Is your nonprofit aware of them?
Provided by Benedict A. Mitchell Jr.

Do you oversee a 403(b) plan? Does your school or non-profit offer one? If so, you should know that big changes have come to the 403(b) environment within the last couple of years – changes that affect the role of the employer.

Basically, the IRS wanted 403(b)s to work more like 401(k)s. After more than 40 years without major changes to 403(b)s, it decided it was time to iron out the differences.

Prior to 2009, school employees and employees of smaller non-profits pretty much managed their retirement accounts on their own. No more. As of January 1, 2009 , employers were required to take more responsibility for plan oversight, and keep an eye on loans and hardship distributions.1

You need a written plan document. The IRS has made this mandatory.2 Besides outlining the material provisions of the 403(b), it has to define the responsibilities of the employer, the annuity contract issuer(s), other service providers, and plan participants when it comes to the following topics: contribution limits, benefits, eligibility, loan procedures, contract descriptions, hardship withdrawals, and the timing and nature of distributions from the plan.3 In 2009, the employer shoulders the responsibility for contributions, distributions and plan supervision.4

New rules about transferring assets. For years, 403(b) plan participants could independently move 403(b) assets into an investment provided by an insurer or a mutual fund through a “90-24” transfer. This could be done without the employer’s permission. Under the new regulations, you have to know about it. There is still the possibility of an asset exchange from one plan vendor to another, but now you must have a written agreement indicating that you have approved both the new investment provider and the new investment product chosen by the employee.4

Also, an employee may request the transfer of assets from your 403(b) program to another 403(b) sponsored by a different qualified employer, if that new employer plan accepts transfers. Additionally, an employee’s 403(b) savings can be transferred to purchase permissive service credits in a defined-benefit pension plan offered through the government.3

Changes to nondiscrimination rules. Today, no 403(b) plan may be found to discriminate in favor of highly compensated employees in regard to employer contributions and after-tax employee contributions. However, 403(b) programs offered by many schools or arranged by religious institutions may be exempt from this nondiscrimination test.3

New requirements for plan vendors. They must sign agreements with employers as a consequence of the new IRS rules. They must agree to assist employees in calculating maximum elective deferrals, and to administer distributions (along with correct income tax reporting of these distributions) and applicable loans from the plan. They also have to agree to share information on any and all employee accounts with the employer or any third-party plan administrator.5

The 2009 contribution limits. The IRS has set the annual 403(b) contribution limit at $16,500 for 2009, and the 50-and-older “catch-up” contribution limit has been bumped up to $5,500 for 2009.6

Some plans get an extension. Church-sponsored 403(b) plans have until January 1, 2010 to comply with the new regulations. 403(b) plans maintained according to collective bargaining agreements in effect on or before July 26, 2007 have until July 26, 2010 or the scheduled expiration date of the agreement to comply, whichever comes earlier.7

Does your plan need to change? These 403(b) changes are major – and this has simply been an informal summary of those changes and should not be taken as advice or guidance. In the wake of these alterations, there are some important questions worth considering. Should you call in a third-party administrator (TPA), or keep things in-house? Do you have an investment policy statement (IPS) in place? Should you move to a 401(k)? This is time to talk with someone who knows these plans in detail – a financial consultant who has helped nonprofits prepare and adjust to the new regulations.

Benedict A. Mitchell Jr. is a Representative with Kovack Securities, Inc. and may be reached at, 888-236-9894 or

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.


1{180DCB44-A80B-49BF-AB03-98039F64BCC8} [5/20/07]

2 [7/24/07]

3 [1/12/08]

4 [12/1/07]

5 [10/17/08]

6,,id=187833,00.html [10/16/08]

7 [7/2/07]

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Ben Mitchell is registered with, supervised by and offers securities through Kovack Securities, Inc., Member FINRA, SIPC.  
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Advisory services offered through Kovack Advisors, Inc. 
6451 N. Federal Highway, Suite 1201 Ft. Lauderdale, FL 33308 · (954) 782-4771

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