WASHINGTON--Final Internal Revenue Service 403(b) plan rules will impose a new requirement on employers to maintain a written plan document as well as offer the plans to more employees.

The final rules--updating IRS rules issued more than 40 years ago and periodic guidance since then--also will allow employers to terminate the plans, while clarifying other issues. 403(b) plans are the nonprofit sector's equivalent to 401(k) plans.

Most significantly, the rules issued last week give plan sponsors, which include nonprofit entities such as health care systems, schools and charitable organizations, plenty of time to comply with the most challenging requirement: producing a plan document. For most employers, that document is not required until Jan. 1, 2009, though some will have even more time.

"Everyone was afraid the rules would have been effective in 2008," said Ruth Schau, a senior consultant in the Chicago office with Towers Perrin. "That would not have been enough time."

"Now, there should be plenty of time," said Beverly Orth, a principal in the Portland, Ore., office of Mercer Human Resource Consulting L.L.C.

The documentation requirement already applies to employers offering 403(b) plans in which the organization matches participants' contributions that are made through salary deferrals. In salary deferral only arrangements, which are common, consultants say the role of the employer has been minimal, essentially just transferring deferrals to mutual fund and annuity providers.

But the IRS says it is time for employers to maintain a written document so that employees know their rights, administrators and employers understand their responsibilities, and government agencies can determine whether the plans satisfy legal requirements.

A written 403(b) plan document "benefits participants by providing a central document setting forth their rights and enables government agencies to determine whether the arrangements satisfy applicable law and, in particular, for determining which employees are eligible to participate in the plan," the IRS said in the regulations.

The final regulations also will broaden what is known as the universal availability rule for such plans. Under the requirement, 403(b) plans that permit only salary deferrals must be offered to all employees except those, such as nonresident aliens and employees working less than 20 hours a week, specifically allowed to be excluded under federal law.

While a 1989 IRS notice broadened the group of employees that could be excluded from salary-deferral only 403(b) plans--including those covered by collective bargaining agreements-- the rules issued last week repeal the earlier IRS notice. The new rules require employers to extend salary-only deferrals in 403(b) plans to unionized employees as well as visiting professors, who are not covered under another 403(b) plan.

At minimum, the expanded universal availability will require employers to notify previously excluded employees of their new right to contribute to 403(b) plans.

"There will be a communications issue," said Peter Gold, a principal in the Stamford, Conn., office of Buck Consultants L.L.C.

Beyond that, though, extending 403(b) plans to union-represented employees could make the plans a collective bargaining subject, some speculate.

For example, unions might seek employer matching contributions, said Dan Schwallie, a consultant in the Cleveland office of Hewitt Associates Inc.

In a pro-employer provision, the final rules make clear that employers can terminate 403(b) plans, with plan assets then distributed to participants. While employers always could freeze the plans by not allowing new contributions, there previously was no way to terminate a plan, meaning a plan that an employer no longer wanted could continue for decades.

The inability to terminate 403(b) plans may have blocked nonprofit employers, which have been allowed to offer 401(k) plans since 1997, from making the switch.

"Some may now decide to make the move," said Mr. Schwallie.

But most 403(b) plan sponsors are likely to stay put, said Flora Olsen, a consultant in the Phoenix office of Watson Wyatt Worldwide.

Ms. Olsen noted that a key advantage that 403(b) plans have over 401(k) plans is that 403(b) plans are exempt from an IRS non-discrimination test that compares salary deferrals of highly-paid employees to lower-paid employees while 401(k) plans are not.

Such testing is a "real hassle," Ms. Olsen said.

Changes ahead

How new Internal Revenue Service rules will affect 403(b) plans