Speaking at the 403(b) Symposium in Boston
sponsored by
PLANSPONSOR
and Cammack LaRhette Consulting, Robert J. (Bob)
Architect, Senior Tax Law Specialist, Employee Plans,
Internal Revenue Service, provided some peace of mind to
sponsors coming up on the January 1, 2009 compliance
deadline.
Information Sharing
The biggest sigh of relief came after
Architect's response to those who think that if they
do not have an information sharing agreement (ISA) in
place with every vendor under the 403(b) plan by
1/1/2009, they will fall out of compliance. Architect
told Symposium attendees that the regulations do not say
that ISAs have to be in place by January 1.
Further, Architect pointed out, Chapter 10 of the
new regulations, which replaces Revenue Ruling 90-24 on
contract exchanges, says unless there will be new service
contract exchanges between approved vendors and
non-approved vendors going forward, sponsors will not
need ISAs with the non-approved vendors. In addition,
Chapter 3 of the new regulations says the plan sponsor
and vendor
may
assign responsibility for monitoring 403(b) transactions
and does not
require
a formal ISA, according to Architect.
All this is very good news to those sponsors
worried that a vendor that will no longer be used going
forward will not sign an ISA.
Architect also dispelled the myth that if a
participant does not transfer assets to those vendors that
are approved for the plan going forward, their assets will
become taxable, saying the regulations do not say
that.
Restrictions on contract exchanges also do not equal
restrictions on rollovers where a participant has attained
a distributable event (i.e. severance, retirement, or age
59 ½).
No Getting Out of It
Architect wanted K-12 sponsors to know that they
should not fear falling under governance of the Employee
Retirement Income Security Act (ERISA) no matter what
decisions they make for their plans going forward.
"Public entities, no mater what choices they make,
have no ERISA obligation," he said.
However, Architect warned there are some rumors
plan sponsors should not pay attention to. A 403(b) plan
that will no longer include employer contributions, but
is not terminated, still needs a written plan document in
place by January 1, 2009. Likewise, venues that have
collective bargaining agreements (CBAs) in place and
churches do not have a delayed effective date, unless the
403(b) is part of a CBA or the plan is subject to action
by a church convention.
Architect also wanted sponsors to know before they
decide to terminate their 403(b) plans, that termination is
"subject to individual agreements," and sponsors
should make sure they can force out funds.
Chapter 10 of the regulations lays out the tax
consequences of termination and dictates that assets must
be distributed.
In addition, Architect gave a heads up to sponsors
of an organization that has related entities to pay
attention to guidance on controlled groups, which affect
dollar limitations on contributions and plan
discrimination requirements. Most important is the
determination of who is the employer in controlled group
situations.