new 403(b) regulations pete gautreau, cpa partner danielle witten, cpa senior manager
TRANSCRIPT
New 403(b) Regulations
Pete Gautreau, CPAPartner
Danielle Witten, CPASenior Manager
Agenda
New 403(b) plan regulations– Why the change?– What’s different?
Common mistakes Steps to take now
New 403(b) Plan Regulations
Written plan document Universal availability Changed transfer rules Timing of contributions Coordinated catch-up rules Plan terminations
Why the Change?
Diminish extent to which the rules are different from other tax-favored employer-based retirement plans such as– 401(k)– 457(b)
Written Plan Document
Key Dates– Original deadline was 1/1/09– IRS Notice 2009-3 extended deadline to 12/31/09
What this means– Written plan document must be adopted and
signed by 12/31/09
Written Plan Document (cont.)
What this means (cont.)– Plan must operate in accordance with a
“reasonable interpretation” of 403(b)– Plan document must intend to satisfy the new
regulations– Employer must make its “best effort” to
retroactively correct operational failures before 12/31/09
Written Plan Document (cont.)
Essential Elements– Eligibility requirements– Available investments– Dollar Limitations– Basic plan features
Benefits Time and form of distributions
Written Plan Document (cont.)
Optional Elements– Loans– Hardship withdrawals– Elective deferral catch-ups– Transfers– Terminations
Written Plan Document (cont.)
Other Recommendations– Plans may incorporate other documents into
written plan by reference Annuity contracts Custodial agreements
Written Plan Document (cont.)
Revenue Procedure 2007-71– Issued 11/27/07– Effective 12/17/07– Includes model plan language for public school
use– Plan document will meet requirements if use
model language or language that is “substantially similar”
Loans
Rules– Appropriate dollar limits
Lesser of $50,000 or 50% of vested account balance
– Amortization not to exceed 5 years (unless used to purchase a principal residence)
– Repayments must be made at least quarterly– Fail to meet legal requirements
Deemed distribution Subject to income taxes
Loans (cont.)
Before– Direct relationship between participant and
investment provider– Participant sent loan repayments directly to
investment company
After– Payroll deduction, just like a 401(k)– Plan sponsors will be aware of defaulted loans
Hardship Distributions
Must meet one of the following hardship requirements:– To purchase a principal residence– To prevent eviction from, or foreclosure on, the
principal residence– To pay certain medical expenses– To pay certain education expenses
Participant must also exhaust all other sources of financing first
Hardship Distributions (cont.)
Before– Directly from investment company
After– Through the plan sponsor– Must enforce 6 month rule
No deferrals for 6 months after receiving a hardship distribution
Universal Availability
All employees must be able to participate May only exclude the following:
– Students– Non-resident alien– Employees covered by another similar plan– Employees normally working < 20 hours per week
Universal Availability (cont.)
The following are not excluded:– Collective bargaining employees– Visiting professors– Employees who have taken a vow of poverty– Employees who make a one-time election to
participate in a governmental non-403(b) plan
Universal Availability (cont.)
Effective opportunity required– Notice of opportunity to participate– Notice of election timing– Opportunity to change at least once per year
Universal availability generally applies to– Each common law entity (each 501(c)3
organization)– Each entity not a part of a common payroll (state
entities)
Transfer Rules/Exchanges
Old 90-24 transfers not allowed after September 24, 2007
Tax-free exchanges can be made only to: – Providers you have approved– Plan of another employer
Information Sharing Agreement should be in place
Transfer Rules/Exchanges (cont.)
Information Sharing Agreement (ISA)– An agreement to share information sufficient to
ensure compliance with respect to the following: Loans Hardship distributions Distribution events Recovery of basis in the contract
Timing of Contributions
No absolute deadline from IRS Contributions must be remitted to vendors as
soon as administratively possible What does this mean?
– Payroll is run– Funds can be segregated
Catch-up Rules
Special 15-year catch-up rules– Complex requirements– 15 years of full-time service with same employer
Age 50 contribution 15-year catch-up must be used first
Catch-up Rules (cont.)
Example– 2008 regular deferral limit $15,500– 2008 annual 15-year catch-up (max.) $3,000– 2008 age 50 contribution $5,000
Maximum potential contribution for employee in 2008 is $23,500
Plan Terminations
Employers may terminate both active and frozen 403(b) plans
Employers may want to consider the following:– Consult legal counsel to evaluate required
documentation needs– Establish process for employee distributions and
rollovers– Communicate with employees
Common Mistakes
Failure to: – Follow provisions in plan document– Properly apply universal availability– Limit employee elective deferrals– Timely return excess elective deferrals and
earnings– Identify and report defaulted loans– Satisfy hardship distribution requirements
IRS Focus in 2009
Existence of written plan document Amendment of existing plan to comply with
final regulations Operating in accordance with written plan
document Universal availability
Steps to Take Now
Make sure the plan has a current, written plan document
Identify all plan service providers– Legal counsel– Investment companies– Investment committee– Human resources
Steps to Take Now (cont.)
Establish policies and processes to ensure proper authorization and record keeping of plan transactions:– Investments– Contributions received and related receivables– Benefit payments– Participant data and plan obligations– Administrative expenses
Steps to Take Now (cont.)
Develop a written investment policy that addresses the following:– The types of investments the plan can make– Appropriate authorizations for investment
transactions– How often the investment options should be
reviewed
Questions?
