written by Joe Page

Changes Are Substantial

Joe Page head shot
While the Internal Revenue Service and Department of Labor have collectively spent a considerable amount of time and effort overseeing the compliance of the rules governing 401(k) retirement plans, they have spent very little time, up until now, examining the ways tax-exempt organizations operate their 403(b) retirement plans.  This has all changed following the enactment of new 403(b) retirement plan regulations. 

 For 2009, the new 403(b) regulations dramatically change the way tax-exempt organizations manage their employees retirement plan.  Under the “old” 403(b) regulations, tax-exempt organizations typically relied on contracts with insurance companies and mutual fund providers to offer retirement accounts to their employees.  These contractual arrangements required very little, if any, involvement on the part of the tax-exempt organization as to the administration or compliance reporting of their 403(b) plan.  

 A “contract” arrangement will no longer be sufficient for the tax-exempt organization to maintain a qualified 403(b) plan.  By December 31, 2009, tax-exempt organizations must adopt a written plan document setting forth the rights of employees under the plan.  The new 403(b) regulations also require full IRS compliance reporting on Form 5500, and large plans with at least 100 eligible employees will need to have a plan audit.

 403(b) Written Plan Document Requirement

The new regulations require all 403(b) plans, except certain church plans, to have a written plan document in place by December 31, 2009, and made effective January 1, 2009.  403(b) plans that already have a written plan document will need to amend their plan document by December 31, 2009, to include the provisions of the new 403(b) regulations.

The new 403(b) regulations require the written plan document to contain all of the material terms and conditions for plan eligibility, benefits, applicable limitations, the contracts available under the plan, and the time and form of distributions.  The written plan document may also contain optional features such as hardship distributions, loans, and rollover provisions.    

Even though 403(b) plan sponsors have until December 31, 2009 to adopt a written plan document, they are required to begin operating under the new 403(b) regulations starting January 1, 2009.  By the end of 2009, plan sponsors also must retroactively correct any operational failures that may have occurred prior to 2009.

403(b) Filing and Audit Requirements

With a few exceptions, the new regulations make it clear that 403(b) plans are subject to ERISA rules covering employee eligibility, vesting requirements, plan reporting, audit requirements, fidelity bonding, and nondiscrimination testing.  Church plans, government plans, and plans meeting specific safe harbor provisions are still exempt from ERISA oversight.  Safe harbor 403(b) plans are voluntary employee deferral only plans in which the tax-exempt organization has limited involvement with the plan.

Beginning in 2009, sponsors of 403(b) plans, who are subject to ERISA, are required to file a complete Form 5500 with the IRS and DOL.  Prior to 2009, some 403(b) plans were exempt from filing a Form 5500, or filed an abbreviated Form 5500. 

By far the greatest impact of the new regulations will be on 403(b) plans which cover 100 or more employees.  Starting with the 2009 plan year, these “large” plans are required to engage a qualified public accountant to conduct an independent audit of the plan.

Please contact Kevin Hogan or Joe Page of The Whitlock Company at 417-881-0145, and they can assist you further in understanding how these new rules affect your 403(b) retirement plan.
Posted by Kevin Hogan, The Whitlock Company, July 1, 2009