Beginning January 1, 2009, the Internal Revenue Service will implement regulations that impose additional recordkeeping requirements and fiduciary responsibilities on educational and non-profit employers that provide a 403(b) tax-deferred compensation plans to their employees. These regulations increase the similarities between 403(b) plans and other employer-sponsored deferred compensation plans, such as 457(b) plans and 401(k) plans. Under the proposed regulations, school employers will be required to maintain a legally binding "plan document," more closely monitor employee contributions and investment providers, and approve certain loans, transfers and distributions from their employees' 403(b) accounts.

Assembly Bill 2462 recently passed, giving CalSTRS the authority to be a third party administrator. The intent is to assist employers with complying with the new IRS regulations. CalSTRS is initiating a third party administrator program that will help the employers, and will be beneficial for CalSTRS members.

The regulations would, for the first time, require school employers to retain operational control over their 403(b) plans themselves or through a third-party administrator.

Among other things, these new regulations require employers to:

• Keep records of each individual employee's account transactions including contributions, investment returns, distributions, sales or distribution expense charges, loans, hardship withdrawals, transfers and tax withholdings;
• Adopt a written Plan Document, effective January 1, 2009, that details the terms for employee eligibility, benefits, applicable limitations, the contracts available under the plan and the terms for benefit distributions;
• Provide plan participants with automatic enrollment and an annual opportunity to elect, revoke or change a deferral election;
• Supervise catch-up contributions to make sure they do not exceed the IRC dollar limits;
• Monitor payroll deferrals elected by participating employees to ensure contributions do not exceed the maximum limits and ensure deferred contributions go only to specific funding arrangements.

Review full details about these Finalized 403(b) Regulations.

CalSTRS is planning an informational Webcast with a representative of the Internal Revenue Service. The seminar will take place after the regulations have been finalized in the Summer of 2007.

CalSTRS would like to provide services and information related to the IRS 403(b) proposed regulations. In helping us to do this, we invite you to participate in a survey.