IRS has pre-approved 600 403(b) plans for non-profit employers, at lower costs and less hassle

Typically, the cost for a pre-approved plan is less than for an individually designed plan. Employers “generally have peace of mind that the form of the pre-approved plan meets the legal requirements,” according to the IRS. If a law change is necessary, the pre-approved plan sponsor /provider must amend the plan and notify employers of the amendment, or updated plan document.

However, the IRS cautions, that employers cannot rely on a 403(b) pre-approved plan’s favorable opinion or advisory letter for whether the plan’s investment arrangements meet all legal requirements, which includes annuity contracts, custodial accounts, or retirement income accounts.

In addition, employers can’t rely on a 403(b) pre-approved plan’s favorable opinion or advisory letter for whether the plan is subject to, or satisfies ERISA requirements.

According to a recent Plan Sponsor Council of America’s 403(b) Plan Survey, 90% of all nonprofit employees are eligible to participate in retirement plans, likely expanded due to SECURE 2.0 provisions allowing long-term part-time employees to participate.

Some of IRS’ 403(b) pre-approved plan sponsors may offer employers additional support with plan administration, but the IRS cautions that employers need to “carefully review and select any offered service agreement options,” said the IRS.