ICI Submits Additional Comments to the Treasury on 403(b) Plan Issues

Washington, DC, March 17, 2009 - ICI urged the Department of the Treasury to issue guidance on the termination of 403(b) plans that are funded through individual custodial accounts.

Background

In 2007, the Internal Revenue Service (IRS) released a comprehensive rewrite of the regulations governing 403(b) plans. The regulations introduced significant new responsibilities for employers and required, for the first time, employers to retain operational control over their 403(b) plans. The final regulations also provided rules (and limited guidance) for the termination of 403(b) plans.

According to the regulations, in order to terminate a 403(b) plan, an employer must distribute the accumulated assets of all accounts under the plan. However, because many older 403(b) arrangements involve individual custodial account agreements between employees and investment providers, employers may not have the authority to force participants to receive distributions from these accounts.

ICI asked for guidance in light of this problem and requested relief for existing contracts in a letter submitted to the Treasury in November 2008. In a second letter, the ICI offered additional suggestions for providing guidance on termination of plans funded through individual custodial accounts.

ICI Position

ICI urged Treasury to issue guidance outlining permissible options for terminating a 403(b) plan invested in individual custodial accounts and distributing the accounts, including automatic rollovers to IRAs for participants who do not affirmatively elect a distribution or rollover or taxation of remaining accounts.