ICI Comments on Treasury Implementation of 403(b) Plan Effort

Washington, DC, September 14, 2007 - ICI recently filed comments requesting that U.S. Treasury Department officials delay implementation of one aspect of a comprehensive effort to update 403(b) plan regulation, and asked for more guidance in several areas that affect plans, their participants, and service providers.

Background
Institute members offer investments and provide services to 403(b) plan participants. On July 23, 2007, the Treasury Department and the IRS released final regulations concerning these retirement savings arrangements sponsored by public schools and charitable organizations.

The new regulations, the first comprehensive revision to 403(b) regulation since 1964, incorporate numerous changes as a result of the passage of the Employee Retirement Income Security Act of 1974, the Tax Reform Act of 1986, the Small Business Job Protection Act of 1996, the Economic Growth and Tax Relief Reconciliation Act of 2001, and the Pension Protection Act of 2006. In general, the regulations reflect the extent to which these recent legislative efforts have diminished the differences between 403(b) arrangements and 401(k) and other tax-deferred retirement plans.

ICI Position
In a letter to a Treasury official, ICI commends the Department and the Internal Revenue Service for its comprehensive review and its efforts to codify guidance concerning 403(b) plans.

However, ICI requested a delayed effective date with respect to one aspect of the effort - the elimination of prior IRS rules on transfers and exchanges after September 24, 2007; ICI also sought additional guidance on several issues relating to the newly codified regulations:

Delay Effective Date Regarding Transfers and Exchanges
ICI believes the September 24, 2007 deadline does not provide enough time for providers, employers, and participants to react to this major policy change, and urges Treasury and IRS officials to extend the deadline until December 31, 2008. ICI observes that the timing of this change particularly disadvantages participants and employers in the education field. Most schools start their school year mere weeks before the change takes effect, and the resources needed to explain the new rules to participants will be limited. Participants, in particular, may be blindsided by the abrupt cut off of their ability to move assets to investment choices not offered by their employer.

Additional Guidance
In four areas, ICI calls for guidance that would help employers and service providers meet the requirements of the regulations. Many issues relate to the uncertain landscape after the September 24, 2007 deadline.