403(b) nonprofit retirement plan overhaul begins Sept. 25
Employees of nonprofits that offer 403(b) retirement plans will soon begin to see changes because the Internal Revenue Service in July approved a comprehensive overhaul of the plans – the first in about 40 years – that will give employers more oversight of these savings programs.
By the time the IRS regulation changes are complete in January 2009, 403(b) plans will look much more like the 401(k) plans many for-profit companies offer workers. Both 403(b) and 401(k) retirement plans are named for their authorizing sections of the tax code. For both, workers can set aside pretax money to invest on a tax-deferred basis while they are working and withdraw after they retire.
The current 403(b) contribution limit is $15,500. Workers who are 50 or older can contribute an extra $5,000. Some nonprofit employers provide matching contributions as do some private companies that have 401(k)s. Nationally, nonprofit workers have accumulated some $680 billion in 403(b) accounts.
The final regulations will require many nonprofit employers to develop a written plan document by Jan. 1, 2009, and begin to enforce the provisions of that plan. For example, employers will have to oversee workers who take out loans from their plans or make hardship withdrawals. Companies that provide retirement plans are now preparing to help nonprofits deal with plan documents and new record-keeping requirements.
Starting this year – on Sept. 25 – employees will only be allowed to transfer money from their 403(b) accounts to companies that have signed agreements with their employers. Previously, workers could move 403(b) assets between accounts without penalty to get higher yields, such as from an annuity that might have substantial fees and surrender charges to a lower-cost mutual find account.
On the positive side, the new rules include universal availability provisions that extend retirement savings opportunities to more workers who were excluded, such as visiting professor. Employers will be required to tell workers annually if they are eligible or not.
Free conference call/webinar on nonprofit 403(b) plan changes
Employees of nonprofits that offer 403(b) retirement plans will soon begin to see changes because the Internal Revenue Service in July approved a comprehensive overhaul of the plans – the first in about 40 years. Paul Hebert of Gallagher Retirement Services will present an overview and answer questions on the new regulations at 9 a.m. on Tuesday, Sept. 18. Click here for more information. To join the online meeting, click here and enter meeting number 749 913 025 and meeting password: gallagher.
