403(b) Summit: Plan Document Preparation not an Easy Task

Having a formal plan document is nothing new for those in the Employee Retirement Income Security Act (ERISA) world, but as those attending a discussion panel at PLANSPONSOR’s recent 403(b) Summit in Amelia Island, Florida, found out, putting on paper all plan provisions (loans, hardship withdrawals, etc.) and details of investment options is going to be anything but business as usual.

Panel speakers S. Kurt Hettel, Managing Director of RSI Financial Services, and C. Todd Lacey, Managing Partner, The (k)larity Group, said one of the early decisions necessary before preparing the written document is whether the plan sponsor wants the plan to be governed by the Employee Retirement Income Security Act (ERISA). Even if a sponsor decides to forgo being ERISA-governed, Lacey said it still may be considered a de facto ERISA plan if the employer reserves too many direct plan duties for itself.

Also considered a critical precursor to the plan document: a decision about the number and type of investment providers. Summit attendees heard a great deal during the day-and-a-half conference about the transition between 403(b) sponsors having numberous investment options to offering a more limited lineup (including cutting back to a single provider).

According to Lacey, the decision on the number of investment options is relevant because investment policy should be an important part of the resulting plan document and because it will affect how the plan document drafters treat the issue of legacy contracts. Panel attendees learned that many 403(b) sponsors face a problem in how to handle existing annuity contracts between a provider and a participant, in part because some providers will not give the plan an account of a participant’s assets since the plan is not a contract party.

Lacey suggested plan document drafters at least obtain copies of all legacy contracts to include in the plan document package. Sponsors may need to contact legal counsel if a provision in a legacy contract conflicts with a provision the plan wants to include in its terms, he said

Hettel also advised panel attendees to also prepare a Summary Plan Description (SPD), and both speakers suggested making certain every eligible participant receives an SPD and a copy of the plan document. The distribution process should also be carefully documented, both speakers suggested.