IRS Completes Process of Declaring Selected Pre-2007 § 403(b) Guidance Obsolete

W. Mark Smith and Vanessa A. Scott
August 17, 2009 — 1,485 views  
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In Revenue Ruling 2009-18, to be published in the July 6, 2009, Internal Revenue Bulletin, the Internal Revenue Service (IRS) completed the process of declaring obsolete certain guidance under § 403(b) issued prior to the 2007 promulgation of new regulations under that provision. The preamble to the 2007 regulations listed various guidance documents, issued since the prior § 403(b) regulations were promulgated in 1964, that the IRS proposed either (i) to declare obsolete in light of intervening statutory changes or (ii) to preserve following the 2007 regulations. Having received no comments on the proposal, the IRS acted in Rev. Rul. 2009-18 on the basis proposed.

Significantly, the following guidance was declared obsolete:

  • Rev. Rul. 90-24, which governed tax-free transfers among a participant’s § 403(b) accounts prior to the 2007 regulations. There is no explicit effective date in Rev. Rul. 2009-18, so the formal status of Rev. Rul. 90-24 between September 24, 2007 (the last day of the transition period for transfers allowed under Treas. Reg. § 1.403(b)-11(g)) and January 1, 2009 (the general effective date of the 2007 regulations) remains determined under Rev. Proc. 2007-71 (the supplemental transitional guidance published in November 2007); and
  • Notice 89-23 (including the extension of its sunset date in Notices 90-73 and 92-36 and its refinement in Announcement 95-48), which provided guidance on the § 403(b) nondiscrimination requirements, except that, as provided in the preamble to the final regulations, governmental and certain church § 403(b) plans may continue to operate under a reasonable, good-faith interpretation of the controlled group rules.

The following additional guidance, principally issued in the 1960s, was also declared obsolete:

  • Guidance on the qualification of certain structures under § 403(b) (Rev. Ruls. 67-361, 67-387, 68-487 and 68-488);
  • Outdated guidance on salary reduction agreements for § 403(b) contracts (Rev. Ruls. 64-333, 66-254, 67-78, 68-179 and 87-114);
  • Guidance on contribution limits, primarily the § 403(b) exclusion allowance, no longer in effect (Rev. Ruls. 65-200, 66-312, 67-69, 69-629 and 70-243); and
  • Application of the constructive receipt rules, since repealed for § 403(b) contracts, to withdrawal or surrender rights (Rev. Ruls. 67-388 and 68-482).

Certain other pre-2007 guidance was not superseded, as provided in the preamble to the regulations, specifically including:

  • Guidance for when employees are performing service for public schools (Rev. Ruls. 73-607 and 80-139);
  • A ruling on grandfathering questions under the § 403(b) nontransferability requirement (Rev. Rul. 68-33);
  • Confirmation that variable annuities may qualify under § 403(b) (Rev. Rul. 68-116); and
  • Two rulings considering life insurance protection provided pursuant to a § 403(b) annuity contract upon the participant’s retirement or insuring the participant’s family members (Rev. Ruls. 68-648 and 69-146, respectively).

The IRS’s previously announced (i) reconsideration, in light of the 2007 regulations, of Rev. Rul. 2004-67 (revising the rules for Rev. Rul. 81-100 trusts) and the Employee Plans Compliance Resolution System compliance program and (ii) development of a determination letter program for individually designed § 403(b) plans remain outstanding.

If you have any questions about this development, please feel free to contact any of the attorneys listed below or the Sutherland attorney with whom you regularly work.

George H. Bostick 202.383.0127 [email protected]
Daniel M. Buchner 202.383.0869 [email protected]
Adam B. Cohen 202.383.0167 [email protected]
Jamey A. Medlin 404.853.8198 [email protected]
Alice Murtos 404.853.8410 [email protected]
Joanna G. Myers 202.383.0237 [email protected]
Robert J. Neis 404.853.8270 [email protected]
Vanessa A. Scott 202.383.0215 [email protected]
W. Mark Smith 202.383.0221 [email protected]
William J. Walderman 202.383.0243 [email protected].

W. Mark Smith and Vanessa A. Scott

Sutherland Asbill & Brennan LLP