Recently Published: "Best Practices for 403(b) Plans"

This article by Richard M. Todd and Wendy J. Dominguez was recently published in Benefits & Compensation Digest, Volume 45, Number 1, January 2008, which is issued by the International Foundation of Employee Benefit Plans (  A reprint of the article may be found by clicking here.

In words of the Internal Revenue Service (IRS) on July 23, 2007, a momentous event occurred in the world of 403(b) plans with the issuance of the first comprehensive set of regulations in 43 years. The final regulations under Section 403(b) of the Internal Revenue Code have been released and take effect January 1, 2009.

The 403(b) plan is only available to nonprofits and government entities, and the large majority of the employers that offer these plans are in education--public schools, grades K-12, colleges and universities--and in the hospital market. The 403(b) plan is on the radar screen of IRS and the legal community.

In some cases, employers, especially public school districts, have considered 403(b)s as supplemental to other plans offered (like defined benefit plans) and have chosen to provide access to any provider licensed to sell a product. Morningstar calls this the "hog wild" model. ...

...The 26th largest U.S. school district took a big step last year by consolidating 55 vendors into a single provider.

"It became quite clear that our employees didn't know what fees they were paying, and the district was concerned about the complexity and prudence of dealing with 55 vendors," said Lorie Gillis, the district's chief financial officer. Although participants were initially concerned having "choice," it is estimated that each participant will save between $10,000 and $100,000 with the new vendor by the time each participant retires. While huge strides were made by the district, not everyone was happy--namely, 54 vendors that were displaced. However, participants no longer have to play the investment guessing game and their employer has acknowledged its responsibility to employees. ...

...For the first time, IRS rules require 403(b) plans to operate according to a written plan document--similar to that of an ERISA 401(k) plan. ... continue reading please click (Reprint).