DES MOINES, Iowa — School teachers, college professors and hospital employees should keep an eye out for changes in their retirement plans this year. That's because they are among the 10 million workers at nonprofit and educational organizations who may face fewer investment choices and tighter restrictions on how they can use the money in their retirement plans because of new IRS rules.

The IRS is requiring retirement plans designed for tax-exempt nonprofit groups and some public sector workers — called 403(b) plans after the IRS code section that created them — to comply with stricter rules. The IRS has allowed such plans to operate with less oversight than their for-profit world counterpart, the 401(k), for the past 40 years.

It's a significant development because employers, which include school districts, religious groups and nonprofits with lean staffing, must take a more active role in managing their retirement plans. The 403(b) market held more than $670 billion in assets as of mid-2008, according to estimates compiled by Windsor, Conn.-based LIMRA International Inc., a research and consulting company.

Organizations have had a little more than a year to figure out what to do. That may seem like plenty of time, but 12,000 school districts and hundreds of thousands of tax-exempt nonprofit groups don't have trained full-time benefit managers to oversee their retirement plans, said Kevin Watt, vice president of business development for Topeka, Kan.-based Security Benefit Corp.

"The regulations put the employer smack dab in the middle of now owning a plan." Watt said. "You can imagine not having any oversight, and not needing to do anything, to being completely responsible almost overnight."

The IRS has backed off implementation slightly by saying organizations can delay filing a detailed retirement plan until Jan. 1 2010, however, they must still comply with the new regulations as of Thursday.

Even though employers have more time to adopt a written plan, failure to do so promptly could end up causing more liability, Watt said.

For instance, if an employer waits until the end of the year to adopt a plan that restricts an employee's ability to borrow against his account, but allowed someone to take out a loan a few months earlier, then there's going to be a compliance problem, he said.

The IRS said plans will be in compliance if the employer gets its plan written by Jan. 1, 2010, and operates the plan "in accordance with a reasonable interpretation" of the new rules. Employers also must make their best efforts to retroactively correct any violations of the rules that may occur during the year.

Failure to comply with the IRS rules could result in loss of tax-deferred status, causing the employees in the plan to be responsible for paying taxes on the money in the funds.

The IRS says organizations offering 403(b) plans must adopt detailed plan documents listing specific vendors, eligibility rules and guidelines for withdrawal, loans and distribution upon retirement.

As a result, some employees are seeing fewer investment choices as their 403(b) providers choose not to continue offering certain products. In some cases, employers are losing no-load vendors, leaving only higher cost investment options for employees to choose from. Many employees also must switch their investment providers.

"There are teachers, employees of hospitals out there, who may have had relationships with someone for 10, 15, 20 years or more in an investment provider and now they no longer have access to that person under the new regulations," said Chris DeGrassi, who manages the education market for Security Benefit.