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403(b) Compliance Guidance is Now Available Online

    Client Alerts
  • March 02, 2007


IRS guidance on the top ten compliance issues for 403(b) plans is now available online.  This guidance is similar to the guidance for 401(k) plans that was described in an earlier EmployNews.  The online guidance is easy and convenient to use and includes links to in-depth discussion of the identified compliance issues and additional resources. 


The top ten 403(b) compliance issues identified by the IRS are:


  • Does your organization qualify as a public educational institution or as a charitable organization exempt from tax under IRC 501(c)(3)?
  • Are ALL employees who normally work 20 hours or more per week (Universal Availability rule) given the opportunity to make a salary deferral?
  • Are elective deferrals, including any designated Roth contributions, limited to the amounts under IRC 402(g) in a calendar year?
  • Are the total employer and employee contributions limited so as not to exceed the IRC 415(c) limits?
  • If the IRC 402(g) “15 years of service catch-up” contributions are being made, does the employee have the required 15 years of full-time service with the same employer?
  • If your program permits age 50+ catch-up contributions, were each of your employees age 50 and over informed of their rights to make catch-up deferrals?
  • Does the 403(b) annuity contract or custodial account:  contain the non-transferability provisions (annuity contract only); state the limits under IRC 402(g); and contain the direct rollover provisions of IRC 401(a)(31) s?
  • If your plan offers a 5-year post-severance provision, are amounts contributed through a non-elective method?
  • Are you (as the employer) and your vendor enforcing participant loan repayments and limiting aggregate loan amounts as required under IRC 72(p)?
  • Are you and your vendors requiring documentation that hardship distributions meet the definitions and requirements for hardship found in the IRC 401(k) regulations?


Although this list is not comprehensive, it should assist employers with conducting simple compliance audits of the operation of their 403(b) plans.  If a simple audit indicates that a compliance problem may exist, an employer should undertake a more complete audit with professional assistance.  Employers also should be aware that increased IRS emphasis on 403(b) compliance should be expected based on final regulations, which are expected to be published this spring and to be effective January 1, 2008.


The online checklist may be found at