Non-ERISA 403(b) plans sponsored by a private tax-exempt entity
403(b) plan sponsors may choose to maintain the plan under the new guidelines, freeze the plan (i.e., cease all contributions to the plan but continue to update the plan in compliance with the regulations) or terminate the plan and distribute assets in accordance with the requirements of the new regulations.

Maintaining an active or frozen plan
With the exception of qualifying church plans, any plan in existence on or after January 1, 2009, must maintain a written document even if it is frozen. Generally, this can be a single document or a collection of documents which when taken together, satisfy the plan requirement (while IRS Notice 2009-3 extended the deadline to adopt a written plan, the requirement for the plan to be operated in accordance with applicable law was not extended. Once a written plan is adopted, the sponsor must retroactively fix any defects). The plan must continue to comply with all applicable laws as long as there are plan assets. Such laws include—but are not limited to—withdrawal restrictions, loan limitations and required minimum distributions. Information sharing agreements will be needed if exchanges will be allowed to providers outside the plan. Participant communication is important for plan compliance. For example, an active plan must meet the universal availability requirements. Also, freezing a plan may entail communication about new retirement planning opportunities in another plan.

Close attention to the information in DOL Field Advisory Bulletin 2007-02 is important. In order to maintain compliance with the requirements of Code Section 403(b) and the final Treasury regulations while maintaining limited employer discretion, you should address certain plan features with your legal counsel such as non-elective contributions, automatic enrollment and the allocation of compliance functions.  

Within the limitations of the applicable rules, an employer maintaining a non-ERISA voluntary 403(b) plan generally may have several options for that plan in light of the final 403(b) regulations, which may include:

•  Maintain it as a non-ERISA 403(b) plan, taking special care in any plan decisions to make sure they are consistent with the plan’s ERISA exemption and available DOL guidance.

•  Convert your non-ERISA program to an ERISA plan beginning in 2009, subject to certain limits on the plan sponsor’s authority with regard to existing account values. It could continue to be maintained either as a separate plan, or merged into an existing ERISA 403(b) plan.

•  Freeze the non-ERISA plan (i.e., cease the contributions to the plan, but continue to operate the plan in compliance with the regulations).

• Terminate the non-ERISA plan and distribute the assets in accordance with the requirements of the new regulations.

Terminating a 403(b) plan
All plan assets must be distributed within a reasonable period beginning with the termination date and ending 12 months following the date of the last distribution. It will be important to check with your vendors and your legal counsel to understand which products may be forced out of the plan to participants and which will require participant consent to ensure all assets may be distributed in accordance with requirements of the regulations. One key consideration is that contributions to all 403(b) plans of the employer — not just the terminating plans — must be stopped for a period starting on the termination date and ending 12 months following the date of last distribution. Until all assets are distributed, remember that compliance with all laws must continue and participant communication is needed and any plan in existence on or after January 1, 2009, must maintain a written plan document, even if the plan is subsequently terminated.