Important Deadline for 403(b) Participants Fast Approaching

A Segal bulletin explains that contract exchanges after September 24, 2007 and before January 1, 2009, that otherwise met the applicable contract exchange rules are defective if the exchange was to a contract with a vendor that was not an approved vendor under the current plan and did not put into place by December 31, 2008, an information sharing agreement (ISA) necessary for proper plan administration (see (b)lines Ask the Expert – Information Sharing Agreements ). Participants may avoid the risk of immediate taxation by re-exchanging the contract for a contract with an approved vendor or with a vendor that has an ISA in place with the plan sponsor.

Segal suggests plan sponsors whose plans permitted exchanges with non-approved vendors after September 24, 2007, and who did not enter into ISAs with such vendors by January 1, 2009, might wish to remind plan participants of the upcoming deadline and the need to re-exchange any such contracts back into the plan in order to avoid the potential income tax consequences.