Safekeeping the written 403(b) plan

Written by Linda Segal Blinn

The 403(b) plan is in place. Product vendors and administrative service providers have been selected.

What is another step that a 403(b) plan sponsor* should take?

The employer should safeguard written materials reflecting plan provisions and ensure materials related to plan changes are updated — the Internal Revenue Service (IRS) may ask for those materials if the IRS schedules that employer's 403(b) plan for audit.

What materials are considered plan-related documents?

The plan-related materials describe the terms and conditions for plan participation, the form and timing of benefit distributions, authorized investment providers and Internal Revenue Code (Code) limits on contributions. If the 403(b) plan offers any permissive features (such as loans, hardship withdrawals or Roth 403(b) contributions), those features should also be reflected in the employer’s written plan materials.

Must those materials take the form of a plan document?

The IRS guidance provides that there must be a written 403(b) plan, but does not require that there be a written 403(b) plan document. A written 403(b) plan may consist of materials that collectively contain the plan provisions, such as salary reduction agreements, employee handbooks, investment contracts and collective bargaining agreements.

What plan-related materials would the IRS request?

In the event of an audit of a 403(b) plan, an IRS Information Document Request would typically seek the following:

• The plan document (including any applicable adoption agreement) signed by an authorized individual of the employer;
• Any subsequent amendments to the plan (including any plan restatements). Any amendments should be signed and dated by an authorized individual of the employer;
• The summary plan description if the 403(b) plan is subject to the Employee Retirement Income Security Act (ERISA); and
• Policy statements, employment handbooks, enrollment packages and any memoranda that describe 403(b) benefits provided by the employer.

Why would the IRS want to review these documents?

Reviewing plan-related materials enables the IRS to determine whether an employer’s 403(b) plan meets the IRS’ written plan regulatory requirements, including whether the employer has timely modified the plan for updates to the Code, ERISA (if applicable) and any plan design changes that the employer has implemented. 

What internal controls/procedures should a 403(b) plan sponsor adopt?

The IRS has indicated that a plan with good internal controls would have a streamlined IRS audit if the IRS determines that the plan has good internal controls in place. Internal control would include:

• Keeping plan-related documentation in a secure, accessible place; and
• Scheduling a periodic review of the 403(b) plan document to ensure that it reflects the current administration of the plan (including from the perspective of the employer’s human resources and payroll personnel), the Code, and ERISA (if applicable).

Best practices

An employer should consider scheduling a review of the 403(b) plan document at least annually to validate that the employer is operating in accordance with plan provisions and applicable law and (if warranted) make any necessary updates to the plan document and/or to the employer’s procedures.

Additional resources

• 403(b) plan sponsor checklist: Written plan vs plan document 
• What deadlines apply to 403(b) plans?
• IRS “Retirement Plan Operation and Maintenance”

This article has been updated from the original which appeared on Aug. 16, 2022