Guest Column: New rules increase responsibilities for employers with 403(b) plans

The end of the year will bring big changes for school employee retirement plans, with new regulations set to take effect in 2009.

The U.S. Department of Treasury issued sweeping new regulations in July 2007 requiring the most significant changes to 403(b) plans in more than 40 years.

For workers who are participating in 403(b) plans, inaction on the part of their employers could prove costly.

The new regulations increase the responsibility for employers who sponsor those programs, such as public schools, hospitals, nonprofits and universities. It's estimated, however, that only one in five K-12 school organizations has taken steps to bring their plans into compliance.

Existing 403(b) accounts could become taxable if employer organizations do not conform to the new regulations before Jan. 1. This could result in an enormous tax bite out of the $650 million in tax-deferred money that employees have invested to date.

At the crux of the matter is the requirement that employers will have to define, monitor, administer and coordinate their own 403(b) programs - a tall order for many school districts. Plans must have documentation that specifies plan provisions and outlines the responsibilities of the plan sponsor, annuity contract issuers, any other service providers, and employee participants with regard to the plan benefits, eligibility, contribution limits, annuity contract descriptions, loans, hardship withdrawals and distributions.

Starting in 2009, all 403(b) contributions must be made through district-approved 403(b) investment providers. Subsequently, individuals will no longer be allowed to select their own investment providers from the open marketplace.

In addition, 403(b) accounts held outside of an employer-defined program will no longer be eligible for tax-deferred contributions. Employees who are age 59K or older or have ended their employment are eligible to roll their 403(b) assets into an IRA without tax penalty, although it may not be advisable if surrender charges are incurred.

If you work in a public school district, nonprofit agency or other affected organization, talk to your employer to learn if you can continue contributing to your 403(b) account with your current investment provider.

Paula Dougherty, CFP, ChFC, CLU, is a Certified Financial Planner with Ameriprise Financial in Springfield. She may be reached at paula.j.dougherty@ampf.com.