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403(b) Plan Changes
November 5, 2009
Retirement plans under 403(b) provide tax-favored treatment for public school employees, employees of tax-exempt organizations, and certain ministers. The IRS has established regulations under the Internal Revenue Code that must be in place for all 403(b) plans by December 31, 2009.
Now a 403(b) plan must have a written plan document, which specifically defines the following:
- How the plan operates,
- Who can participate in the plan,
- What services are provided to participants,
- Participant eligibility,
- Contribution limits,
- Available investment options, and
- Distributions.
Certain churches with 403(b) plans funded with 403(b)(1) annuity contracts and/or 403(b)(7) custodial accounts do not have a written plan document requirement.
The way the plan is written will determine whether or not it will be subject to Employee Retirement Income Security Act (ERISA) regulations. In order to avoid ERISA requirements:
- There can be no employer contributions;
- There must be minimal administrative involvement by the plan administrator; and
- The plan must be a voluntary plan.
Being subject to fewer regulations has traditionally been the biggest benefit associated with sponsoring a 403(b) plan. Organizations that will have a plan that is subject to ERISA regulatory compliance should consider sponsoring a 401(k) plan because:
- It allows them to offer participants more investment options,
- It is less complex to administer, and
- There are more 401(k) vendors available.
403(b) funding arrangements can include:
- Insurance annuity contracts,
- Custodial accounts holding only shares of mutual funds, and
- Church retirement income accounts.
However, 401(k) plans can provide investment options from mutual funds, stocks, bonds, CDs, annuities, real estate investment trusts, incidental insurance, and self-directed brokerage accounts.
If you have not already received a plan document from your 403(b) vendor, please contact them to see if one is needed. If you have questions relating to the plan provided or if you would like further explanations of your options, please call our office, (330) 492-0094, at your earliest convenience.
