School Districts Should Prepare For IRS Contact Regarding Tax-Sheltered Annuity Plans

June 22, 2007

The IRS recently announced an expansion of the 403(b) Universal Availability project originally launched in June 2006 which involves sending questionnaires to public school districts throughout the U.S. in an effort to ensure compliance with the universal availability requirement for tax-sheltered annuities. If your school district has a tax-sheltered annuity (403(b) plan), it may receive a questionnaire about the Universal Availability project from the IRS’s Employee Plans Compliance Unit. School districts will be contacted as part of the project through 2008.

School districts should answer questionnaires completely and accurately. If the IRS finds any potential problems, it will follow up with the district and conduct a more detailed analysis of the district’s 403(b) plan. Any defects found should be corrected using one of the correction methods outlined in the IRS’s follow-up letter. The IRS will not impose sanctions if the corrections are timely made. Typical noncompliance so far includes schools excluding participation in the plan by certain classes of employees such as substitute teachers, janitors, cafeteria workers and nurses.
The law governing tax-sheltered annuity programs generally requires that all public school employees normally expected to work 20 hours per week must be offered the opportunity to participate in a 403(b) plan if the school district sponsors one.

Ruder Ware has assisted many public school districts with sponsorship of tax-sheltered annuity programs, and has worked with clients correcting 403(b) plan defects using IRS plan defect correction programs. We are willing to assist any district with determining compliance with the universal availability requirement and all other rules governing tax-sheltered annuity programs.
If you have questions regarding the above, please contact Mary Ellen Schill, the author of this article, or any of the attorneys on the School Districts Focus Team of Ruder Ware.

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