Final 403(b) Regulations

By 2009, IRS will require sponsors of 403(b) plans to adopt a written plan document. The regulations outline a Plan Document to have written defined material provisions which satisfies the following in form and operation:

• Roles & Responsibilities under the plan
• Benefits under the plan
• Terms and conditions for eligibility
• Contributions and applicable limitations
• Form and timing of distributions
• Funding vehicles available under the plan
• Optional plan provisions, such as loans or transfers

What it means to you...

Preparing your Plan Document may seem daunting. We strongly recommend the use of a professional consultant to help you through this effort and have available individuals who we have worked with and are expert in this area. A recommended first step is to determine what your present plan is. You do this by identifying all contracts, custodial accounts, collective bargaining agreements, enrollment forms and distribution form. Part of this effort will be to take an inventory of your current service providers. Contact should be made with these providers to have them make application to enter into "Information Sharing Agreements" with you. Their completed application will assist with being able to determine the level of information each is willing to share. Those with little or no interest in meeting the IRS minimum threshold of sharing will not be invided to participate in your plan. Those able to meet the minimum requirements will be invited to participate and will sign "Information Sharing Agreements". These agreements will provide the basis for the flow of data into the (b)ridge^SM component of our system.

For plans with multiple service providers, the plan document must now cross-reference the custodial agreement or annuity contract for purposes of distributions, loans and hardship withdrawals. 403(b) ASP offers a complete Plan Establishment Kit that addresses all of the written Plan Document items (based on the IRS model plan document) with supplemental operational forms and agreements. Because of its basic nature, your consultant may find the IRS model document to be insufficient in describing your past and future plan operations. You may need a more tailored document that will be provided by your consultant.

There are changes to the rules of who must participate in the plan. Part of the consultants role will be to insure that going forward, your plan document and your operation of the plan meet these rules.

You should make sure that NO LIFE INSURANCE is purchased under the plan after September 24, 2007.

You should insure that no transfers of money by a participant from one investment to a competing investment is made until your document is completed. The document will insure that all future transfers are made "within approved Plan investments". Failure to meet this rule may cause Participant monies to LOOSE THEIR TAX FREE STATUS.

While the sponsor is responsible for all plan oversight, administrative and compliance responsibilities may be assigned to someone other than the sponsor.

Final 403(b) Regulations

The new regulations provide a number of rules related to 403(b) contributions including:

• Elective Deferrals
• Aggregate Limit
• Catch-up Contributions

What it means to you...

Elective deferral contributions must be submitted within a period that is not longer than is reasonable for the proper administration of the Plan.

The aggregate annual elective deferral limit per individual includes contributions to all 403(b) accounts/annuities (even if held under different employers), 401(k) plans, SIMPLE IRA plans, and SARSEP plans. Amounts contributed in excess of noted limits may be subject to additional taxes and penalties that may affect both the participant and the sponsor/employer.

Two types of catch-up contributions are allowed: Special section 403(b) catch-up and Age 50 catch-up contributions. The final regulations clarify that if an employee is eligible for both types of catch-up contributions, contributions are first classified as Special 403(b) catch-up to the extent permitted and the remaining elective deferral contributions are classified as Age 50 catch-up contributions.

Final 403(b) Regulations

Exchanges — Transfers may occur within the same plan if the following conditions are met:

• The plan allows for the transfer
• The benefit before the exchange is the same as the benefit after the exchange
• Any distribution restrictions are carried over from the transferred plan
• Information is provided to ensure the distribution and tax rules are followed

Plan to plan transfers between unrelated plans may occur if the following conditions are met:

• The participant is an employee or former employee of the employer for the receiving plan, or a beneficiary of a deceased employee or former employee
• Both plans provide for the transfer
• The benefit immediately preceding the exchange is the same as the benefit immediately after the exchange
• Any distribution restrictions are carried over from the transferred plan

The transfer of assets from a 403(b) to a governmental defined benefit plan may be allowed to purchase past service credits in certain circumstances.

What it means to you...

For transfers after September 24, 2007, you must enter into a written agreement with service providers to share information for compliance purposes. If you outlaw transfers until you have your plan document prepared, You have until January 1, 2009, to have the agreement in place. If you want to allow transfers before 2009, you will need to have your document in place prior BEFORE ANY TRANSFERS ARE ALLOWED. All provider accounts will need to be approved by the plan and enter into sharing agreements with the plan.

All contract exchanges after December 31, 2008, will require transfer agreements and must be permitted by the plan document. Non compliance with the regulations could jeopardize the tax status of contracts.

You will want to review all contracts established at any time in the past (including any non-ERISA arrangements) to see if information sharing agreements are necessary. You will have until December 31, 2008, to have plan document changes made.

Final 403(b) Regulations

Universal Availability Rules have changed.

What it means to you...

New nondiscrimination rules are required under the 403(b) regulations. Generally, if ANY employee can make a salary reduction contribution, then EVERY employee who normally works more than 20 hours per week MUST be allowed to make contributions. A $200 annual minimum contribution can be imposed. This has come to be known as "Universal Availability". Final regulations state, "an employee will normal works less than 20 hours per week, if:

The Employer "reasonably expects" the employee to work fewer than 1000 hours in a 12 month period beginning on the date of hire,
AND
For each plan year ending after the close of the 12 month period beginning with the employee's date of hire or each subsequent 12 month period after such commencement date, the employee actually worked less than 1000 hours in the preceding 12 month period.

This effectively allows for the exclusion of seasonal and temporary employees who will work less than 1000 in a year. However, employers must track hours of service to insure compliance. As an alternative, you can allow everyone to participate and avoid tracking hours.