403(b) Plan Updates

On July 23, 2007, the Internal Revenue Service issued new regulations governing 403(b) accounts. These new regulations, generally effective January 1, 2009, require plan sponsors and plan administrators to take action with respect to administration of their 403(b) plans.

Note: If you are a current T. Rowe Price 403(b) plan sponsor, you must complete and return our Information Sharing and Services Agreement Form to maintain your 403(b) plan with T. Rowe Price.

• Written Plan Document Requirement
• Exchanges
• Administrative Responsibility
• Universal Availability

Under the new regulations, effective January 1, 2009, most 403(b) plans are required to be maintained pursuant to a written plan document. The written document must contain all the material terms and conditions for eligibility, limitations and benefits under the plan.

The final regulations allow tax-free exchanges among investment providers within the plan as long as:

• the plan permits the exchange,
• the participant’s accumulated benefit after the exchange is no less than before the exchange, and
• any distribution restrictions are maintained.

If the plan permits, tax-free exchanges may also occur to and from investment providers that are not receiving contributions. This is allowed as long as the employer and the investment provider enter into an Information Sharing Agreement to provide certain information related to tax compliance.

The 403(b) plan employer must oversee the plan’s administrative arrangement to ensure that it is being operated according to the plan document. The regulations permit an employer to allocate plan administrative functions to other individuals (but not to participants).

For example:

• Employers will have to provide 403(b) investment providers with adequate information to allow for the administration of certain distributions.
• Employers will have to remit salary reduction contributions as soon as administratively possible, but no later than 15 business days following the month in which amounts would have otherwise been paid to the participant.

The universal availability requirement generally provides that all employees of 403(b) plan employers (other than churches) must be permitted to make salary reduction contributions if any employees of the employer have that right. Plan sponsors must notify all eligible employees annually of their right to start, continue or change their salary reduction contributions.