ICI Supports IRS Efforts to Simplify 403(b) Rules

Washington, DC, February 17, 2005 - The Institute supports efforts by the IRS to simplify the rules governing 403(b) arrangements and to make those rules more consistent with the rules governing 401(k) plans.

Background
In November 2004, the IRS issued proposed regulations under section 403(b) of the Internal Revenue Code, which, among other things, would allow employees of public schools and organizations to save for retirement through custodial accounts invested in mutual fund shares.

The proposed regulations also would require any entity sponsoring a 403(b) plan to maintain a "plan document," which would contain information about participant eligibility, benefits, contracts available under the plan; and the time and form under which benefit distributions would be made.

Other provisions of the proposed regulations include:

ICI Position
In a recent comment letter, the Institute reiterates its support for the simplification and harmonization of the rules governing various types of retirement plans. ICI also supports IRS efforts to make the rules governing 403(b) arrangements more consistent with those governing 401(k) plans, but urges the IRS to keep in mind the distinctive characteristics of the employers that offer 403(b) arrangements when developing and changing the rules governing those plans.

ICI recommends that the IRS take steps to assist employers in complying with the proposed plan document requirement. Specifically, the Institute urges the IRS to provide a delayed effective date, model forms, and detailed guidance (along with the Department of Labor) as to the effect of the new rules upon ERISA coverage. ICI also urges the IRS to retain, rather than curtail, the 403(b) participants' ability to transfer assets among 403(b) annuity contracts and custodial accounts. Finally, ICI supports the proposal to allow employers to freeze or terminate their 403(b) plans.

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