After 40 years without any meaningful guidance concerning Section 403(b) deferred compensation plans for charities, the Internal Revenue Service has issued final regulations that will require additional documentation by the end of the year. The rules apply to 403(b) plans providing tax sheltered annuities for employees of 501(c)(3) charities and public educational institutions.
The provision that has drawn the most attention is the requirement that all 403(b) plans must now have a written plan document. Because many 403(b) plans are – happily and intentionally – not subject to ERISA, plan sponsors were concerned that creating a written plan document might suddenly subject a plan to ERISA. Fortunately, the U.S. Department of Labor has since made it clear that having a written plan document does not automatically subject a 403(b) plan to ERISA.
The deadline for complying with the new Regulations is January 1, 2009.