Attendees at a panel at the PLANSPONSOR National Conference were offered insight on what part of the new regulations could trip them up most, what can be done to avoid mistakes, and what to do if they discover a mistake.
A major issue for plan sponsors is dealing with “legacy” vendors. Palmer Whitney, National Managing Director, Retirement Services, MassMutual Financial Group, noted that plan sponsors are still responsible for coordinating transactions from legacy accounts, and termination provisions of individual participant contracts with legacy vendors could keep them in those accounts.
David N. Levine, Principal, Groom Law Group, pointed out that going forward, if a 403(b) uses multiple vendors there must be information sharing agreements in place between the vendor and sponsor, but those are not required for legacy vendors. However, many want an agreement in place, and Levine warns that sponsors should pay attention to those contracts to make sure they are not getting tricked into anything.
Larry Thomas, Vice President & Director, Corporate Benefits, Academy for Educational Development, said his organization has agreements with prior vendors, but one came up with “ridiculous” rollover requirements over which the organization had to involve legal counsel.
Also, Levine noted that although the Department of Labor has given some relief on requiring information about legacy account assets in the Form 5500 filing and plan audit, sponsors must still make an effort to get this financial information from prior vendors.
Thomas said his organization is currently dealing with legacy vendors, only two were group contracts, the rest individual contracts. He noted that they had different loan policies, so the organization had to reeducate participants on the terms of plan, i.e. what transactions are allowed, and it now must make an effort to monitor transactions with those old vendors.One thing Thomas’ organization has tried to eliminate the issue of legacy vendors is to offer an incentive for participants to move to new funds by reimbursing their accounts for surrender charges incurred. Whitney added that sponsors should look to vendors to use back end loads to get out of individual contract legacy vendors. Other incentives to get participant assets out of old accounts is to not allow loans from those assets so participants must move their money to new funds before taking a loan, and identifying fees and educating participants about any higher fees of legacy accounts, Whitney suggested.
The new regulations have also caused confusion about whether plans traditionally falling within the exemption for being governed by the Employee Retirement Income Security Act are still non-ERISA. Levine pointed out that the exemption basically said if employers had no involvement with the plan and participants controlled their accounts, the plan would be non-ERISA, but the DoL is questioning the meaning of employer involvement now that there are new accountability rules for participant transactions and transaction limits.
Trying to figure out now if a plan is ERISA or non-ERISA is very hard if the sponsor is not a government or church, Levine said. He suggested that following ERISA is a best practice way to do things.
Plan document issues that can trip up plan sponsors are different vendor contracts not complying with the terms of the plan document and not updating the terms of the document as law changes, Levine said. He noted that most recently the Heroes Earnings Assistance and Relief Tax (HEART) Act offers retirement plan provisions for military members.
Whitney said 403(b) plan sponsors should not try to handle everything themselves, but should hire an adviser or legal counsel for help. “This is the first line of defense” to avoid mistakes, he asserted. They can also guide sponsors through any correction programs available if mistakes are found. In addition, sponsor can look to a peer who has handled a similar situation.
Levine said any document errors can be corrected through the IRS’ Employee Plans Compliance Resolution Service, and many operational issues, like late contributions and improper transactions or leaving out a participant, can be self corrected fairly easily and without the cost of IRS applications. The IRS has said it is working on updating correction programs for 403(b) issues.Audio of the panel is here.