Uniglobal Pension Planning, Inc. - Corporate 401(k) Retirement Plan Design and Compliance Solutions

Final 403(b) Regulations

10/01/2008

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Final 403(b) Regulations

The Treasury Department and the IRS released final regulations related to 403(b) plans that replace previous regulations that were issued on December 24, 1964.  Over the years there have been numerous changes to legislation that affected these plans.  The Final 403(b) Regulations incorporate these changes including those stemming from the Employee Retirement Income Security Act of 1974 (ERISA), the Tax Reform Act of 1986, the Small Business Job Protection Act of 1996 (SBJPA), the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), and the Pension Protection Act of 2006 (PPA).

The Final 403(b) Regulations eliminates many of the differences in operation of 403(b) plans and 401(k) plans. Below we will outline the major provisions of the Final 403(b) Regulations and the timing for implementation.

Major Provisions

Plan Document

• All 403(b) plans are now required to have a plan document that includes all material provisions of the plan.

Control Group Rules

• For-profit companies that meet certain criteria regarding common ownership are treated as one employer (control group). For certain §501(a) tax-exempt entities, there is now a similar rule based upon 80% "common control" which applies to directors or trustees.

Non-Discrimination Rules

• Employer non-elective contributions will be subject to similar testing as those performed on profit sharing plans. Employer matching contributions will continue to be subjected to ACP testing. Employee salary deferrals will continue to be excluded from ADP testing as long as the Universal Availability rules are followed.

Universal Availability

• The following groups of employees, who previously could be excluded, may no longer be excluded from making employee salary deferrals to their employer's 403(b) plan:

• Union Employees -Visiting Professors -Individuals who make a one-time election to participate in a governmental plan -Employees affiliated with a religious order who take a vow of poverty.

Plan Termination

• Plan termination is now a distributable event if certain rules are followed. Previously, participant accounts would have to remain in the 403(b) plan even after the plan was terminated by the employer. These accounts must now be distributed as soon as administratively feasible after the plan termination.

What Needs to be Done

The Final 403(b) Regulations are effective for plan years beginning after December 31, 2008.  In order to comply with the regulations, all 403(b) plans that have a calendar plan year must have a new plan document, effective no later than January 1, 2009. Uniglobal Pension Planning, Inc. has prepared an updated plan document and will begin restating documents for all of our 403(b) clients. For those clients that have ERISA 403(b) plans, we already have your previous plan documents and subsequent amendments in your files. We will use this information to draft your new document. However, if you wish to make a change to your plan for the 2009 plan year, now is the time to do it. We can implement any changes into the restated document without having to charge an additional amendment fee. Please contact your Uniglobal administrator if you would like to change any of your plan's provisions.

You will be receiving a letter outlining the fees for your restatement. We will be working in a first-in-first-out method, so the sooner you respond to the letter; the sooner we can schedule your document for completion. We anticipate beginning the restatements on November 1, 2008 and continuing the process throughout the remainder of the year.

All documents will be provided on a user-friendly CD and the pertinent signature pages will be pre-printed for you. As with all plan documentation, it is important to keep copies of the signature pages and the CD in a secure location.

For the few clients that utilize a different vendor for your plan document, please contact your document provider immediately to ensure they are properly restating your plan.

What if we do not Restate our Document?

If you do not meet the deadline for restating your plan document, the IRS can disqualify your plan. This would mean that all money in your plan would become taxable to the participants upon the date of disqualification. Obviously it makes no sense to defy the regulations.

Although there are fees associated with this restatement, the benefit to your employees should far outweigh the expense. Having a qualified retirement plan is one of the most effective means for you and your employees to save for retirement.

We hope that this article has helped to explain the new regulations and the document restatement process. If you have any questions, please never hesitate to contact your Uniglobal administrator. The regulations may be confusing at times, but we at Uniglobal are always here to help you.