Feds Put Out 403(b) Rule Clarification

November 15, 2004 (PLANSPONSOR.com) - For the first time in 40 years, federal officials have clarified the laws and rules governing 403(b) plans with the release of proposed regulations.

>The  102-page document  from the US Treasury Department and the Internal Revenue Service (IRS) deals with the plans generally offered by education and non-profit organizations.

>Officials also issued related  temporary regulations clarifying the application of employment taxes to section 403(b) contracts. 

“A major effect of the legal changes in section 403(b) has been to diminish the extent to which the rules governing section 403(b) plans differ from the rules governing other arrangements that include salary reduction contributions, i.e., section 401(k) plans and section 457(b) plans for State and local governmental entities,” officials wrote in the document. “Thus, these regulations will reflect the increasing similarity among these arrangements.”

>The proposed regulations would not go into effect until years beginning after 2005. 

“These regulations would substantially revise the existing regulations to provide guidance on the various statutory changes that have been made for section 403(b) contracts during those 40 years, answer many outstanding issues that were not previously addressed in formal guidance, and demonstrate the increasing similarity among section 403(b) arrangements and the other types of retirement plans that provide for salary deferrals (section 401(k) and governmental section 457(b) plans),” said Gregory Jenner, Treasury’s Acting Assistant Secretary for Tax Policy, in a  news release .