The SPARK Institute has asked the Internal Revenue Service for guidance on its 403(b) prototype plan and use of the error correction program.
Guidance is needed because "the design of existing 403(b) plans might preclude some plans from being able to meet the requirements of the prototype program in its current form," said Evan Giller of Giller & Calhoun, who helped the Institute craft its letter.
The institute also would like the Employee Plans Compliance Resolution System program to be interpreted in a way that takes into account the unique aspects of 403(b) plans so that plan sponsors can correct errors as efficiently and cost effectively as possible, he added.
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Because investment arrangements used to fund 403(b) plans generally contain many of the provisions required to be included in 403(b) plans, there are likely to be duplicate provisions in the plan and the investment arrangements, the letter stated.
"It is unclear to what extent those provisions can be incorporated by reference into the terms of the investment arrangement (or omitted altogether) where the investment arrangement is funding a pre-approved plan. Requiring both the investment arrangement and the plan to contain all of the provisions required for tax compliance increases the complexity of plan administration and increases the likelihood of unintended conflicts between the documents," The SPARK Institute stated.
The organization would like the IRS to issue a list of the tax compliance provisions that must be included in all plans and investment arrangements and a subset of provisions which can be incorporated by reference from the plan into the investment arrangement (or omitted altogether) if the investment arrangement is used in conjunction with a plan that contains such provision.
To the extent that the pre-approved plan provision is necessary for the plan to meet the requirements of the law and regulations, the plan provision must control over a conflicting provision in the investment arrangement. However, where optional provisions in the investment arrangement are inconsistent with the pre-approved plan provisions, the pre-approved plan should be permitted to contain a provision that allows the adopting employer to agree that certain terms of the investment arrangement will override the inconsistent plan document language.
In the case of operational errors being written into the plan, The SPARK Institute asks the IRS to allow plan sponsors to correct these errors through a retroactive plan amendment that conforms the pre-approved plan document to the terms of the investment arrangement documents.
"We understand that to the extent that the conflicting provisions involve mandatory 403(b) plan provisions, the terms of the plan must supersede those in the investment arrangements. However, where the conflict relates to an optional provision that is not required by law, and only relates to a plan feature, the plan should be permitted to be amended retroactively to reflect the provisions of the annuity contracts or investment arrangement documents, and override the contrary plan document provisions," the letter stated.
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