New 403(b) Regulations

University of Massachusetts > Treasurer's Office > New 403(b) Plan Regulations

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 are generally effective January 1, 2009.

The primary intent of the regulations is to reduce the difference between Section 403(b) plans, Section 401(k) and Section 457(b) plans; to enhance 403(b) plan compliance; and to establish a more structured retirement program for employees in the tax-exempt sector. The regulations will dramatically change the manner in which 403(b) plans have been managed historically. Under the regulations, employers have been allocated increased responsibilities as plan sponsors and are going to be required to take a more active role in administering their 403(b) plans.

The regulations incorporate numerous changes to 403(b) arrangements, including changes in the Employee Retirement Income Security Act of 1974 (ERISA), the Tax Reform Act of 1986, 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 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 be reduced to six: our 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 is January 1, 2009, there is one change concerning "contract exchanges" (previously referred to as 90-24 transfers) 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 on January 1, 2009. 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.

For a summary of the University 403(b) plan provisions, effective January 1, 2009, please click on the following link: 403(b) plan provisions.

If you have questions about the changes being made to the University's 403(b) plan or need assistance in opening a new account with one of the University's three primary providers please contact Paula Masse in the University Treasurer's Office at pmasse@umassp.edu, (774) 455-7586.

The PDF files on this page require the free Adobe Acrobat Reader.