IRS 403(b) Model Plan Language with Annotations

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• Public schools must adopt plan word for word to benefit from approval of IRS without submitting plan as private letter ruling. There are optional provisions in the Model Plan that may or may not be adopted. Model Plan document is not in the form of an Adoption and Participation Agreement.
• Plan includes optional provisions to allow contract exchanges with an issuer that is not receiving contributions (must have an information sharing agreement)
• Definition of a participant in the plan includes former and retired employees
• Employer must maintain a list of approved vendors. List is separate from the plan document (Open access continues in certain states like California and Texas.)
• Optional provision for automatic enrollment of new employees
• As to applying the contribution limits, the Administrator must look to all 403(b) plans with any employer of participant to verify limits have not been reached
• Product vendors must advise participants about options regarding eligible rollover distributions within a reasonable time period before making an initial eligible rollover distribution.
• Plan-to-Plan provision requires all assets to be transferred. For example if a teacher moves from Dallas School District to Southlake, ISD, and desires to move plan assets from the Dallas Plan to the Southlake plan, all assets must be transferred. (The IRS commentary recognizes that the law does not require this, but the Model Plan provision is drafted this way.)

Orphan Contracts

• Issued from 12/31/2004 – 1/1/2009 – If the vendor is no longer receiving contributions from a Plan, the contract will not fail to be a 403(b) just because it is not part of plan. However, there must be a good faith effort by the Plan Sponsor to match the asset with an employer, or the vendor must try to find the employer before making distributions or loans. The vendor must agree to exchange information with the employer if it locates it.
• Contract before 2009 held by former employee or beneficiary – It is still a 403(b) if not in plan, but the issuer must make reasonable effort to determine compliance before making loans. – The issuer can not rely solely on the participant for information.

Re-exchanges… If a contract is exchanged after 9/24/07 and exchanged again before 7/1/09 with vendor that has information sharing or is part of plan, the policy remains a 403(b) and an information sharing agreement is not required with the interim vendor.

LSW…A Leader in the 403(b) Market

LSW continues to be a leader in responding to the initial 403(b) regulations and new guidance and updates. LSW’s management team and legal council are working closely with the Committee of Annuity Insurers and the IRS to discuss the revenue procedure and to provide more guidance to school districts.

Susan Jennings, LSW General Counsel (sjennings@nationallife.com;

Keith Young, LSW Vice President (kyoung@nationallife.com)