Clarifying the New IRS 403(b) Rules

December 30, 2008

 

There have been many myths and rumors surrounding the new 403(b) plan regulations and how they affect you and your Life Rewards 403(b) plan with Church Extension Plan (CEP). I would like to reassure you that CEP has continued to work vigorously with our legal counsel, Vincent P. Cacciottoli, to make sure our 403(b) retirement plan is in compliance.

Mr. Cacciottoli has more than 30 years of experience and knowledge in employee benefit plans and is a recognized authority in his field. He is a member of the American College of Employee Benefits Counsel and is listed in The Best Lawyers in America® book.

I am sending this letter to dispel the myths you may have heard and bring some clarity to the new IRS rules.

Myth 1 – My church’s management team needs to be “very familiar” with the IRS rules in order to offer a 403(b) Plan for my church.

An article that is being widely circulated about the impact of the IRS 403(b) rules on church plans indicates that churches need to be “very familiar” with these rules if they want to participate in a 403(b) plan. Actually, you do not need to be very familiar with these rules; the people who are providing 403(b) plan services to your church need to be.

The purpose of the new IRS rules is to impose a regulatory structure on 403(b) plans similar to the ones the IRS has for 401(k) plans. The fact is, the 401(k) rules are far more complicated than the 403(b) rules. Nevertheless, thousands and thousands of small businesses across the country have 401(k) plans. You can rest assured that the people who run those companies are certainly not “very familiar” with the intricacies of the IRS’s 401(k) regulations. Instead, they do what they always do when they have to deal with complicated tax laws – they turn to their outside experts to handle it for them.

We at CEP are your outside 403(b) experts. Our friendly and knowledgeable staff will spend the time to personally walk you through the available options your church has regarding 403(b) plan features. We will work closely with you to design a plan that best suits the needs of your church. You can join CEP’s 403(b) Plan as a participating employer, so there is no need for you to develop your own 403(b) plan document in order to satisfy the IRS rules. Finally, we will provide you with the key administrative services you will need to stay in compliance with IRS requirements. In short, CEP is your complete outsourcing resource for your church’s 403(b) plan needs.

 

Myth 2 – My church will not be in compliance with the IRS rules if it adopts CEP’s 403(b) Plan.

We think rumors like this show just how competitive the 403(b) plan marketplace has become. But it’s just a rumor. CEP expends a great deal of time, money and effort to make sure our Life Rewards 403(b) Plan is always operating in compliance with the latest IRS requirements and our plan documents are updated as needed to meet these IRS requirements and deadlines.

Myth 3 – In order to comply with the IRS rules, my church can have only one 403(b) plan provider.

Despite what you may have heard, there is nothing in the IRS rules that prohibit you from having more than one 403(b) provider. In fact, you can even have more than one 403(b) plan. So, while we would certainly like to be your church’s exclusive 403(b) plan provider, the IRS does not prohibit you from participating in multiple 403(b) plans.

Myth 4 – The IRS rules place such a compliance burden on my church that we need to have only one 403(b) provider in order to avoid IRS problems.

Much has been said and written about how complex the IRS rules are and how churches are being exposed to significant tax liability for noncompliance. But much of this is just marketing hype. The truth is: Much of this complexity does not apply to church plans.

CEP’s Life Rewards 403(b) plan actually has built in features that make it work well as either a church’s exclusive 403(b) plan or as one of the church’s 403(b) provider options.

If your church wants another 403(b) provider in addition to CEP’s 403(b), the simplest way to do that is to adopt the other 403(b) provider’s plan as a separate plan and limit your employees to participate in only one plan. That arrangement will give your people a choice and will eliminate the need to coordinate between the two plans.

On the other hand, if you allow your employees to participate in another 403(b) provider’s plan as well as CEP’s 403(b) that is also relatively simple. CEP will handle any financial hardship withdrawal applications from someone’s Life Rewards 403(b) account. And since Life Rewards 403(b) plan does not offer plan loans (because we feel people shouldn’t be tapping into their retirement except in the case of financial hardship), there will be no need to coordinate plan loan limits if another 403(b) provider allows people to borrow from their retirement fund. If someone wants to transfer funds between CEP and another 403(b) provider, our staff will be happy to assist you at that time. The major concern your church will have if it allows people to contribute to more than one 403(b) provider at the same time is to make sure the total contributions to all the 403(b) providers during one year do not exceed the IRS contribution limit for that year and realistically, this shouldn’t be much of a burden. Our staff will be available for you if you need to know the IRS limit for the year.

When all is said and done, if you want the benefits of CEP’s Life Rewards 403(b) for your church, don’t let the fear of IRS rules keep you away.

His/Yours,

Rev. Patrick L. Clements
President

 

At CEP, we’re big enough to serve your financial needs … small enough to serve you!