The following Press Release came from the NTSAA today. The NTSAA is the leading organization against the implementation of the proposed regulations from the IRS.
The new regs are needed and I believe will lead most 403(b)’s to actually become 403(b) PLANS – as opposed to arrangements. I think this will lead to a system where districts will adopt a single vendor for their 403(b). At this point 403(b)’s will begin operating very similar to 401(k) plans.
I am happy however with the following release because it gives districts more time to comply with the proposed regs.
Scott Dauenhauer, CFP®, MSFP
Congress has returned to Washington from summer recess. We would like to acknowledge and thank members who contacted Senators and Representatives while they were in their respective “home” districts. If you had success contacting your own representative or senator (or a member of staff) during recess, please be sure to report that information to the NTSAA as it is important to keep a record of interested members of Congress for possible future actions.
New: Treasury & IRS Remarks:
We wanted to report comments made by Tom Reeder of Treasury and Robert Architect of the IRS at a Washington D. C. conference held last week as reported in the September 9, 2005 edition of Tax Notes Today:
Tom Reeder of Treasury and Bob Architect of the IRS “devoted most of their time to discussion of proposed regulations on section 403(b) plans” and noted that the “regs will not be effective before January 1, 2007”. He also expressed optimism that the regs will be finalized in the first or second quarter of 2006. Architect also said, "that it is likely the effective dates of some entities, such as church plans will be pushed back even further.”
In terms of the controversial written plan requirement, Reeder said, “No where in the code does it say a 403(b) plan does not have to be written. In fact, the fact that the statute refers to the word 'plan' implies that there ought to be a written plan.” To further explain that requirement, he said, “We’re not talking about a plan document in a 401(a) sense. We’re talking about a plan document that someone can use to reference what the terms of the plan are.”
In referring to the repeal of Revenue Ruling 90- 24, Architect said, "that the Service wants to get beyond Rev. Rul. 90-24 because it has complicated efforts at compliance by employers and has made enforcement more difficult for IRS agents.” However, Tom Reeder did say that “the final regs might permit some transfers that would not be allowed under the proposed regs”.
What Do We Think?
We believe that your efforts should continue, but focus almost entirely on contacts with members of Congress. Sample letters and other information to assist with these efforts can be found at www.ntsaa.org, under the “Advocacy" link.
It is important to note that Tom Reeder’s reference to the fact that the statute refers to the word “plan” is evidently based on IRC 403(b)(12) (which covers nondiscrimination rules added in the Tax Reform Act of 1986) where in (A) it says “a plan meets the nondiscrimination requirements of this paragraph if”, and in (C) there is the title “State and Local Governmental Plans”, and Plan is also used in the body of that section.
The key question for members of Congress is whether the intent was to apply the rules of plans to 403(b) arrangements, when in fact, all previous legislative history took the opposite approach. Despite many opportunities to do so, Congress has never mandated a written plan requirement for 403 (b). Even so, discussions with Treasury indicate that both Treasury and the Service hold the belief that Congress intends this result (when, in fact, Congress may well not be aware of the ramifications of the proposed changes).
Finally, as we review the Examination Guidelines, it is made clear in the detailed explanations of 403(b), that “403(b) plans take a wide variety of forms. Even where a 403(b) plan takes the form of an arrangement rather than a plan, it is nevertheless subject to all of the requirements of 403(b)”. Note that unlike qualified plans, the requirements in the 403(b) statutes do not include a written plan. In the plan document section of the Guidelines, the statement is made, “Unlike qualified plans, 403(b) plans are not subject to the requirements of a definite written program (although Title I requires a written plan document for certain 403(b) plans).”
We will continue to keep you informed, and ask that you continue your efforts to get employers, unions, and participants to contact Members of Congress.