The following are a few frequently asked questions related to the release of the final
403(b) regulations.
When will the proposed IRS regulations be effective?
The regulations are effective as of January 1,2009.
What are some of the major regulation changes?
The IRS outlined a number of changes, however, here are 3 key changes:
1. Written plan document requirement.
All 403(b) plan sponsors are required to maintain a written plan document that details eligibility, applicable limitations and any optional provisions, ie participant loans. Final deadline for written plan documents is 12-31-2009, with an effective date of 1-01-2009
2. New rules regarding 90-24 transfers, asset transfers.
The new regulations now refer to these as “exchanges.” Plan participants will continue to have the ability to exchange assets within their employer’s 403(b) Plan. However, after September 24, 2007 the employer must satisfy additional requirements. One of these additional requirements is that by January 1, 2009 the employer must enter into an information sharing agreement (ISA) with each institution that accepts an exchange within the plan after September 24, 2007.
3. Universal availability.
If an employer permits one employee to defer salary into a 403(b) plan, the employer must extend this offer to all employees (with certain exceptions). While universal availability has always been part of the 403(b) regulations, permissibly excluded groups have been modified with the new regulations. Meaningful notice is needed to satisfy universal availability for salary-reduction contributions.
4. Deposit Requirement.
The regulations require employers of 403(b) plans to remit employee contributions within a very limited time period following each payroll period. The recommended deadline is the 15th business day following the payroll.
5. Will loans and hardship distributions continue to be available under 403(b) plans?
Yes, if the employer chooses to make them available within their Plan. The 403(b) regulations require 403(b) plan loans and hardship distribution satisfy the same rules as those followed under 401(k) plans.
For example, plan loans may not be made if the participant’s total amount of outstanding plan loans exceeds certain limits. Hardship distributions may only be made from the participant’s elective deferrals when there is deemed hardship, and salary deferrals must be suspended for the six-month period following the date the hardship distribution request is processed.
With limit exceptions, the final rules provide that 403(b) participants may no longer self-certify that these requirements are met. Therefore, by January 1, 2009, there must be a coordination procedure in place between the employer, the 403(b) provider and any other third party to ensure that the loan and hardship distribution rules are satisfied.
Lastly, an employer’s plan must specifically provide for loans and/or hardship distributions inside the Plan for them to be available under the 403(b) funding contract or account.
Is an employee required to have a 403(b) contract that the employee has contributed to, while employed, in order to have sick and vacation pay deposited into the 403(b) contract after they retire or terminate employment?
No. If the employer permits sick and vacation pay to be contributed to the 403(b) contracts of retiring or terminating employees, the retiring or terminating employee can designate the contract issuer at the time the employee retires or terminates employment.