The Internal Revenue Service recently issued Revenue Ruling 2011 7 (Ruling), which provides additional guidance on the process for terminating a 40 (b) plan.

In short, a “403(b) plan” (also known as a “tax-sheltered annuity plan”) is a type of retirement plan that can be offered to employees of certain tax exempt entities and educational institutions. These plans are funded by annuity contracts and/or custodial accounts. In 2007, the IRS issued final regulations that made sweeping changes to 403(b) plans, including the new ability of an employer to terminate its 403(b) plan (subject to certain requirements) and distribute all benefits to participants upon such termination. However, many plan sponsors and practitioners were left wondering what constituted “distribution” under these regulations, and the tax consequences to the recipient of such a distribution. The Ruling attempts to address these questions by presenting and discussing different 403(b) plan scenarios.

Please see full advisory below for more information.