403(b)(7) vs. 403(b)(9)

[401(k)athryn]

How can I definitively determine whether a church plan is a 403(b)(7) or 403(b)(9) account?  As far as I know, for the client in question, all of the plan assets are in mutual funds on the American Funds platform.   The existing plan document does not reference investments.  To be an RIA, it seems that you have to specify this in the plan document, but there was not an option to specify this is our plan document, although there will be with the updated pre-approved version.  Can this RIA designation be made elsewhere, such as in the service contract with the investment company?  Also, if the plan only allows employees to invest in mutual funds with American Funds, can it still be an RIA?

[Luke Bailey]

401(k)athryn, I will try to answer your question (since no one else has so far), although 403(b) is not a large part of my life, and 403(b)(9) has not hitherto been any part of it. One question I would have for you is, why are you asking? But, that said (or asked), I think that 403(b)(9) is in the Code to allow churches and related organizations to maintain plans that are not necessarily restricted to individual annuities and custodial accounts, but that could, for example, be a defined contribution plan with a trust. But it could, of course, be invested sdolely in mutual funds. But if you have a document that describes individual custodial accounts, it is likely intended to be a 403(b)(7). You might check to see whether the plan document and related custodial agreement(s), if separate, require(s) investment in mutual fund shares. If it permits other investments, or if you have a trust document that permits other investments, then it must be a 403(b)(9). If it does not, it is likely intended to be a 403(b)(7), as would also be implied by the fact that it is apparently lacking the 403(b)(9) designation in the plan document as apparently required (in some fashion) by Treas. reg. 1.403(b)-9(a)(2)(ii).

[401(k)athryn]

Thank you, Luke!  I was asking mainly because I needed to confirm whether a couple of church 403(b) Plans, for which we had prepared documents back in 2009, will actually require an updated plan document, along with all other 403(b) Plans, by March 2020.  It turns out that the investment company has them coded as 403(b)(7) accounts and the document does not state that they are 403(b)(9), so I guess it is clear that they are 403(b)(7).  I am told that a 403(b)(7) church plan does not require a plan document at all.   Do you agree?

[Luke Bailey]

401(k)athryn, sounds like the right decision on b(9) vs.(b)(7). The IRS says you don't need a written plan doc for church 403(b)(7) here: https://www.irs.gov/retirement-plans/written-plan-document-requirement-for-403b-plans.

Good luck.

[Patricia Neal Jensen]

As usual, Luke is "spot on!"   I do a reasonable number of church plans and have not to date done a 403(b)(9).   While I acknowledge the 'No required document" material cited, I always do documents.  How else does one know what the rules are?  And I work and live in litigious California so I think it is good housekeeping.