The final regulations require an employer to maintain a written "plan" under which the annuity contracts and custodial accounts will be governed. For the first time, §403(b) programs are required to maintain a written defined contribution plan that contains all the material terms and conditions for eligibility, benefits, the contracts and/or custodial accounts available under the plan, the time and form of distributions and the limitations under the plan. For example, if a §403(b) plan offers loans, the provisions describing the procedures for issuing and administering the loans must be included in the document.

What Constitutes a Plan?

The §403(b) regulations did not specifically use the word "document" and the IRS has indicated "the written plan could be the subject of a number of items either stapled together or held together with a big paperclip".

In November, 2007 IRS issued Revenue Procedure 2007-71 that contained model plan language that would enable a public school employer maintaining a §403(b) program to use a very simple basic written plan to reflect the requirements of §403(b) and the final regulations. Currently, the Service is working toward a prototype document program similar to that used for qualified plans that will be available for adoption by all employers eligible to offer a 403(b) program. As additional information is made available, the information will be published on this site.

Under a §403(b) plan, a participant may elect the following types of elective deferrals:

• Pre-tax deferrals subject to the dollar limits of §402(g). For 2011, that limit is $16,500. Pre-tax long-service catch-up deferrals for qualified individuals credited with 15-years of service with the Employer. The maximum contribution under the long-service catch-up is the lesser of $3,000, $15,000 minus all long-service catch-up deferrals or $5,000 times the number of years of service minus the total of all elective deferrals for all prior years. Pre-tax catch-up contributions for employees who attain age 50 on or before December 31 of the applicable year. The 2011 dollar limit is $5,500.
• Post-tax Roth deferrals subject to the dollar limits of §402(g) in coordination with any pre-tax deferrals. If the employee chooses to make Roth deferrals, a new Salary Deferral Form will need to be completed, indicating the amount to be allocated under the Roth election.

Applying Contributions to the Plan

Contributions to a §403(b) plan must be transferred to the investment provider within the "safe-harbor" timeframe defined in the §403(b) regulations. Under these guidelines, the funds must be deposited to participant accounts within 15 business days following the month during which the deferrals would otherwise have been paid to the employee.

When applying deferrals to the plan, regulations require that contributions be applied in a specific sequence. Regular annual deferrals under the §402(g) limits are applied first to all employees. If the participant is eligible for additional deferrals, the 15-year catch-up is applied next to the plan. If the individual qualifies for the age-50 catch-up, those funds are applied last to the employee's account.

While the focus of the new regulations has been directed toward the employer, the employee who holds a tax-deferred contract or custodial account may also be impacted by these rules. Some investment providers may decide not to be a vendor or will not agree to provide information to the employer or recordkeeper for the plan, This may leave the participant with decisions to make such as switching their funds to approved investments selected by the employer.

In addition to the investments available under the plan, certain optional provisions such as loans and hardship distributions are also now controlled at the plan level. For example, when the individual or beneficiary requests a distribution, certain information will need to be confirmed by the plan and the investment provider will be required to provide certain information to the Plan.

90-24 Transfers

Effective September 24, 2007, 90-24 transfers were eliminated as they existed since 1990. Under the new regulations, three types of non-taxable transfers are permitted. They include:

• Plan-to-Plan Transfers: Transfers that occur between separate 403(b) plans of the employer.
• Exchanges: Transfers made between investment providers within the same plan.
• Purchases of Permissive Service Credits: Transfers made between the §403(b) plan and a governmental defined benefit plan for the purchase of permissive service credits.

It is important to note that non-taxable transfers are not permitted to or from another plan that is not a §403(b) plan, except for purchases of permissive service credits.

The distribution requirements depend on the type of plan and the type of monies being distributed. The individual money sources are categorized in the following manner:

• All elective deferrals;
• Employer monies distributed from custodial accounts; and
• Employer monies distributed from annuity contracts;
• Rollovers

Distributable Events for all Elective Deferrals

The following events will make all elective deferrals available for distribution if the plan permits:

• Attainment of age 59 ¹/₂
• Severance from Employment
• Death
• Disability (under §72(m)(7))
• Financial Hardship (follow the §401(k) rules)
• Plan Termination

Distributable Events for Employer Contributions in a §403(b)(7) Custodial Account

• Attainment of age 59 ¹/₂
• Severance from Employment
• Death
• Disability (under §72(m)(7))
• Plan Termination

These distributable events also apply to amounts transferred to the §403(b)(7) custodial account including earnings thereon, when the source of the monies is not known.

Distributable Events for Employer Contributions in a §403(b)(1) Annuity Contract

• Attainment of a stated age or an event, for example, after a fixed number of years
• Severance from Employment
• Death
• Disability (under §72(m)(7))
• Financial Hardship (follow the §401(k) rules)
• Plan Termination

These distributable events also apply to amounts transferred to the §403(b)(1) annuity contract including earnings thereon, when the source of the monies is not known.

Among the approved distributable events, payments upon attainment of age 59 ¹/₂ and hardship distributions are permitted while the participant is still employed. If the investments are held in a 403(b)(1) annuity contract, attainment of a specific age or after a fixed number of years, an in-service distribution is also permitted.

Attainment of Age 59 ¹/₂

This provision is in most annuity contracts and custodial accounts. Funds distributed upon attainment of age 59 ¹/₂ are not subject to the 10% early withdrawal penalty and are eligible to be rolled over to an IRA or other eligible plan.

Hardship Distributions

Hardship distributions may only include the principal amount of elective deferrals, not including earnings thereon. However, the exception for pre-1989 monies, excluding earnings will still apply. Also, the Employer must have a written hardship policy.

The final 401(k) regulations regarding the safe harbor for complying with the financial hardship distribution requirements, were written to make it more difficult to get a hardship distribution. These rules now apply to both §401(k) and §403(b) plans.

The new rules require an employee to sign a much more elaborate certification as to their immediate and heavy financial need. This is not the same as the former "self-certification" that was commonly used by investment providers under §403(b) plans prior to the new regulations.

Required Minimum Distribution Rules

The regulations require that in order for a taxpayer to utilize the pre-87 account balance rule and not begin distributions on the December 31, 1986, account balance prior to age 75, the payer not only must track the pre-1987 account balance, but must also provide for tracking any distributions that are above the required minimum distribution for the year. Distributions that are greater than the required minimum distribution reduce the pre-87 account balance. Also, the payer must provide the participant with this information if requested by the participant.

In addition to the above rules, certain amounts are subject to the incidental benefit rule (the pre-1987 account balance, and annuity contracts). However, if the distribution satisfies the §401(a)(9) rules, it is deemed to satisfy the incidental benefit rules.

If a participant has multiple §403(b) accounts, the aggregation rule applicable to IRAs applies to the participant's §403(b) accounts. However, distributions from IRAs cannot be used to satisfy RMDs from 403(b) accounts and distributions from §403(b) accounts cannot be used to satisfy RMDs from IRAs. Also, the aggregation rule does not apply to a §403(b) annuity contract that has been annuitized.

Compliance for non-ERISA plans is a new concept for public educational institutions. Under the new regulations, however, the employer will be responsible for a number of plan activities including but not limited to:

• Annual Notification of Eligibility under Universal Availability Rule
• Ensuring the plan distributes excess deferrals on a timely basis
• Apply catch-up deferrals according to regulations
• Applying earnings to excess deferrals
• Ensuring hardship distributions are administered accurately
• Ensuring participant loans are administered accurately
• Determine if investments are allocated to the correct sources
• Ensure investment providers comply with plan provisions
• Ensure the plan document is maintained
• Monitor distributable events available under the plan
• Maintain records required to provide reports in the case of an IRS audit

The employer or the TPA employed by the employer should maintain records adequate to demonstrate that the plan has maintained compliance with the new regulations.

Records that demonstrate that all employees have been advised of their eligibility under the plan.

• Demonstrate that all deferrals comply with the limits and ordering of contributions to the plan.
• Track application of elective deferrals to investment providers.
• Demonstrate that distribution provisions of the plan have been followed
• Demonstrate that hardship and loan rules have been followed
• Maintain plan document, plan policies and procedures compliant with IRS regulations

Salary reduction contributions under a 403(b) plan are not tested mathematically like those under §401(k) plans. Instead, §403(b)s are bound by a "Universal Availability" standard which mandates an equal opportunity for all eligible employees to participate in funding for their own retirement. The Universal Availability rule applies to the elective deferral portion of the plan. Except for Church plans, the rule applies to all other 403(b) programs.

The Non-Discrimination Rule

The Universal Availability rule requires an employer to offer an "effective opportunity" to eligible employees to make elective deferrals of more than $200 and such election must be "made available" to all eligible employees at least annually. An effective opportunity does not exist if there are any other rights or benefits that are conditioned on a participant making or failing to make a deferral election.

The following employees may be excluded from the Universal Availability rule:

1. Employees participating in a §457(b), §401(k) or another §403(b) plan of the employer
2. Nonresident aliens with no U.S. income
3. Certain students (generally those students on work study programs)

   This exclusion is subject to the age and service requirements under §410(b) (referring to the age 21 and 1-Year Service exclusion), including separate testing for employees that do not meet the minimum age and service requirements.

4. Employees who normally work less than 20 hours per week.

   An employee works less than 20 hours per week if and only if:

   1. For the 12-month period beginning on the date of hire, the employer reasonably expects the employee to work less than 1,000 hours during the ensuing 12 months; and for each plan year thereafter (or anniversary dates measured from the employee's date of hire), the employee worked less than 1,000 hours in the preceding 12-month period.

   Exclusions No Longer Permitted

   Notice 89-23 included transitional rules for additional exclusions that the final §403(b) regulations did not adopt. Effective January 1, 2009, these exclusions are no longer available unless a special grandfathering effective date applies. These additional excluded employees under Notice 89-23 were:

   1. Employees making a one-time election to participate in a governmental plan (described in §414(d) of the Code) instead of a §403(b) plan.
   2. Collectively bargained employees
   3. Visiting professors for up to one year
   4. Employees who have taken a vow of poverty

   The Universal Availability Rule and the compensation limit under §401(a)(17) ($245,000 for 2011) apply to State and Local Governments.

Prior to 1974, the only type of §403(b) investment was an annuity. Such annuities must be non-transferable, may be fixed or variable and need not specify TSA on the agreement. Effective January 1, 1974, Congress expanded the investment options to include stock in a regulated investment company. Under these arrangements, a "bank" custodian is required, and the investment is made in regulated investment company stock (mutual funds).

A Retirement Income Church Account (RICA) is a defined contribution plan and may be established and maintained by a church or a convention or association of churches. One primary difference between the RCIA and other 403(b) plans is that there is not necessarily a Custodian nor is the account necessarily maintained by an insurance company.

There are several unique features associated with Retirement Income Church Accounts:

• RICAs may only be adopted by a church or church-related association; generally, non-discrimination requirements applicable to other §403(b) do not apply to RICAs; and Special exclusion allowance rules apply to RICAs in addition to the normal rules. Refer to the Chart below for general rules that apply to certain Church plans.

403(b) Regulations Impact on Churches

In recent years, IRS has issued new regulations designed to provide comprehensive guidelines that address and consolidate the issues faced by providers and participants of public institution and non-profit organization §403(b) and §457 Plans.

Coordination between insurance company and mutual fund investment providers, which was not required prior to issuance of the final §403(b) regulations, mandates additional monitoring and testing of plan activities. The regulations require employers to take a more active role in the day-to-day operation of these plans, including additional responsibility with respect to the compliance of their §403(b) plans.

This creates a dichotomy for employers intending to remain free of the reporting and disclosure requirements of ERISA, because in order for §501(c)(3) organizations to be considered non-ERISA, employers must limit involvement "to optional specified activities". In some cases, employers may believe their plan is exempt from ERISA, but can adopt policies and procedures that result in the unintentional application of ERISA. The Department of Labor has provided safe harbor criteria listing what employers may and may not engage in as part of the normal administration of the Plan. It is critical to enlist professional assistance to counsel in the ways of fulfilling the employer’s obligations while not actually making "discretionary decisions".

It is essential for employers to understand the regulations and their responsibility under these new rules. There are various types of vendors in the marketplace that may be able to monitor and provide required services and many that are monitoring plan activities after the transactions occur.

The various types of vendors include:

• Common Remitter. A common remitter is a firm or entity that captures data from the employer’s payroll and distributes the funds to investment providers selected by the participant.
• Recordkeeper. The recordkeeper maintains the details of the plans investments and may track contributions and earnings on the account. The recordkeeper generally issues checks and payments based on instructions from the Administrator.
• Third Party Administrator. This group provides compliance services, collects data from the investment providers and tracks contributions, loans, hardship payments and plan distributions from the plan. The TPA generally maintains the records required for the employer in the case of an IRS audit. Non-ERISA §501(c)(3) employers can hire an Information Coordinator or Data Aggregator in place of a TPA for compliance reasons.

Once the employer has selected the plan’s providers, a Compliance Model should be developed to determine if the in-house procedures will meet the requirements of IRS in the case of an audit. The surviving investment providers should be identified and source information for each participant should be determined. If a provider is unable to provide accurate data, the funds must be allocated to a restricted source. Employees should be notified if any accounts are subject to restrictions under the plan or if a vendor being used is no longer approved by the Plan. Once the plan’s new policies and procedures are developed and implemented a review of the procedures should be conducted to ensure all regulations are covered.

All types of employers who sponsor a §403(b) program are susceptible to an IRS audit of their plan. The selection may be made based on a Form 5500 that was filed, or for those not required to file, perhaps through a random Form W-2 review.

Typical areas of focus during an examination include the following plan components:

• Universal Availability
• Contributions
• Distributions
• Loans

In the advent of plan year 2009 audits of §403(b) programs, plan sponsors should take steps to prepare. The IRS website offers self-audit tool kits and fix-it guides to check on the general health of the plan so that sponsors can address problem areas prior to an audit. Sponsors will also want to organize systems and processes. It is also advisable to appoint representation ahead of time so that plan sponsors can count on competent and experienced parties to assist them in this process.

Plan sponsors have a number of choices in designing their §403(b) plans. In addition to employee deferrals, employer matching and non-elective contributions may also be included in the design. Various formulas based on age, service or salary can be applied to both types of employer money sources. Vesting and distribution provisions can also be customized to meet various goals set for the plan.

Under an ERISA §403(b) plan, a participant may elect the following types of elective deferrals:

• Pre-tax deferrals subject to the dollar limits of §402(g). For 2011, that limit is $16,500.
• Pre-tax long-service catch-up deferrals for qualified individuals credited with 15-years of service with the Employer. The maximum contribution under the long-service catch-up is the lesser of $3,000, $15,000 minus all long-service catch-up deferrals or $5,000 times the number of years of service minus the total of all elective deferrals for all prior years.
• Pre-tax catch-up contributions for employees who attain age 50 on or before December 31 of the applicable year. The 2011 dollar limit is $5,500.
• Post-tax Roth deferrals subject to the dollar limits of §402(g) in coordination with pre-tax deferrals. If the employer chooses to make Roth deferrals, a new Salary Deferral Form will need to be completed, indicating the amount to be allocated under the Roth election.

In addition, employers may apply matching or non-elective employer contributions to the Plan. Matching contributions are subject to non-discrimination testing, applying rules similar to those in a §401(k) Plan. Non-elective contributions are also subject to testing under IRS regulations.

Overview

While the focus of the new regulations has been directed toward the employer, the employee who holds a tax-deferred contract or custodial account may also be impacted by these rules. Some investment providers may decide not to be a vendor or will not agree to provide information to the employer or recordkeeper for the plan. This may leave the participant with decisions to make such as switching their funds to approved investments selected by the employer.

In addition to the investments available under the plan, certain optional provisions such as loans and hardship distributions are also now controlled at the plan level. For example, when the individual or beneficiary requests a distribution, certain information will need to be confirmed by the plan and the investment provider will be required to provide certain information to the plan.

90-24 Transfers

Effective September 24, 2007, 90-24 transfers were eliminated as they existed since 1990. Under the new regulations, three types of non-taxable transfers are permitted.

They include:

• Plan-to-Plan Transfers. Transfers that occur between separate §403(b) plans of the employer.
• Exchanges. Transfers made between investment providers within the same plan.
• Purchases of Permissive Service Credits. Transfers made between the §403(b) plan and a governmental defined benefit plan for the purchase of permissive service credits.

It is important to note that non-taxable transfers are not permitted to or from another plan that is not a §403(b) plan, except for purchases of permissive service credits.

The distribution requirements depend on the type of plan and the type of monies being distributed. The individual money sources are categorized in the following manner:

• All elective deferrals;
• Employer monies distributed from custodial accounts;
• Employer monies distributed from annuity contracts; and
• Rollovers

Distributable Events for all Elective Deferrals

The following events will make all elective deferrals available for distribution if the plan permits:

• Attainment of age 59 ¹/₂
• Severance from Employment
• Death
• Disability (under §72(m)(7))
• Financial Hardship (follow the §401(k) rules)
• Plan Termination

Distributable Events for Employer Contributions in a §403(b)(7) Custodial Account

• Attainment of age 59 ¹/₂
• Severance from Employment
• Death
• Disability (under §72(m)(7))
• Plan Termination

These distributable events also apply to amounts transferred to the §403(b)(7) custodial account including earnings thereon, when the source of the monies is not known.

Distributable Events for Employer Contributions in a §403(b)(1) Annuity Contract

• Attainment of a stated age or an event, for example, after a fixed number of years
• Severance from Employment
• Death
• Disability (under §72(m)(7))
• Financial Hardship (follow the §401(k) rules)
• Plan Termination

These distributable events also apply to amounts transferred to the §403(b)(1) annuity contract including earnings thereon, when the source of the monies is not known.

In recent years, IRS has issued new regulations designed to provide comprehensive guidelines that address and consolidate the issues faced by providers and participants of public institution and non-profit organization §403(b) and §457 Plans. The regulations now require employers to take a more active role in the day-to-day operation of these plans. In the past, coordination between insurance company and mutual fund investment providers was not required. However, compliance with the new rules mandates additional monitoring and testing of plan activities such as loans and distributions.

Among the approved distributable events, payments upon attainment of age 59 ¹/₂ and hardship distributions are permitted while the participant is still employed. If the investments are held in a §403(b)(1) annuity contract, attainment of a specific age or after a fixed number of years, an in-service distribution is also permitted.

Attainment of Age 59 ¹/₂

This provision is in most annuity contracts and custodial accounts. Funds distributed upon attainment of age 59 ¹/₂ are not subject to the 10% early withdrawal penalty and are eligible to be rolled over to an IRA or other eligible plan.

Hardship Distributions

Hardship distributions may only include the principal amount of elective deferrals, not including earnings thereon. However, the exception for pre-1989 monies, excluding earnings will still apply. Also, the Employer must have a written hardship policy.

The final §401(k) regulations regarding the safe harbor for complying with the financial hardship distribution requirements were written to make it more difficult to get a hardship distribution. These rules now apply to both §401(k) and §403(b) plans.

Required Minimum Distribution Rules

The regulations require that in order for a taxpayer to utilize the pre-87 account balance rule and not begin distributions on the December 31, 1986, account balance prior to age 75, the payer not only must track the pre-1987 account balance, but must also provide for tracking any distributions that are above the required minimum distribution for the year. Distributions that are greater than the required minimum distribution reduce the pre-87 account balance. Also, the payer must provide the participant with this information if requested by the participant.

In addition to the above rules, certain amounts are subject to the incidental benefit rule (the pre-1987 account balance, and annuity contracts). However, if the distribution satisfies the §401(a)(9) rules, it is deemed to satisfy the incidental benefit rules.

If a participant has multiple §403(b) accounts, the aggregation rule applicable to IRAs applies to the participant’s §403(b) accounts. However, distributions from IRAs cannot be used to satisfy RMDs from §403(b)s and distributions from §403(b) accounts cannot be used to satisfy RMDs from IRAs. Also, the aggregation rule does not apply to a §403(b) annuity contract that has been annuitized.

Compliance for ERISA plans is not a new concept. Under the new regulations, however, the employer will be responsible for a number of plan activities including but not limited to:

• Annual Notification of Eligibility under Universal Availability Rule
• Ensuring the plan distributes excess deferrals on a timely basis
• Apply catch-up deferrals according to regulations
• Applying earnings to excess deferrals
• Ensuring hardship distributions are administered accurately
• Ensuring participant loans are administered accurately
• Determine if investments are allocated to the correct sources
• Ensure investment providers comply with plan provisions
• Ensure the plan document is maintained
• Monitor distributable events available under the plan
• Maintain records required to provide reports in the case of an IRS audit

The employer or the TPA employed by the employer should maintain records adequate to demonstrate that the plan has maintained compliance with the new regulations.

• Records that demonstrate that all employees have been advised of their eligibility under the plan.
• Demonstrate that all deferrals comply with the limits and ordering of contributions to the plan.
• Track application of elective deferrals to investment providers.
• Demonstrate that distribution provisions of the plan have been followed
• Demonstrate that hardship and loan rules have been followed.
• Maintain plan document, plan policies and procedures compliant with IRS regulations

Salary reduction contributions under a §403(b) plan are not tested mathematically like those under a §401(k) plan. Instead, §403(b)s are bound by a "Universal Availability" standard which mandates an equal opportunity for all eligible employees to participate in funding for their own retirement. The Universal Availability rule applies to the elective deferral portion of the plan. Except for Church plans, the rule applies to all other §403(b) programs.

The Non-Discrimination Rule

The Universal Availability rule requires an employer to offer an "effective opportunity" to eligible employees to make elective deferrals of more than $200 and such election must be "made available" to all eligible employees at least annually. An effective opportunity does not exist if there are any other rights or benefits that are conditioned on a participant making or failing to make a deferral election.

The following employees may be excluded from the Universal Availability rule:

• Employees participating in a §457(b), §401(k) or another §403(b) plan of the employer
• Nonresident aliens with no U.S. income
• Certain students (generally those students on work study programs)

  This exclusion is subject to the age and service requirements under §410(b) (referring to the age 21 and 1-Year Service exclusion), including separate testing for employees that do not meet the minimum age and service requirements.

• Employees who normally work less than 20 hours per week

  An employee works less than 20 hours per week if and only if:

  • For the 12-month period beginning on the date of hire, the employer reasonably expects the employee to work less than 1,000 hours during the ensuing 12 months; and
  • For each plan year thereafter (or anniversary dates measured from the employee’s date of hire), the employee worked less than 1,000 hours in the preceding 12-month period.

  Exclusions No Longer Permitted

  Notice 89-23 included transitional rules for additional exclusions that the final §403(b) regulations did not adopt. Effective January 1, 2009, these exclusions are longer available unless a special grandfathering effective date applies. These additional excluded employees under Notice 89-23 were:

  • Employees making a one-time election to participate in a governmental plan (described in §414(d) of the Code) instead of a §403(b) plan
  • Collectively bargained employees
  • Visiting professors for up to one year
  • Employees who have taken a vow of poverty

  The Universal Availability Rule and the compensation limit under §401 (a)(17) ($245,000 for 2011) apply to State and Local Governments.

Prior to 1974, the only type of §403(b) investment was an annuity. Such annuities must be non-transferable, may be fixed or variable and need not specify TSA on the agreement. Effective January 1, 1974, Congress expanded the investment options to include stock in a regulated investment company. Under these arrangements, a "bank" custodian is required, and the investment is made in regulated investment company stock (mutual funds).

A Retirement Income Church Account (RCIA) is a defined contribution plan and may be established and maintained by a church or a convention or association of churches. One primary difference between the RCIA and other §403(b) plans is that there is not necessarily a Custodian nor is the account necessarily maintained by an insurance company.

There are several unique features associated with Retirement Income Church Accounts:

• RICAs may only be adopted by a church or church-related association; Generally, non-discrimination requirements applicable to other §403(b) do not apply to RICAs; and
• Special exclusion allowance rules apply to RICAs in addition to the normal rules

It is essential for employers to understand the regulations and their responsibility under these new rules. There are various types of vendors in the marketplace that may be able to monitor and provide required services and many that are monitoring plan activities after the transactions occur.

The various types of vendors include:

• Common Remitter. A common remitter is a firm or entity that captures data from the employer’s payroll and distributes the funds to investment providers selected by the participant.
• Recordkeeper. The recordkeeper maintains the details of the plans investments and may track contributions and earnings on the account. The recordkeeper generally issues checks and payments based on instructions from the Administrator.
• Third Party Administrator. This group provides compliance services, collects data from the investment providers and tracks contributions, loans, hardship payments and plan distributions from the plan. The TPA generally maintains the records required for the employer in the case of an IRS audit.

Once the employer has selected the plan’s providers, a Compliance Model should be developed to determine if the in-house procedures will meet the requirements of IRS in the case of an audit. The surviving investment providers should be identified and source information for each participant should be determined. If a provider is unable to provide accurate data, the funds must be allocated to a restricted source. Employees should be notified if any accounts are subject to restrictions under the plan or if a vendor being used is no longer approved by the Plan.

All types of employers who sponsor a §403(b) program are susceptible to an IRS audit of their plan. The selection may be made based on a Form 5500 that was filed, or for those not required to file, perhaps through a random Form W-2 review.

Typical areas of focus during an examination include the following plan components:

• Universal Availability
• Contributions
• Distributions
• Loans

In the advent of plan year 2009 audits of §403(b) programs, plan sponsors should take steps to prepare. The IRS website offers self-audit tool kits and fix-it guides to check on the general health of the plan so that sponsors can address problem areas prior to an audit. Sponsors will also want to organize systems and processes. It is also advisable to appoint representation ahead of time so that plan sponsors can count on competent and experienced parties to assist them in this process.