The IRS and Treasury Department issued final regulations under Section 403(b) that provide updated guidance on 403(b) contracts and custodial accounts available to certain tax-exempt entities and employees of public schools.

These final regulations offer comprehensive guidance for the first time since 1964.

Here are some of the highlights:

Effective Date – Generally effective for taxable years beginning after December 31, 2008, although there are some delayed effective dates for plans offered under collectively bargained contracts.

Written Plan Document – 403(b) programs must be maintained pursuant to a written plan document that satisfies the regulations in form and operation and contains all the terms and conditions for eligibility, limitations, benefits and distributions under the Plan.

Administrative Obligation – The plan document will require the coordination of responsibilities between the employer and the vendors that are selected to provide 403(b) arrangements. Employers will be required to oversee whether the vendors are fulfilling their obligations, including the manner in which loans and hardship provisions are being applied.

Universal Availability – Plans will be required to offer the availability to all employees of the employer if any employees are offered a 403(b) plan. Certain exceptions will apply.

Catch-up Contributions – A catch-up contribution for a participant who is age 50 and older is permitted as well as an additional special catch-up contribution for a participant who has at least 15 years of service. The regulations provide that if a participant is eligible for both catch-up contributions, the special 15 years of service catch-up is applied first.

Plan Termination – A 403(b) plan is permitted to contain provisions that provide for plan termination and that allow accumulated benefits to be distributed on termination. However, termination is permitted only in cases where there is no successor 403(b) plan arrangement for 12 months.