Tax News

CCH (cch.taxgroup.com) reports:

The IRS has provided model plan language that may be used by public schools and by certain eligible employers that are tax-exempt organizations in order to comply with the requirements of Code Sec. 403(b) and the final regulations that were issued under that section on July 26, 2007. Under Code Sec. 403(b), contributions made for employees who are performing services for a public school of a state or local government or for employees of certain tax-exempt employers are excludable from gross income only if the contributions are made to certain funding arrangements. These arrangements include: (1) contracts issued by an insurance company qualified to issue annuities in a state that includes payment in the form of an annuity; (2) custodial accounts that are exclusively invested in stock of a regulated investment company; or (3) a retirement income account for employees of a church-related organization. Such contracts must be maintained under a written plan.
Public school employers that amend their plans to adopt this model plan language on a word-for-word basis or adopt an amendment that is substantially similar in all material respects can rely on the language as meeting the requirements of Code Sec. 403(b). Employers that adopt any portion of the model plan language must also operate the plan in accordance with such language and must continue to satisfy all of the other Code Sec. 403(b) requirements in order to maintain Code Sec. 403(b) status for the plan. Public school employers that do not use the model plan language or substantially similar language and request a private letter ruling from the IRS regarding the qualification of the written plan must clearly highlight and describe how the plan provisions differ from the model language.
Public school employers that do not have a written Code Sec. 403(b) plan may adopt the entire model plan language. Adoption of the entire model plan language on a word-for-word basis or use of language that is substantially similar in all material respects has the same status as a private letter ruling that provides that the written form of the plan satisfies Code Sec. 403(b). Employers that adopt the entire model plan language must also operate the plan in accordance with such language and must continue to satisfy all of the other Code Sec. 403(b) requirements in order to maintain Code Sec. 403(b) status for the plan.
An eligible employer, such as certain tax-exempt organizations, that is not a public school but maintains a Code Sec. 403(b) plan may also use the model plan language. However, the employer must determine the extent to which the model plan language is appropriate for its use. Additional or modified provisions may be necessary or appropriate to comply with Code Sec. 403(b) and the 2007 regulations. However, adoption of the model plan language by an eligible employer that is not a public school does not have the same status as a private letter ruling with respect to the adopted language.
Pre-2009 Contracts. In addition to the model plan language for public school employers, the IRS has provided guidance on the application of Code Sec. 403(b) to certain contracts issued before 2009. In the case of a contract issued after 2004 and before January 1, 2009, by an issuer that does not receive contributions under the plan in a year after the contract was issued, the contract will not fail to satisfy Code Sec. 403(b) for the year merely because the contract is not part of a written plan if the employer makes a reasonable, good-faith effort to include the contract as part of the employer's plan that satisfies the 2007 regulations. An issuer might not receive contributions under the plan in a year after the contract was issued in situations where the issuer was discontinued as an issuer under the plan or the issuer became an issuer under the plan due to the contract having been issued in a post-September 24, 2007, exchange that is permitted under Rev. Rul. 90-24 (1990-1 CB 97).
Special rules also apply to a contract that was issued before January 1, 2009, under a Code Sec. 403(b) plan that is held on behalf of a participant who, on January 1, 2009, is a former employee of the employer, or for a beneficiary. In the case of an issuer that holds Code Sec. 403(b) contracts under a Code Sec. 403(b) plan but that ceases to receive contributions before January 1, 2009, those contracts continue to be subject to the requirements of Code Sec. 403(b) and the 2007 regulations. An issuer might cease receiving contributions in situations where the issuer was discontinued as an issuer under the plan, the employer ceased to exist, or the issuer became an issuer under the plan due to the contract having been issued in a post-September 24, 2007, exchange that is permitted under Rev. Rul. 90-24 (1990-1 CB 97). However, a plan will not be treated as failing to satisfy the requirements of Reg. §1.403(b)-3(b)(3) if the plan does not include terms relating to those contracts.
Effective Date. The revenue procedure providing the model plan language and other guidance is effective as of December 17, 2007. In general, a Code Sec. 403(b) plan will be treated as having been amended in a timely manner to reflect a requirement of the 2007 regulations if: (1) an amendment that satisfies that requirement, such as an amendment that uses the model language, is adopted no later than the first day of the first tax year beginning after December 31, 2008, (2) the amendment is effective as of the applicable effective date of the requirement under the 2007 regulations, and (3) the written plan is operated as if that amendment is in effect.
Comments Requested. The IRS is requesting comments on the provided model language and on any other model language that interested parties believe should be added. Comments should be sent to: Internal Revenue Service, Attn: CCA:LPDR (Rev. Proc. 2007-71), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. Written comments may be hand-delivered Monday through Friday between 8 a.m. and 4 p.m. to: Internal Revenue Service, Courier's Desk, Attn: CCA:RU (Section 403(b) Plans), 1111 Constitution Avenue NW., Washington, D.C. 20224. Alternatively, written comments may be submitted electronically via the Internet to notice.comments@irscounse.treas.gov (Rev. Proc. 2007-71). Comments should be received by March 16, 2008.
Rev. Proc. 2007-71, 2007FED ¶46,727
Treasury Department News Release, TDNR HP-798, 2007FED ¶46,728
Other References:
Code Sec. 403
CCH Reference - 2007FED ¶18,103.40
CCH Reference - 2007FED ¶18,282.01
CCH Reference - 2007FED ¶18,282.0405
CCH Reference - 2007FED ¶18,282.11
CCH Reference - 2007FED ¶18,282.33
CCH Reference - 2007FED ¶18,282.76
CCH Reference - 2007FED ¶29,682.104
Tax Research Consultant
CCH Reference - TRC RETIRE: 69,050
CCH Reference - TRC RETIRE: 69,060