Proposed 403(b) Regulations
What It Does AND Does NOT Mean

What is the Effective Date of the new regulations?

The proposed 403(b) regulations have been postponed twice and the most recent information indicates that…

Regulations WILL NOT be effective prior to January 1, 2008

As an Administrator what should I do in preparation for the “proposed changes”?

Stay up to date with current information; but DO NOT make any changes to your existing plan until such time that all proposals are finalized and specific requirements and implementation dates are announced.

What will be the primary change for 403(b) plans as outlined in current proposed regulations?

Plan Document: It is anticipated that the regulations will almost certainly require the development of a Plan Document for any 403(b) plan. Such a plan document would outline specific features and aspects of any specific 403(b) plan. As with other existing Qualified Retirement Plans such as a 401(k) experienced vendors such as Life Insurance Company of the Southwest will be prepared to provide an approved Plan Document template which will satisfy all required regulations.

Notice to eligible employees to meet “Universal Availability”: The employer would need to provide employees with an “effective opportunity” to make or change a cash or deferred election by providing notice of the availability of this election, the period of time during which this election may be made, and any other conditions on elections. In general, universal availability would apply separately to each entity sponsoring the 403(b) program. If individuals who could be excluded from participating in the 403(b) plan are able to participate, then all employees in that excludable category must be allowed to participate in the 403(b) plan.

If the guidance becomes effective without further modification, a 403(b) plan would no longer be able to exclude the following:
- employees who make a one-time election to participate in a government plan instead of a 403(b)
- employees covered under a collective bargaining agreement
- visiting professors for up to a year under certain circumstances

• Plan Termination Permitted:
  A 403(b) plan could be terminated and permit distribution of benefits as soon as administratively practicable upon plan termination.
• Modification of Transfer Rules:
  Once effective, there would be two types of transfers permitted; plan-to-plan transfers and contract-to-contract exchanges. In either transfer, amounts transferred must be subject to distribution rules at least as stringent as those of the transferring contract.
• Definition of “Severance of Employment”: An individual has “severed employment” with the employer sponsoring the 403(b) plan even if he is employed by an entity that is within the same controlled group but is not eligible to sponsor a 403(b) plan.
• Permissible Insurance Products:
  An annuity contract must include the ability to offer a distribution form of benefit as an annuity. As a result, an “annuity contract” would NOT include a life insurance contract.
• Employees who normally work fewer than 20 hours per week:
  An employee is considered to work fewer than 20 hours per week if:
  - For the 12-month period beginning on the date employment commenced, the employer reasonably expects the employee to work fewer than 1,000 hours in such period; and
  - For each 12-month period the employee worked fewer than 1,000 hours
• Timing of Contributions: Contributions must be remitted to the 403(b) plan’s investment vehicle no later than is reasonable for the proper administration of the plan.

Summary

As with any regulatory requirements a detailed review by a qualified expert should be undertaken to insure compliance with all applicable regulations. However, any subsequent action or changes should be carefully considered ONLY AFTER any regulations have been deemed to be BOTH in force and applicable.

Although new regulations will likely require some changes to your specific 403(b) plan we are confident that your primary purpose is to provide your employees with highest level of retirement services as possible. ValuTeachers and Life Insurance Company of the Southwest share your commitment and are prepared to:

- assist you in understanding and implementing any applicable regulations AND helping all your employees…Retire With Dignity.