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September 19 web briefing: IRS overhaul of 403(b) rules
for tax-exempt and public school employers
The new, final IRS regulations consolidate more
than 40 years of statutory guidance affecting tax-sheltered annuities and present major challenges
to tax-exempt employers, public schools and churches. Designed to make 403(b) plans more like 401(k)
plans, key changes include the requirement for a written plan as a condition of tax-favored status
and stricter nondiscrimination rules. The new regulations also revise “contract exchange rules,”
which could make it more difficult for employees to shift assets in their 403(b) accounts.
In light of these new requirements, plan sponsors will need to make some important plan design and
administrative decisions, including whether they should consolidate plan vendors to simplify
administration. Please join Mercer experts on September 19 at 2:00 PM US-ET for a free,
one-hour web briefing to learn more about the new rules and what action you will need to take.
Enroll
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| On July 26, 2007, the IRS issued
final regulations on 403(b) plans, the first major overhaul for tax-sheltered annuities
(TSAs) in over 40 years. In large part, the final rules follow the 2004 proposed regulations,
but they do include important updates and offer more flexibility in certain areas that generated
substantial public comments. Generally, the regulations aim to make 403(b) plans more like 401(k)
plans, although key differences remain. Tax-exempt organizations, public schools and churches
will face some significant challenges as they work to bring their plans into compliance by the
effective date – generally January 1, 2009.
The new regulations demand more hands-on employer involvement
than ever before. Plan sponsors clearly have much to do and
just a little more than a year to get it all done. Some of the
more significant areas covered by the regulations include these provisions:
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A written plan
required for most 403(b) plans (major departure from past practice for
non-ERISA plans)
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“Universal
availability” requirement
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Timely deposit
of elective deferrals
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Stricter
nondiscrimination rules for tax-exempt organizations
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More restrictions
on contract exchanges by participants
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New controlled
group rules for tax-exempt employers
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“Contingent
benefit rule” added – 403(b) deferrals can’t be tied to benefits under a
defined benefit (DB) plan (including cash balance plans)
It’s too soon to predict employers’ responses
to the new regulations, but a sudden shift away from 403(b) plans is unlikely.
These plans are a mainstay for public schools, which have no 401(k) alternative.
And, while tax-exempt employers have more options, the IRS has not provided a clean
way for them to convert their 403(b) plans to 401(k)s or otherwise transfer assets
between plans. Moreover, 403(b) plans still offer some unique features such as catch-up
contributions for long-service employees, contract exchanges for investment flexibility
and a testing exemption for elective deferrals.
Please join us on September 19 to learn more about
the new rules and steps you can take to bring your 403(b) program into compliance. |
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