a non-contributory contract.

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Treas Reg § 1.403(b)-3(b)(3) only requires that a 403b contract be maintained pursuant to a 403b plan document to exclude contributions from the EE's taxable income after 12/31/2008.

Yet Rev Proc 2007-71, § 8.01 requires a reasonable, good faith effort be made by the ER to include 2004-2008 403b contracts in the ER's 403b plan. Alternatively, those 403b contracts satisfy the 403b plan document requirement if the vendor makes a "reasonable, good faith effort" by "taking action before making any distribution or loan to the participant or beneficiary" including contacting the person in charger of administering the ER's 403b plan and exchanging "any information that may be needed in order to satisfy §403(b)".

Then Rev Proc 2007-71, § 8.02 provides that pre-2009 403b contracts of former employees "will not be treated as failing" the 403b plan document requirement if before the vendor makes a loan from the pre-2009 403b contract of a former employee makes a reasonable effort (not relying solely on the former employee's representations) to "determine: (1) whether the participant or beneficiary has in the prior 12 months had any other outstanding loans from qualified employer plans of the employer (taking into account §§72(p)(2)(D) and 72(p)(5)); and (2) if the participant or beneficiary has had any such loans, the highest outstanding balance of such loans during that period."

If § 8.01 applies to the pre-2009 403b contracts of former EEs, then what if anything does § 8.02 add? § 8.02 would be rendered redundant. On the other hand, if you are the ER, do you want to risk the chance the vendor won't independently verify before making a loan--causing failure of the 403b plan document requirement because the ER did not also make the effort to include these 403b contracts in the ER's 403b plan?

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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