Some employers may even find that their 403(b) is more burdensome and expensive to maintain than a comparable 401(k)
Washington, DC (PRWEB) September 26, 2007
The newly released IRS regulations impose several new requirements and responsibilities on employers with 403(b) retirement plans, according to Lamaute Capital, Inc., a Washington DC investment firm that specializes in retirement plans. While most of the final 403(b) regulations won't take effect until January 1, 2009, there are some provisions that apply sooner. The new rules will increase the paperwork, cost of administration, and potential liabilities associated with a 403(b) plan. "Some employers may even find that their 403(b) is more burdensome and expensive to maintain than a comparable 401(k)", says a spokesman for Lamaute Capital.
The 403(b) is a retirement plan for non-profits only. By contrast the 401(k) can be used by both non-profit and for-profits institutions. Many non-profits selected the 403(b) because when they set-up their retirement plan they thought that 1) they qualified only for a 403(b), 2) it would minimize their administrative requirements, 3) it was the only plan that let contributions come solely from the employees, and/or 4) the employer's cost to maintain the 403(b) would be negligible. But, with the new regulations the 403(b) and 401(k) administration have become more similar.
Among the new 403(b) requirements are that the plan must be in writing and contains all the terms and conditions for eligibility, limitations, and benefits under the plan. The consequences of not meeting the new regulations can be severe since all 403(b) contracts purchased for an employee by an employer must be treated as a single contract. As a result, if a contract fails to satisfy certain Section 403(b) requirements, then generally not only that contract but also any other contract purchased for that individual by that employer would fail to be a contract that qualifies for tax-deferral.
It is possible for an employer to have a 401(k) that operates with employee contributions only, and has minimal administrative burdens at a low in cost. A 401(k) plan typically comes bundled with:
- Pre-approved prototype plan documents.
- Software and support materials.
- Participant retirement investment education.
Lamaute Capital suggests that now is a good time for non-profits to look at updating their 403(b) plan or even consider switching altogether to a 401(k). The firm is offering a free assessment of how the new regulations may affect your 403(b) plan, and they will prepare a free 401(k) plan proposal for your comparison. The firm can be reached at 202-726-1662 or http://www.InvestSafe.com.