Important Update 3/5/2007

Bob Architect, Senior Tax Law Specialist, of the Internal Revenue Service, speaking at the 43rd Washington Non-Profit Legal and Tax Conference, announced that the new 403(b) regulations are expected to be released by June 30, 2007, with an effective date of January 1, 2008. He also announced that soon after the release of the new regulations, the IRS will publish a revenue procedure with sample plan language to be used for 403(b) regulations.

The Proposed IRS 403(b) Regulations
New Year 2007 Update

Happy New Year from Great American Plan Administrators.

We understand that as a school business of official, you have many responsibilities and we want to help make the administration of your retirement plans easier this year and into the future. You have probably heard about the proposed new federal tax regulations for 403 (b) plans. While the IRS has indicated several dates for when the regulations will take effect, we want to make sure that you are ready for them. Below are answers to the questions we hear most often.

I keep hearing about proposed 403(b) Regulations but do not know what it means. Can you tell me the basics?
First proposed in 2004, the IRS is looking at new rules that may change how 403(b) plans are run. The anticipated changes are in an effort to make the rules a closer match to those that govern 401(k) plans. They would include written guidelines inclusive of information on product providers, loan provisions and more.

After several adjusted dates, the final decision and release has been halted again. This allows time for various government agencies and industry groups to continue discussions and review of proposed standardized plan documents. The last effective date reported was January 1, 2008. The final effective date may depend on the actual release date.

What is the status of the proposed regulations?
Currently, the IRS has not released final regulations. In the meantime, the Treasury and IRS have stated that the public should not act upon what they have seen in the proposed regulations. We agree with this recommendation.

When and how will I know what to do?
GA Plan Administrators will communicate with you via e-mail, fax, and our web site over upcoming months. We have created rough drafts of model documents, various communication pieces in addition to an informative web site.

What should I be doing now?
ü Do not adopt a plan document yet.
ü Do your homework. Review the requirements of your 403(b) program, and be ready to communicate with those who are eligible to participate in your program.
ü Review your current 403(b) materials, as they may need to be updated to ensure they are in line with the requirements of the final regulations. These materials may include: employee handbooks, 403 (b) contracts, administrative procedures, service agreements and collective bargaining agreements.

New regulations may require 403(b) plans to be maintained and operated with a written plan document. Should I adopt one now?
Any plan document implemented before final regulations are published may actually cause more trouble after the regulations are finalized. It may create rules that are inconsistent with the final regulations, generate unnecessary compliance problems and counteract the possible benefit of transition rules.

During the drafting of the regulations, our parent company Great American Financial Resources worked with the Committee of Annuity Insurers, a group of industry partners, to make recommendations regarding the proposed changes and to develop a prototype plan document for the IRS. We felt it was vitally important to coordinate work on a standardized plan document and avoid risk of conflicts between multiple plan documents and annuity contracts. Should the IRS not adopt a prototype plan document, GA Plan Administrators will offer a standard plan document that you can easily adopt if you maintain a simple 403(b) plan that only allows contributions through a salary reduction agreement.

What if we already adopted a plan document?
If for some reason you chose to adopt a plan document prior to the finalization of the regulations, we strongly encourage you to consult experienced tax counsel.

Will transfers be eliminated?
Currently, we believe final regulations may modify the transfer rules but might not restrict transfers to the extent originally proposed. We anticipate the new regulations will add requirements to facilitate the monitoring of hardship withdrawals and loans.

This information is not intended or written to be used as legal or tax advice. As a taxpayer, you cannot use it for the purpose of avoiding penalties that may be imposed under the tax laws. You should seek advice on legal or tax questions based on your particular circumstances from an independent attorney or tax advisor.