Plans subject to the Employee Retirement Income Security Act (ERISA) have had a plan document requirement under ERISA since 1974. Final 403(b) regulations extended the written plan requirement to all 403(b) plans, with no exemption for governmental, most church, or non-ERISA salary deferral only, tax-deferred annuity (“TDA”) plans.
Employer-funded ERISA 403(b) retirement plans must apply the statutory nondiscrimination requirements, including new controlled group rules. Unlike 401(k) plans, which are subject to a wide range of nondiscrimination tests, elective deferrals to 403(b) plans continue to be exempt from the actual deferral percentage (“ADP”) test. In lieu of the ADP Test, 403(b) plans continue to be subject to the “universal availability” rule for elective deferrals.
The Internal Revenue Code limits the amount an employer and employee can contribute on a tax-deferred basis to both types of plans. The most an employee can tax-defer in a 403(b) or 401(k) plan is governed by Sections 415 and 402(g) of the Internal Revenue Code. The 15-year rule continues to permit long-service employees at qualifying institutions to make special catch-up contributions.
Plan loans may be made available to 403(b) plan participants, using their retirement account as collateral for the loan, as long as they are permitted by the terms of the retirement plan (and the funding vehicle used to fund the plan), and certain legal requirements imposed under IRC Section 72(p) are satisfied.
The final 403(b) regulations retain the rule that exempts pre-1989 403(b) annuity accumulations attributable to employee elective deferrals from the withdrawal restrictions. They also clarified that after-tax employee contributions are not subject to withdrawal restrictions. Under the IRC, amounts attributable to employee elective deferrals in 403(b) plans cannot be paid to a participant until the participant has a “distributable event,” such as disability, severance from employment or the participant reaching age 59½. These withdrawals are subject to income tax, and withdrawals prior to age 59½ may be subject to an additional 10% tax penalty. A distributable event is now also required for distributions of amounts attributable to employer contributions in annuity contracts issued after 2008.
Minimum Distribution Requirements
Federal law normally requires participants in tax-favored plans, including qualified 401(a) and 403(b) plans, to begin receiving income or making required distributions by a specific date. With some exceptions, whether a participant is in a 403(b) plan or a qualified plan, this Required Beginning Date (RBD) is April 1 following the year they attain age 70½.
Information Sharing Agreements
The final 403(b) regulations have made significant changes in the rules governing how a 403(b) contract or custodial account can be exchanged for another 403(b) annuity contract or custodial account.
Form 5500 for ERISA Plans
You generally have to file Form 5500 by the last day of the seventh month following the end of the plan year. For example, if you use a calendar-year plan year, your 2010 Form 5500 is due on or before August 1, 2011 (July 31 falls on a Sunday).
SPDs and SMMs for 403(b) Plans Subject to ERISA
One of the documents participants are entitled to receive automatically when becoming a participant in an ERISA-covered 403(b) retirement plan or a beneficiary receiving benefits under such a plan is a summary of the plan, is called the Summary Plan Description or SPD. If a plan term that is required to be in the SPD is modified, participants must be informed, either through a revised SPD, or in a separate document, called a Summary of Material Modifications (SMM).
ERISA provides a definition of who is a fiduciary, along with the requirements fiduciaries are expected to meet.