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Summary
Final Regulations
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| This information should not be considered tax or legal advice. The Board of Pensions stands ready to assist your organization as you work with your legal and tax advisers by providing resource information that you and your adviser may find beneficial. |
Our goal is to highlight the
major provisions of this legislation to educate you concerning the
impact these regulations will have on you, your plan and your employees. It is important to note:
Various kinds of employers use 403(b) retirement plans. Churches
and church-related organizations which do not have for-profit
subsidiaries and use only the Church of God Retirement Plan as their
retirement plan provider will not be impacted by all of the changes
listed below. For
those churches and church-related organizations, much of the new
regulatory requirements for monitoring distributions and hardship
withdrawals can be assigned to the Board of Pensions. What are the high
points? Written Plan
Requirement — The new regulations confirm that you need a
written plan that meets certain legal standards. This can be fairly
simple if you utilize one 403(b) plan provider, like the Board of
Pensions, which can provide most of the plan documentation you need.
Some providers have been offering 403(b) retirement plan services
to employers for years with no underlying written legal plan document.
The new regulations generally no longer allow this beginning in 2009. A further complexity to
this new requirement arises when an employer offers multiple plan
providers under one retirement plan. In such a situation, the plan must
be clearly written to spell out specific issues related to legal
compliance, such as who will be responsible to ensure compliance with
403(b) rules related to contribution limits, hardship withdrawals and
loan limits (if applicable) when a participant holds accounts with
multiple providers. Neither
the employer nor the plan provider is permitted to place that
responsibility solely on the shoulders of the participant. So there’s
a heightened level of responsibility for all parties to ensure
compliance with the 403(b) regulations. (NOTE:
If the employer made contributions to multiple providers at any
time since the beginning of 2005, this heightened level of
responsibility exists – even if the employer decides to use only one
403(b) provider beginning in 2009.) Requirement to Follow
Plan Terms — As can be expected, the IRS mandates that an employer
administers its plan in the way it is written.
This dovetails with the point made earlier — you must have a
written plan that meets certain legal standards.
Your plan must have all the required provisions and those
provisions must be followed. Disregarding
this requirement is deemed an “operational failure,” a failure which
comes with a cost. Certain
failures by the employer in following the plan could adversely affect
every individual for which the failure occurred. Contract Exchanges and
Plan-to-Plan Transfers — Participants, employers and plan
providers have more steps to complete when a participant wants to move
or transfer money from one employer-sponsored provider to another. In
the past, this sort of money transfer has been called a “90-24
transfer.” Effective Sept.
24, 2007, 90-24 transfers will no longer exist. The new mechanisms for
moving money in these multi-provider plan situations will be called
“contract exchanges” or “plan-to-plan transfers.” A
contract exchange is a movement
of retirement assets between a 403(b) vendor (with a
payroll slot) and a 403(b) vendor (who does not occupy a payroll slot)
within the same plan. To
perform a contract exchange now, the employer and the provider receiving
the 403(b) money must enter into an agreement to exchange required
information related to compliance with the 403(b) requirements. This
particular provision took effect on Sept. 25, 2007. A plan to plan transfer is a
movement of retirement assets between separate 403(b) plans, where
contributions, earnings and tax basis amounts are maintained.
Such transfers may only be made to the plan sponsored by a
current or former employer of the participant whose account is being
transferred, and are therefore likely to be of limited use.
There are special rules that apply to these transfers.
Consequently, these types of exchanges and transfers
will no longer be allowed between providers with which an employer has
no formal relationship. These
changes present some new accountabilities and challenges.
We hope that the IRS will release additional clarification to
help employers and providers with the operational aspects of this
change. Again, plans that offer one provider will see little or
no effect from this new regulation. Timing
of In-Service Distributions from Employer Contribution Accounts —
This provision impacts plans that allow employees to withdraw
employer-contributed dollars while still in service to that employer
without the occurrence of some event, such as reaching a specified age.
Since the Universal Availability
— Certain 403(b) plans are subject to annual retirement plan
nondiscrimination testing that demonstrates the plan does not
discriminate in favor of highly compensated employees in design or
practice. Plans subject to
testing include 403(b) plans of employers such as nonprofit hospitals,
colleges, universities and some children’s and retirement homes. Under
one of these nondiscrimination rules, plans of these employers must
satisfy the “universal availability” requirement. In
simple terms this means that if you allow one employee to make personal
tax-deferred contributions (salary reduction deferrals) to the plan, you
must let all employees make personal tax-deferred contributions. Certain
limited groups of employees can be excluded from making personal
tax-deferred contributions to the plan, and these exclusions must be
stated in the written plan document. For
example, one of the groups of employees that can be excluded from the
universal availability requirement is, “employees who normally work
fewer than 20 hours per week.” Violation
of the universal availability rule is best avoided by allowing all
employees to make Participant Before-Tax Contributions (salary reduction
deferrals) to the plan. Churches
and most church-related organizations (QCCOs) will not be affected by
this provision in the regulations. Effective Is a
single-provider solution best? You may hear other 403(b)
plan providers emphasize the merits of a single-provider solution for
your 403(b) plan compliance issues. We
would agree. In this
ever-tightening environment of compliance, a sole provider may very well
make life administratively simpler for you and for your employees. Plan
participants are served well when |
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Board of
Pensions of the Church of God |
