Everhart, who says Fidelity has about 11,000 403(b) plans on its platform and has been serving 403(b) plans for two decades, says what is ultimately important is that sponsors are successful in managing and operating plans. The Internal Revenue Service has issued the rules whereby sponsors can do that, and they involve more plan sponsor oversight.
Everhart contends that vendors can help reduce the burden created by additional plan oversight. She notes that failure to comply with the regulations can result in disqualification of the plan and immediate taxation of participant benefits.
Earlier in the Webcast, Robert J. Architect, Senior Tax Law Specialist, IRS, reminded plan sponsors that while the IRS provided some relief on the written plan document requirements of the regulations, other requirements of the regulations are currently in effect and plan sponsors must operate their plan in accordance with them.
Sponsors still face d ay-to-day administrative concerns, Everhart pointed out. For one, she noted that the new rules end the era of employee self-certification for loans or hardship withdrawals; sponsors now have to approve such transactions and check limits among all vendor accounts. It may be simpler for sponsors to restrict loans and withdrawals to accounts under one vendor or limit number of loans or withdrawals allowed at a time. These restrictions could save on administrative costs also, Everhart says.
However, another option sponsors have, Everhart points out is to delegate the responsibility for approving loans and withdrawals and monitoring plan limits to a vendor or third party administrator. As contribution limits must also be monitored, and 415 limits must be adhered to, a vendor or TPA could also provide common remitter services, or centralized recordkeeping, she says.
In addition, universal availability rules require new hire and annual employee notifications, a burden which a vendor or TPA can also remove from a sponsor’s shoulders.
When sponsors are ready to establish their written plan document, Everhart suggests they start with a plan that reflects the new regulations, and identify optional features they want to offer. Many vendors and TPAs offer standardized documents that can help.
During the NAGDCA-sponsored Webcast, Everhart suggested that a comprehensive 403(b) service offering from a vendor or TPA should include:
- compliance support,
- plan design consulting,
- plan document services,
- participant education services,
- plan-level reporting,
- common remitter services,
- contribution monitoring,
- distribution outsourcing,
- QDRO qualifications,
- universal availability notification services,
- 415 limit monitoring, and
- signature-ready Form 5500 services.
Julia Durand, Pension2 Administrator, California State Teachers Retirement System (CalSTRS), added that due diligence in selecting a vendor or TPA includes visiting the TPA, checking references, and identifying the processes in place at the vendor or TPA.
Everhart told sponsors that if they haven't already done so, they should create a 403(b) advisory board of key internal employees to make plan decisions and continually monitor vendors and/or the TPA.
Finally, Durand reminded sponsors that a TPA does not absolve them from their responsibilities to the plan and participants. She suggests sponsors identify services expected form the TPA or vendor early and review them often. Sponsors should stay involved in plan operations, which includes asking the TPA or vendor what questions or issues participants are having, Durand said.