One-Time Irrevocable Elections Under Code Section 403(b) Plans—Error In 2007 Regulations Should Be Corrected

Tax regulations must follow the terms of the Internal Revenue Code and must be internally consistent. These rules were violated in 2007 tax regulations defining a "one-time irrevocable election" for purposes of 403(b) plans. The 2007 regulations require an employee to make the election "on or before ... first becoming eligible to participate under the employer's plans." This wording is more restrictive than the Internal Revenue Code and previously issued regulations, which allow an employee to make an irrevocable 403(b) election "at the time of initial eligibility to participate in the agreement." The IRS should address this error in the 2007 regulations as part of the guidance the IRS is expected to provide for 403(b) plans in 2013. The following paragraphs explain the issue in more detail.