New 403(b) Regulations

Effective January 1, 2009

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The Internal Revenue Service (IRS) released the final 403(b) regulations (the "regulations") on July 26, 2007. These regulations are the first comprehensive rewrite of the rules affecting Section 403(b) arrangements in 43 years. The regulations generally became effective January 1, 2009.

The regulations apply to all types of 403(b) plans, including, but not limited to, higher education, governmental and non-ERISA plans.

Under the new regulations, the University has had to clearly identify the 403(b) providers and products that make up our plan; implement business practices that create continuity across all of our 403(b) providers; actively manage the provider relationships and information sharing process; monitor and enforce all of the IRS' plan limits; and administer and approve participant activity, such as distributions and loans, within the plan. In short, the University, as the plan sponsor, is required to actively manage the program and will be held responsible for plan compliance.

One of the more significant impacts of these changes is that the number of providers receiving contributions under the University's 403(b) plan has been significantly reduced. In 2008, over 50 providers received contributions through the University's 403(b) plan. By the end of 2008, that number was reduced to six: the plan's three primary providers (Fidelity ,TIAA-CREF and VALIC), which were selected through a competitive bid process in 2006; and three additional "grandfathered" providers/products that were selected through past competitive procurement processes (MetLife (former CitiStreet products only), Ameriprise (formerly American Express), and Vanguard).

While the general effective date of the new regulations was January 1, 2009, there was one change concerning "contract exchanges"  that was effective September 25, 2007. Contract exchanges occur when a participant transfers their 403(b) account from one provider to another within a 403(b) plan. Under the regulations, contract exchanges are only permitted to providers that are a part of the employer's 403(b) plan, either as an approved provider or through an information sharing agreement.

Participant contract exchanges, which occur after September 24, 2007, that do not meet the above referenced requirements are at risk of becoming taxable. In response to this particular change in the regulations, the University's 403(b) plan has restricted contract exchanges to the University's three primary 403(b) providers:  Fidelity, TIAA-CREF and VALIC. On September 10, 2007, the University sent correspondence to all of the 403(b) providers that are currently receiving contributions from the University through payroll deduction and instructed them to immediately restrict contract exchanges.

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