By Don Coggins
Special to the Salisbury Post
If you work for a hospital, school, college or other nonprofit organization, you may be contributing to a 403(b) retirement plan. And if you’ve had your 403(b) for several years, you may have gotten used to it and essentially placed it on “autopilot.” But in 2009, you may have to manage your plan a bit more actively ó because some key rules are changing.
Probably the biggest change, from your point of view, has to do with your ability to move money between the different accounts available in your plan. Until now, you actually had more investment flexibility than your peers who work in companies that offer 401(k) plans. Whereas a 401(k) typically has one provider, or “vendor,” that offers and manages the various investment choices within the plan, your 403(b) may have allowed you to invest with several different vendors, some of whom may not have been officially approved by your plan. Furthermore, you could make tax-free transfers between these providers.
Under new IRS regulations, however, you can now only move assets from one vendor to another if both vendors are officially approved by your plan or if the “non-approved” vendor has an information-sharing agreement with your plan. While these new rules may sound rather technical, their end result is quite easy to understand: Many employers will make changes to their plans to meet the new guidelines and will likely reduce the number of 403(b) providers and investment options.
What does this mean for you? It means that if the vendor to whom you defer some of your paycheck is no longer part of your employer’s plan, you will need to select a new, approved vendor if you want to keep contributing to your 403(b).
That means you’ll need to evaluate the new “approved vendor” list to see which vendors are right for your needs. Of course, you’ll want to find vendors that offer investments that can help you meet your goals. But you may also have to shop around, because different vendors have different cost structures. In comparing the various expenses associated with different vendors, you might not be able to get much help from your employer, so you may want to work with a professional financial adviser.
Apart from the question of approved vendors, how else will the new 403(b) regulations affect you? They could have a big impact if you need to take money from your plan before you retire. Previously, you could take out loans and withdrawals without even going through your employer, but now you must follow the same rules as those that apply to 401(k) plans.
Specifically, your employer’s plan may require you to qualify for “hardship” withdrawals, such as those needed to pay for medical expenses or post-secondary tuition for yourself, your spouse or your dependents. You can also take a hardship withdrawal to help purchase a principal residence. (For other hardship distributions, consult with your plan administrator.)
As you can see, the new 403(b) regulations are, in some ways, more restrictive than the old ones. Yet, your 403(b) plan, which offers tax-deferred earnings and the ability to make pre-tax contributions, is still a great way to save for retirement. By doing your homework, you can take advantage of this plan to help you build the resources you need for the retirement lifestyle you’ve envisioned.Don Coggins is a financial adviser with Edward Jones, 228 Statesville Blvd. Contact him at 704-647-0850; 888-639-8935, fax; e-mail don.coggins@edwardjones.com.