For lack of a better way to describe them, 403(b) annuities or 403(b)(7) custodial arrangements are the equivalent of a 401(k) plan for those that work in the not-for-profit sector.
Participants in a 403(b) may or may not actually be part of a plan covered by ERISA depending on whether or not their employer makes a contribution and, for reasons that will have to be expanded upon elsewhere, the type of not-for-profit organization that sponsors the plan.
New regulations, have attempted to add some clarity by requiring 403(b) plans to have a written plan document. However, at this time, the IRS has no model plan document. The biggest complication here is that, unlike 401(k) plans, 403(b) plans often allow multiple vendors to have access to their participants. Instead of having a menu supported by one vendor, such as Fidelity, a 403(b) participant may be able to make contributions to Fidelity, VALIC, TIAA-CREF and many other vendors active in that marketplace. Each of these vendors has their own agreement and contract with unique provisions. The new plan document is required to encompass all of the provisions from all of the various vendors.
Participants have also long had the ability to transfer assets tax-free between 403(b) plans under what is known as IRS Revenue Rule 90-24. These transfers could take place regardless of the benefits and distribution requirements under either plan involved in the exchange. The new regulations complicate this process by stating that, effective September 24, 2007, employers are required to ensure that the distribution provisions of the plan/vendor receiving the transfer are at least as stringent as the plan/contract where the assets currently reside.
Even the termination of a plan has taken a turn for the complicated in the new regulations. Prior to the new regulations, there was no way to terminate a 403(b) plan. This was a particular pain to those who wished to terminate their 403(b) plan and establish a 401(k) plan in its place. Without the assets from the terminated 403(b) plan, the employer would have to start a brand new 401(k) — many vendors won't offer their 401(k) product to a "start-up" plan and those that do charge a premium. So, in the past the option was to have a "frozen" 403(b) and a "brand new" 401(k). This undoubtedly increases plan expenses for multiple plans to a single plan sponsor.
The new regulations allow the 403(b) to be terminated but require that all assets be paid out directly to the participants. Employers can't take the existing assets of the 403(b) and transfer them to a new 403(b) or 401(k) - though this is common practice in the for-profit arena where assets from a terminated 401(k) or profit-sharing plan can be transferred to a new plan. Conduit IRAs would have to be established and the re-transferred to the new 401(k) plan that has language accepting trustee to trustee transfers.
As you can see, it is not a regulatory burden but rather a logistical one. Multiple vendors, no model document and conduit IRAs all contribute to the logistics and must be addressed as efficiently as possible.