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Are You Prepared for the New 403(b) Regulations?

If you are a 403(b) plan sponsor, you’re probably aware that new regulations will go into effect on Jan. 1, 2009. Now is the time to review your organization’s 403(b) plan to be sure you are in compliance. If your 403(b) plan documents are not completed and executed by the Jan. 1, 2009 deadline, your plan could be disqualified by the IRS.

403(b) Plans Will Become More Like 401(k) Plans

The new regulations, released in July 2007, are the first 403(b) comprehensive guidance the IRS has issued in more than 40 years.

The new regulations place more fiduciary responsibility—and thus more potential liability—on plan sponsors. As a result, not-for-profit organizations will need to become much more involved in administering their 403(b) plans.

What Are the Employer’s Responsibilities under the New Regulations?

• Plan sponsors must have a comprehensive written plan documenting the plan’s rules. This regulation applies whether or not your plan is subject to the Employee Retirement Income Security Act of 1974 (ERISA). The plan document must cover all aspects of 403(b)—from who is eligible to the plan’s benefits, contribution limits, and how loans, hardship distributions and rollovers are handled.
  
  It’s not sufficient to merely have a plan document in place. The IRS requires the plan document to be operationally compliant. Therefore, if you set up policies for loans or hardship withdrawals, you must specify rules for approving these transactions and procedures for their administration.
  
  Employers are also responsible for making sure there are no conflicts between the plan document and related record-keeping agreements and contracts with vendors.

• Employers must regularly notify all employees of their eligibility to participate in the plan. Plan sponsors are responsible for informing their work force of the plan’s universal availability.
• Plan sponsors are responsible for coordinating IRS compliance with all providers. Employers must ensure that their plans comply with all IRS limitations including those on contributions, loans, distributions and salary deferrals.
• Employers must designate plan providers and products. Employee participants may only transfer their funds between these approved vendors and products.

How can you prepare for the new regulations?

Here are a few ways to streamline compliance with the new IRS 403(b) requirements.

• Carefully examine your current providers. What products and services do they offer? What is their investment performance? What fees and penalties do they charge?
• Designate staff members who will be responsible for reviewing the present 403(b) and developing a plan to comply with the new IRS regulations.
• Consider consolidating vendors or even scaling down to a single provider.
• Evaluate your 403(b) employee education program. When evaluating vendors, consider the employee communication materials they provide.
• Consider developing an investment policy statement to guide your organization in reviewing the 403(b) plan investment options.

Does your 403(b) require an audit under ERISA?

Your 403(b) plan could require an audit under ERISA if:

• You make matching or discretionary contributions to the plan
• Your organization has more than 100 employees eligible to participate in the plan.

Please contact your Blackman Kallick representative at 312-207-1040 to determine whether your plan is subject to an audit.

Questions about the new 403(b) regulations? Contact Toni Diprizio at tdiprizio@BlackmanKallick.com or call 312-980-3227.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.