And, the agency will confront directly vendors that have not agreed to information sharing, warned Linda Segal Blinn, vice president of technical services at ING, in a webcast sponsored by the National Institute of Pension Administrators.
Segal Blinn explained that the IRS was very concerned about 403(b) participants not exceeding loan and distribution limits, so in the regulations passed in 2007, it required that vendors share information with plan sponsors. For example, when an employee requests a loan from a vendor, that vendor must check with the plan sponsor whether the employee has loans outstanding with other vendors that may cause him or her to exceed the IRS loan limit.
Information sharing rules, in addition to loans, applies to hardship withdrawals and when a participant severs employment. Segal Blinn says particularly in the educational arena, employees that retire are subsequently rehired. So, with distributions, plan sponsors and vendors want to make sure they are not distributing money to someone who no longer has a distributable event due to severance from employment.
With regard to current vendors, Segal Blinn noted, the IRS has provided draft model language for information sharing agreements in Revenue Procedure 2007-71; plan sponsors must put terms of information sharing in the plan document. If the vendor is no longer an approved vendor for the plan, plan sponsors must still request information sharing and have a formal information sharing agreement document in place.
The IRS also addresses orphan contracts - vendors who were deselected from 2005 to 2008. Plan sponsors must make a good faith effort to have information sharing (see "Ask the Experts - Information Sharing Agreements"). Segal Blinn says the best practice is to have a formal information sharing agreement in place, but sponsors must at least reach out to these vendors to make sure limits are not exceeded. She urges plan sponsor to document their efforts, because they will need documentation if their plan is audited.