Tax Exempt Experience

Identifying mistakes, aligning outcomes in 403(b) plans.

PS516-Thought-Leadership-Article-Image.jpgKevin Kidwell, VP, National Tax Exempt SalesThe 403(b) plan industry was altered dramatically in the last decade with the passing of regulations that required nearly all plan sponsors to make significant changes to their plans. Eight years later, there are still many plans that have not yet conformed to the new regulations. Kevin Kidwell, Vice President, National Tax Exempt Sales at OneAmerica®, spoke to PLANSPONSOR about the challenges facing these plans and how sponsors and their advisers can get help.

PS: It’s amazing how much evolution there’s been in the 403(b) industry in the last 10 years. What is the OneAmerica perspective about the 403(b) market?

Kevin Kidwell: We look at it as a large, yet underserved, market that has much catching up to do. Years after regulations were made final, roughly 85 percent of the 403(b) plans we see are operationally noncompliant. Common issues are: universal availability, issues around loans, and documenting hardship distributions properly. These issues can spiral into a mistake that’s costly for an employer to fix. So the payoff for voluntary intervention is savings, course correction, and avoidance of wasting resources that derail employees from their real work in carrying out the mission of the organization.

PS: From a plan sponsor’s perspective, how do they find and fix flaws if they aren’t even aware the operational issues exist?

Kidwell: Historically in this space, the traditional 403(b) providers were primarily investment firms with some recordkeeping abilities; when the updated regulations came into effect, employers were faced with complex operational requirements. Regulations put the responsibility for compliance squarely on the employer. The triggers that bring plans to us today may be as a result of an outside audit, adviser due diligence, an IRS or DOL investigation, a known service failure by the current provider, or even simply a sponsor’s keen intuition that there’s a problem. The good news is that we rarely see an employer’s plan that can’t be improved.

PS: What does the OneAmerica client base look like; how are you serving the tax exempt market? 

Kidwell: Traditionally 32 percent of our book of business has been tax exempt. We have the luxury of being tax code neutral. It doesn’t matter to us whether an organization has a 401(k), 403(b), 457 plan, or some combination; we can help design, support, and provide an optimized tailored retirement plan.

PS: As you look to the market as a whole, where does the experience that OneAmerica brings come into play? How do you help plan sponsors and advisers cope with this ever-evolving market?

Kidwell: The first priority is plan design, which means evaluating what the employer is trying to accomplish—through matching contribution discussions and automatic features, for example. Second is the creation and execution of an employee communication and education program. Too often, in the tax exempt space, plan communication is lacking or nonexistent. Third is the administration or compliance piece, which is critical to prevent financial penalties to the employer and to the employee. Lastly are the investment options, which drive the growth of the plan. 

Recordkeepers and advisers have to be able to cover and be conversant in all of those areas to excel in this market. Our job is to work with the adviser and plan sponsor to tie all four together with the goal of truly optimizing a plan. We know a comprehensive strategy such as this works—one of our clients was the 2016 Plan Sponsor of the Year in the 403(b) category.

Understanding the subtle nuances in the tax exempt space can save the day for the employer. At OneAmerica, we bring 52 years of tax exempt experience to the table. Our knowledge, skill set and plan evaluation process has allowed us to help thousands of tax exempt plans. From our perspective, true success occurs when all objectives are aligned.

OneAmerica is the marketing name for the companies of OneAmerica. 

All group annuity contracts are issued by American United Life Insurance Company® (AUL), One American Square, Indianapolis, IN 46206-0368, 1-800-249-6269. Registered variable annuity contracts are distributed by OneAmerica Securities, Inc., Member FINRA, SIPC, a Registered Investment Advisor, 433 N. Capitol Ave., Indianapolis, IN 46204, 1-877-285-3863. McCready and Keene, Inc. and OneAmerica Retirement Services LLC provide administrative and record keeping services and are not broker/dealers or investment advisors. None of these companies nor their representatives provide tax, legal or investment advice. For answers to specific questions, please contact a qualified attorney or tax adviser.