In November, 2008, we published a series of blog posts called, 403(b) Crunch Time Series. The purpose of which was to help 403(b) plan sponsors get ready for the January 1, 2009 deadline for new IRS 403(b) regulations.
It was the first time in over 40 years that the IRS provided comprehensive guidance for 403(b) plans who now had to deal with such issues as:
- Requirement for a plan document
- Rigorous application of the non-discrimination rules
- Employer responsibility for complying with contribution limits
- Timing of contributions.
- Transfers to other 403(b) contracts
- Employer responsibility for coordinating and tracking loans
- Plan termination
Most recently the IRS addressed the last issue, plan termination, in recently released Revenue Ruling 2011-7.
Attorney Bob Toth who joined me in the afore-mentioned 403(b) Crunch Time Series and now has his own blog, The Business of Benefits, discusses what’s been clarified and what hasn’t in his recent post, 403(b) Terminations Under Revenue Ruling 2011-7: Establishing the Base.
Terminating a 403(b) plan is not just one of those technical tax issues. It involves one of those basic retirement tax planning objectives, tax deferral.
Because if a 403(b) plan hasn’t been "terminated", then there is no been no distributable event. And if there has been no distributable event, then any participant who had his account transferred to an IRA or another retirement plan would find himself or herself with a tax liability. Hardly, the desired outcome.
So while Bob Toth and the other 403(b) experts are starting to lift the fog, 403(b) sponsors still should step carefully before "terminating" the plan and distributing the benefits. The law of unintended consequences may apply.