Why Do The Final § 403(B) Regulations Matter?
All Existing § 403(b) Plans Affected. Currently, most § 403(b) plans consist of loose paperwork and contracts. Companies, therefore, lack a formal, written plan document outlining eligibility, contributions, vesting, and other plan provisions. All employer sponsors of § 403(b) plans must now react to these new requirements. Employee Income Tax Consequences. Generally, if an employer sponsors a § 403(b) plan and fails to satisfy these final regulations by the effective date, all of the employee investments and earnings lose their tax-deferred status. This means that the employees must treat the deferred amounts as if they were taken into income in the year deferred and must also include any gains on those deferrals in income. Department of Labor Clarifies ERISA Applicability. Currently plans maintained by tax-exempt companies are subject to ERISA and, therefore, to Department of Labor oversight of the retirement plan unless a safe harbor exemption is satisfied.
