The Advisor - September 2011

IMPORTANT NEWS FOR YOUR FINANCIAL AND PERSONAL FUTURE

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The Nitty-Gritty about 403(b) Plans

There are legal and regulatory requirements for 403(b) plans. The following is some information about the plans available to you.

The District’s List of Approved Vendors

You can invest in a 403(b) plan only through your school district employer (known as the Plan Sponsor) through payroll deduction. The IRS requires each district to have a written Plan Document for its 403(b) plan. This document includes information about options the district is including in its 403(b) plan or program, such as whether the plan will offer loans and/or permit age 50+ catch up contributions, as well as the list of “approved vendors” offered by your district. Some vendors are approved for ongoing contributions and some are approved for exchanges only (moving your assets from one of the vendors to another).

See the sidebar for a list of options that your district can include in your 403(b) program. If your district is not including options such as loans, you should know why and be prepared to challenge the decision.


403(b) Plan Requirements and Optional Features


REQUIRED:

Written plan document - this must contain all the terms and conditions of the plan.

Universal availability – all employees who normally work 20 hours or more per week must be given the opportunity to participate.

Deferral limits – elective contributions must be limited to the IRS allowable amounts each year ($16,500 in 2011).

Investment options – the plan should establish annuity contracts for those choosing annuities or custodial accounts (403(b)(7) for participants’ mutual fund investments.

Timely deposits – the 403(b) plan sponsor must send elective deferrals to the vendor within a “feasible period” (generally, within 15 days following the month when the employee was paid).

OPTIONAL:

Age 50+ catch-up contributions – the plan may permit participants age 50+ to defer an additional amount ($5,500 in 2011).

Loans – if the plan allows loans, they must be based on a detailed loan program that enforces loan repayments.

Hardship distributions – the plan may, but is not required to, allow hardship distributions.

Roth option – the plan may choose to allow Roth contributions, which are made on an after-tax rather than pre-tax basis.

Exchanges – the plan may allow participants to exchange accounts from one approved 403(b) vendor to another.

Transfers – the plan may allow participants to transfer accounts from one district’s 403(b) plan to another provided both plans allow the transfer.