On July 26, 2007, the Internal Revenue Service issued final regulations governing Internal Revenue Code Section 403(b) plans that allow workers in public schools and certain tax-exempt organizations to set aside pre-tax money for retirement.  The final regulations are designed to give non-profit employers greater oversight of these savings programs.  Contributions to Section 403(b) plans are typically invested in fixed and variable annuities issued by insurance companies that provide periodic payments following retirement.  Among other things, the new regulations:

    1.    require that Section 403(b) plans be maintained pursuant to a written plan that includes 
           the terms and conditions for eligibility, limitations, and benefits under the plan, rather 
           than rely on the annuity contracts or custodial account documents of insurance 
           companies or mutual funds; 
    2.    limit the amount of pre-tax elective deferrals that can be made to Section 403(b) plans 
           to the Section 402(g) limit (the same limit as pre-tax elective contributions to Section 
           401(k) plans;
    3.    limit distributions payable on non-grandfathered contracts, not subject to other 
           distribution restrictions, to only after employment termination or occurrence of a 
           specified event (such as disability, attainment of a specific age or fixed number of years);
    4.    provide that non-grandfathered incidental life insurance may not be part of a Section 403
           (b) plan;
    5.    limit contract exchanges to only those funding vehicles authorized by the Section 403(b) 
           plan (essentially revoking Revune Ruling 90-24); and
    6.    permit in-service, plan-to-plan Section 403(b) asset transfers if certain conditions are 

The new regulations constitute the first major change to Section 403(b) plans in 43 years, and, with some exceptions, are generally effective for taxable years beginning after December 31, 2008.