Before the Internal Revenue Service (IRS) 403(b) ruling in 2007, many 403(b) plan sponsors took a relatively hands-off approach to running their plans, and plan participants often worked directly with the investment and annuity providers. Significant changes in the post-ruling era have led to more structured plans with increased involvement from the employer, leading many plan sponsors to look for providers that can assist them with these increased responsibilities. Mizan Rahman, senior pension consultant at The Ryding Company and lead for the plans sponsored by 501(c)(3) organizations, spoke with Alison Cooke Mintzer, editor-in-chief of PLANSPONSOR, about the challenges facing 403(b) plan sponsors today and how an expert provider, such as The Ryding Company, can offer them assistance and expertise to ensure their plans are managed in the best way possible.
PS: When you look at today’s environment, what challenges do you see plan sponsors really focus on confronting?
Rahman: We see employers facing a decision about whether or not their plan should be governed by the Employee Retirement Income Security Act (ERISA). Although some plans are automatically covered by ERISA—by making employer contributions, for example—others are able to remain non-ERISA plans, such as those sponsored by a nonprofit organization that limits contributions to employee deferrals and whose involvement is limited to certain ministerial activities.
From what we have seen, it can be quite challenging for plan sponsors to maintain a fully compliant non-ERISA plan, so it’s important that they understand the ramifications of the ERISA versus non-ERISA decision. For example, non-ERISA plans have to meet certain requirements such as a “hands-off” approach in approving loans and withdrawals, including hardships. An ERISA plan allows the employer to take more control: It can limit the number of vendors and manage loans and withdrawals, rather than giving participants full rein. The trade-off is that ERISA plans are subject to compliance testing and annual reporting requirements.
Another challenge plan sponsors need to deal with is handling individual annuity contracts, especially in the context of information sharing and gathering reports from all necessary providers.
PS: How can providers help sponsors overcome those challenges and confront some of what’s going on?
Rahman: The best way for sponsors to overcome those challenges is by taking advantage of the expertise available across the industry. Many plan sponsors don’t know there are third-party administrators (TPAs) and plan recordkeepers who are well-versed and experienced in the 403(b) market and can be a trusted resource for them. The provider gets to know the plan, its design and function, and can anticipate the challenges the plan sponsor might face.
Once a plan sponsor is working with an expert, we find they are more willing to address the potential shortcomings of the plan. Without a trusted resource, plan sponsors may hesitate to ask questions, when in actuality any question not being asked can lead to challenges down the road. The expert should also ask the right questions of the plan sponsor. Plan sponsors should know these experts do exist, and they’re there to help.
PS: What should plan sponsors consider in evaluating providers?
Rahman: They should look for providers that have the knowledge and expertise needed, as well as experience administering similar plans. Finding a provider that has earned the Tax-Exempt & Governmental Plan Consultant (TGPC) designation from the American Society of Pension Professionals & Actuaries (ASPPA) is a great starting point. After identifying which providers could work with them, plan sponsors should conduct interviews to determine the best cultural fit for the plan.
For example, at The Ryding Company, we are approaching our 40-year anniversary serving the retirement plan community. Post-IRS ruling, we’ve helped many 403(b) plan sponsors get into compliance with all applicable regulations. Our primary goal is to ensure their plan is running in good health and is ready for a potential Department of Labor (DOL) audit.
PS: How are plan sponsors dealing with managing multiple defined contribution (DC) plans, such as a 403(b) alongside a 401(a) or 457(b)?
Rahman: There are many plan sponsors with multiple plans, whether it is a 403(b) alongside a 457(b) for executives, or a 403(b) alongside a traditional 401(a) plan.
For sponsors managing multiple plans, we have found that many of them have challenges keeping the plans in compliance with the DOL rules and regulations. The most common difficulties include managing eligibility and contribution limits, in light of the multiple vendors often involved.
Most plan sponsors that get the right help with their multiple plans manage just fine. However, many that go it alone find themselves turning to an expert down the road. By that time, many corrections and much consulting may be necessary to bring the plans into compliance.
Employers may not know all the rules and regulations the IRS and DOL put into place, so it’s important to have an expert they can rely on to watch out for them and guide them through the plan administration.