403(b) Summit: 403(b) Sponsors' To-Do List Long and Getting Longer

April 22, 2008 (PLANSPONSOR.com) - Amelia Island, FL - Attendees of a panel discussion on April 9 about the new Internal Revenue Service 403(b) guidelines got a bird's-eye view of the enormous amount of work that lies ahead for the rest of 2008.

That’s because, panelists told plan sponsors, providers, lawyers and other professionals at the PLANSPONSOR 403(b) Summit, 403(b) sponsors have until January 1, 2009 to get their regulatory house in order on many important issues.

The final IRS 403(b) Regulations are available here .

The Employee Benefits Security Administration’s Field Assistance Bulletin 2007-2 on ERISA and 403(b) plans is available here .

PLANSPONSOR’s 403(b) Central is available here .

Attorney David Powell of the Groom Law Group said much of the work ahead will center around the now-required creation of a written document in which plans will have to lay out in writing their policies on:

  • the number of eligible vendors and the number and type of plan investment options the employer will offer,
  • plan to plan transfers,
  • elective and non-elective contributions,
  • acceptance of rollovers,
  • employer matching contributions, and
  • an in-plan Roth component.

Also, a closely watched area of the evolving IRS regulatory scheme concerns the “90-24” asset transfers from an in-plan option to one outside the employer’s retirement savings program, Powell said. Under the new rules, special information sharing agreements have to be in place to cover these transactions (See (b)lines Series: 403(b) Final Regulations – Transfers and Exchanges ).

According to Powell, the new approach does away with the previous arrangements “where the money just leaves the plan and no one is responsible for it.”

Thomas G. Hogan, Jr., Senior Vice President, MetLife Resources, explained there are differences between what sponsors will need to do under the new rules with in-plan providers that can take new contributions and exchanges, out-of-plan providers that now have to be covered with an information sharing agreement covering transfers, and providers holding old “orphan contracts” that will just maintain old money but not take any new funds.

Part of the problem in getting a written plan document in place, Powell warned, is that plan sponsors won’t simply be able to find suggested model plan language and slap it on their letterhead. “A lot of the model language just won’t do it for them,” Powell asserted. “They won’t be able to just cut and paste.” (See IRS Offers Model 403(b) Plan Language for Public Schools )

The ERISA-fication of 403(b)?

Many of the pending decisions will spring out of a touchstone question employers will have to answer early on – whether they want to be considered a qualifying plan under the Employee Retirement Income Security Act (ERISA) or to stay out of that realm, the attorney said, reminding panel discussion attendees about a Field Assistance Bulletin issued by the Department of Labor in mid-2007 on the subject (See EBSA: 403(b) Programs Not Necessarily ERISA Plans ).

Panel member Donald Stone, president and co-founder of Plan Sponsor Advisors, suggested that sponsors find skilled and knowledgeable advisers to help steer them through the difficult regulations. However, given the current budget shortfalls hitting many state and local governments because of the falloff of tax revenue from the slowing economy, it is likely to be difficult to find the funds to hire the needed counselors, Stone asserted.

“They (plan sponsors) don’t have the budgets for this,” he told the audience. “This is really expensive stuff.”

Also, whatever else plan sponsors do, Stone contended they need to keep their participants informed every step of the way. “If you’re not communicating with your employees now, you will probably get some feedback and it won’t be positive,” Stone said.