403(b) Webcast Series – What Retirement Reform Means for Your 403(b) Program

One very important effort 403(b) sponsors should pay attention to is disclosure, as it could affect the all important issue of what fiduciary responsibilities sponsors have. Fisher noted that for 2010 legislators and regulators are working on service provider and fee disclosure rules, participant fee and performance disclosure rules, and rules for disclosure for target-date funds.

Whether or not disclosure rules apply to non-ERISA plans depends on who issues the regulation, Fisher explained. If the regulation is issued by the Department of Labor (DoL) under Title I of ERISA, it will be limited to ERISA plans because the DoL doesn’t have jurisdiction over non-ERISA plans, but if parallel provisions are enacted in Title II of Tax Code, it will apply to all plan types, he said.

In addition, implications of target-date fund regulations include potential additional fiduciary responsibilities to follow a target-date checklist regulators are considering and comply with increased disclosure via ERISA 404.

Fisher said sponsors with an ERISA plan in addition to a non-ERISA plan should consider using ERISA procedures for both plans, because he thinks even if new rules are only adopted in the ERISA space, it will eventually be adopted in the non-ERISA space.

In addition, he pointed out that sponsors will need to determine where they can get net asset value (NAV) data for certain investment types. Service providers will have to provide information on an accurate and timely basis. The strategy for complying with fee disclosure rules could be recordkeeping and investment provider consolidation, he suggested.

Tom Peller, Vice President, Plan Sponsor Solutions, Fidelity, noted that disclosure rules may not make sense for 403(b)s, especially in a multi-vendor environment where there are a large number of funds, or in the case of sponsors that have two different plan types that allow for different investment types (where explaining the reasons for the investment limitations for the different plans to the average participant would be confusing). Regulators and legislators will need to look at how to conform disclosure model to non-ERISA plans, Peller said.

Fisher said there is a very thin understanding in Congress about plans specifically for tax-exempt community (403bs, 457s), which is an opportunity for advisers to go to Capitol Hill and educate legislators.

To whatever plans disclosure rules apply, Peller warned that sponsors need to know that failure to carry out the rules will result in a fiduciary breach, not an administrative breach.

What’s Ahead for 403(b)s?

• According to Fisher, broader policy principles driving retirement reform will affect plan sponsors, such as:
• Equitable allocation of retirement, not just to high earners;
• Expanding coverage, increased use of auto enrollment;
• Greater benefit security, expand lifetime income, target-date checklist and increased disclosure; and
• Increased fee disclosure, increased fiduciary and government oversight, participant disclosures, disclosures from service providers.

On a positive note, Peller noted that 403(b)s may be ahead in some ways as they already have universal availability rules and many already offer lifetime income options (annuities).

For 2010 Peller said 403(b) plan sponsors should look for:

• The IRS conducting audits on 403(b)s as it is collecting more 5500 data;
• IRS to issue guidance on plan terminations and the interaction between 409A and 457(f);
• Controlled group definitions for governments;
• Availability of pooled funds, particularly in 403(b)(9) accounts not limited to annuities and custodial accounts;
• DoL guidance on exemption from ERISA; and
• The new IRS prototype document program for 403(b)s.

Rebecca Moore