The Internal Revenue Service has published an extensive update of the regulations governing 403(b) retirement plans.

The update, Revised Regulations Concerning Section 403(b) Tax-Sheltered Annuity Contracts, covers many different 403(b) plan topics, including funding arrangements, loans, nondiscrimination rules, employment taxes, termination of plans, and after-tax Roth contributions.

The revision is a final version of proposed regulations published in November 2004.

Congress enacted Section 403(b) of the Internal Revenue Code in 1958 to create a retirement savings vehicle for employees of schools and other tax-exempt organizations.

The IRS developed the regulations that now guide the sponsors of the plans in 1964.

One Section 403(b) provision requires most employers, other than churches, to fund the plans either with annuities issued by insurers or with custodial accounts that invest solely in mutual funds. The new regulations apply to the custodial accounts that invest solely in mutual funds as well as to annuities, IRS officials write in the preamble to the final rule, which appears today in the Federal Register.

Section 403(b) includes a “universal availability” provision that requires an eligible employer to offer a Section 403(b) plan to all employees if it offers the plan to any employee.

The regulations make it clear that the universal availability provision applies to after-tax Roth contributions as well as to other contributions, officials write in the preamble.

Most of the final rule is similar to the proposed rule, but a section on timing of distributions and benefits includes a number of changes, officials write.

“The final regulations clarify that after-tax employee contributions are not subject to any in-service distribution restrictions,” officials write.

Another change makes it clear that, “if an insurance contract includes provisions under which contributions will be continued in the event a participant becomes disabled, then that benefit is treated as an incidental benefit that must satisfy the incidental benefit requirement applicable to qualified plans,” officials write.

A copy of the final rule is on the Web