Transitional Guidance Relating to Former 403(b) Plan Vendors

In welcome news for school corporations, the IRS has issued guidance providing transitional relief relating to annuity contracts and/or custodial accounts that were issued or exchanged under 403(b) plans prior to January 1, 2009.  Click here for the IRS' announcement regarding transitional relief and here for the IRS' transitional relief provisions .  School corporations have been concerned about their responsibilities with respect to vendors that have historically been approved under the 403(b) plan, but that will no longer be approved under the plan as of January 1, 2009.  While these vendors continue to hold 403(b) plan assets even after they are no longer approved under the 403(b) plan to receive contributions, schools do not necessarily have the leverage over these former vendors to hold them to the terms of the written plan document or to ensure necessary information sharing to comply with the final 403(b) regulations.  The IRS guidance states that to the extent that a vendor issued an annuity contract or a custodial account under the 403(b) plan on or after January 1, 2005 and before January 1, 2009, but the vendor is no longer approved under the 403(b) plan in a future year or the vendor was never an approved vendor but became part of the 403(b) plan due to a contract exchange after September 24, 2007, the contract/account will not fail to satisfy the final 403(b) regulations if the school makes a reasonable good faith effort to include the contract/account as part of its plan.  According to the IRS guidance, a reasonable good faith effort means that the school collects available information from the vendors who received contributions after January 1, 2005, and notifies these vendors of the plan administrator’s name and contact information for the purpose of coordinating the sharing of necessary information.

If you have any questions regarding this transitional relief for contract exchanges or have any other questions regarding your 403(b) program, please contact Mary Beth Braitman, Tara Schulstad Sciscoe, Jim Kemper, or Wayne McClain.