PSNC 2011: Fixing 403(b) Plan Mistakes

July 1, 2011 ( – Michael J. DiCenso, National Practice Leader, Gallagher Retirement Services, told attendees at the PLANSPONSOR National Conference that 403(b) plan committees, whether governed by the Employee Retirement Income Security Act (ERISA) or not, are fiduciaries under federal, state and common laws.

Committees should act in the best interest of participants and beneficiaries and should be free of conflicts of interest.  

According to DiCenso, courts may apply ERISA fiduciary standards to 403(b) plans. He said that there are revenue rulings that show that compliance with ERISA’s exclusive benefits rule (ERISA 403 and 404) would ensure compliance with Code section 401(a)(2)’s exclusive benefits rule.  In addition, Code section 503(b)’s self dealing rules are not exactly the same as ERISA’s prohibited transaction rules, but deal with situations where the plan transacts business with a “related party.”  

DiCenso added that state statutes or common law that deal with trustees and non-profit corporations can affect fiduciary duties. The primary items deal with the duty of loyalty and the duty to follow the investment provisions of a statute or trust.  

Speaking on common errors with 403(b) plan compliance the Internal Revenue Service is seeing, Colleen Shull, Revenue Agent, IRS, said self correction is not available for having no written plan document as of December 31, 2009. “You’re going to have to come in through a voluntary correction program and pay a sanction fee to get approval to change your plan document,” she stated.

The IRS is also seeing excess contributions for Internal Revenue Code 415 Annual Contribution Limitations. Shull reminded sponsors that there are issues if the sponsor fails to correct by distribution or setting up a separate account by the end of the calendar year.  

Sponsors also seem to be having problems with implementing plan features unique to 403(b) plans, according to Shull. Post severance elective deferrals are allowed if paid before the later of the end of the year of severance or within two and a half months after the date of separation. Deferrals can be made on any type of pay the employee would have received if not terminated from service, including back pay, bonuses and overtime, and unused sick, vacation, or other per diem paid leave time if the employee would have used the leave had employment continued.  

DiCenso addressed the issues for plans with multi-vendor arrangements. He suggests plan sponsors use a common remitter for tracking contribution timing and loan and hardship withdrawals. Sponsors should also consider reducing or consolidating vendors, to ease administration.  

To protect themselves, DiCenso suggests sponsors purchase a fiduciary liability insurance policy, hire a named fiduciary, hire a 3(38) investment adviser, and make sure the plan follows ERISA section 404(c) for investments.   

Audio of the conference panel will soon be available at