Whenever a change is implemented, there follows a period of review. This is where 403(b) sponsors are now. The dust has settled from getting into compliance with the 2007 Internal Revenue Service 403(b) regulations, and as sponsors now follow new processes, they may find opportunities for improvement and errors that need correcting—and additional changes are coming.
Jim Phillips, President of advisory firm Retirement Resources, recently came up with a best practices checklist for 403(b) plan sponsors. He suggests starting with the basics, not just a mission statement for the plan, but one also identifying the fiduciaries to the plan and their duties.
According to Phillips, plan sponsors also should take inventory of their providers, what services they are offering and how they are paid, and whether current plan features meet the needs of the company and employees. Sponsors also should look at what capabilities their provider has that the plan is not using and whether the current investment menu is suitable for employee demographics.
After taking inventory, Phillips says, plan sponsors should honestly answer the questions: “Is our retirement plan successful?” and “Are there any changes that would likely improve results?” Sponsors may want to engage their current providers in making plan or process changes, or perform a new provider search.
Speaking on common errors with 403(b) plan compliance, Colleen Shull, Revenue Agent, IRS, said the IRS is seeing excess contributions for Internal Revenue Code 415 Annual Contribution Limitations. Shull reminded sponsors that there are issues if the sponsor fails to correct by distribution or setting up a separate account by the end of the calendar year.
Sponsors also seem to be having problems with implementing plan features unique to 403(b) plans, according to Shull. Post-severance elective deferrals are allowed if paid before the later of the end of the year of severance or within two and a half months after the date of separation. Deferrals can be made on any type of pay the employee would have received if not terminated from service, including back pay; bonuses and overtime; and unused sick, vacation, or other per diem paid leave time if the employee would have used the leave had employment continued.