“While we commend the IRS and Treasury for providing additional guidance on the extremely complex issues related to vendor contracts and contract exchanges under the regulations issued last year, a significant number of affected employers are still unaware or unsure of their obligations under the new rules and what they must do to comply,” said Larry H. Goldbrum, General Counsel, in a statement. “In addition, 403(b) plan vendors are struggling to understand the new rules and the obligations of employers,” he noted.
According to Marilyn Collister, National Director of Regulatory Policy with Great-West Retirement Services, and Chairwoman of a SPARK Institute vendor task force to address the 403(b) issues, the three most important issues, addressed in the comment letter, included:
1) clarification regarding the treatment of certain contracts issued before January 1, 2009;
2) clarification regarding the Information Sharing Agreements (ISAs) requirement related to those contracts; and
3) obtaining an extension of the effective date for compliance by employers and vendors beyond the current January 1, 2009 deadline.
The SPARK Institute’s 403(b) Task Force is currently working with the industry and plan sponsors to develop standardized language for information sharing agreements and best practices for sharing the information among affected employers and providers, documents Goldbrum said will be completed and publicly available before the end of March.
“Both employers and vendors are concerned about the treatment of vendor contracts issued before the  effective date of the regulations given the nearly impossible task of identifying every such contract and the near certainty that there will be contracts and accounts which, if found, could not be brought within the plan for various reasons,” Collister said.
Although the Revenue Procedure states that the final regulations do not apply to contracts that received no contributions after December 31, 2004, some parameters of the relief for these so-called “grandfathered” contracts remain unclear, according to Collister.
Information Sharing Agreements
According to the statement, The SPARK Institute is concerned about employers’ ability to identify and enter into ISAs with the appropriate vendors by January 1, 2009.
“The amount of time, cost and effort that will be involved in the information sharing process among multiple vendors and employers will be very significant, potentially disruptive to the retirement plan industry and could hurt plan participants,” Goldbrum said. “We have asked the IRS to extend the deadline for the execution of ISAs between vendors and employers for a minimum of 12 months following the receipt of additional guidance from the IRS clarifying issues around the contracts and contract exchanges.”
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