What happens if my plan does not comply with the final 403(b) regulations as of Jan. 1, 2009?
The final regulations address the effects of a failure to satisfy the requirements of 403(b) and the regulations: Contract failure. Most operational failures solely related to a single participant (such as failures in contribution limits, distributions, loan limits, etc.) would not adversely affect other participants but may disqualify the tax-favored status of the affected participant’s account in the 403(b) plan. Under the final regulations, this would include disqualifying all 403(b) contracts of the participant under the employer’s plan — for instance, a failure in a participant’s contract with Fund Provider A may impact the participant’s contract with Fund Provider B under the employer’s plan. Plan failure. The employer’s plan may be disqualified (lose its tax-favored status) if the employer is not an eligible employer, if there is no written plan or if the retirement plan nondiscrimination rules (if applicable to the employer) are not satisfied.
