Demystifying the Rumors Regarding 403(b)s for K-12

1. Demystifying the Rumors Regarding 403(b)s for K-12 Kelli Smith, IRS Employee Plans Specialist, Kelli.smith@irs.gov Ellie Lowder, TGPC, elowder@gainbroadband.com

2. Items to be addressed • Fiduciary responsibilities • Disclosure of fees • Written plan document failures

3. Written 403(b) Plan ~ Background • Notice 2009-3 – For 2009 year only • 403(b) Plans required to meet Final Regulations in form & operation • Extension of time if: • Plan adopted by 12/31/09 – Effective on 1/1/09 • During 2009 – plan operation meets 403(b) • Before 12/31/09 – ER makes correction of any operational failure during 2009

4. Written 403(b) Plan ~ Failure to satisfy 2009-3 • Discovered under examination- 2010 Plan language only • Written plan not adopted by 12/31/09, but ER corrects this prior to IRS contact • Reasonable Sanction – depends on number of eligible employees, not less than the VCP fee • Written plan not adopted by 12/31/09, not corrected prior to IRS contact • Sanction will be greater than above

5. Written 403(b) Plan ~ Failure to satisfy 2009-3 • Discovered under examination- 2010 Plan language & Operational • Correction will be done under same procedures covered • Sanction may be increased depending on the operational issues.

6. Written 403(b) Plan~Defective language • Announcement 2009-89 provides for a Remedial Amendment Period (RAP) for: • Plans that have met Notice 2009-3 • New Plans – adopted after 12/31/2009 • What is a RAP? • A length of time where you may go back and make changes to the plan to comply with the law with no penalty.

7. Written 403(b) Plan ~Remedial Amendment Period • ER will have a RAP if: • Corrects the written plan language • AND • Intends to adopt an approved 403(b) prototype Plan, OR • Intends to apply to the IRS for approval on their individual plan

8. Written 403(b) PlanBenefits of the RAP • Allows correction to be retroactive • No sanction will be assessed • Keeps the plan in tax favored status

9. Written 403(b) PlanSummary • Notice 2009-3 – Failure to have a written plan in place by 12/31/09 • Correctable thru agreement and sanction • Announcement 2009-89 – Establish a RAP when plan is “in place”, by 12/31/09

10. Fiduciary Responsibilities • Ellie Lowder, Tax-Exempt & Governmental Plan Consultant (TGPC) • Author; Section 403(b) Compliance Guide for Public Education Employers (ASBO, by Rowman & Littlefield • Volunteer member: ASBO Retirement Plan Council • elowder#gainbroadband.com

11. Disclaimer Please note that Ellie Lowder does not provide legal or tax advice, nor can anything in this presentation be used for the avoidance of income taxes or penalties assessed by a USA tax authority.

12. Possible Sources of Fiduciary Applicability • ERISA – but, all governmental employers are exempt from ERISA for their retirement plans (ERISA 3(32)) • 403(b) Final Regulations >But NO fiduciary obligations appear in those regulations >The regulations apply compliance responsibilities ONLY

13. Sources: Fiduciary Responsibilities at the State Level • Most states have legislation in place enabling public education employers to establish 403(b) plans • Most states do not impose fiduciary responsibilities to their 403(b) plans • What about Illinois statutes?

14. Illinois Statutes, Cont. • Possible changes in the works? • Update, status, on HS 5495

15. What Does it Mean to be a Fiduciary? • Responsibility for selection of the investment options; monitoring the performance • Responsibility for determining that fees are reasonable for the services provided • Carry out duties with skill, prudence and diligence

16. Can a Fiduciary be Held Personally Liable? • Yes, failure to follow required standards of conduct may cause personal liability • Could involved restoration of losses IF losses due to “breach of their duties” including failure to remit contributions timely (as soon as practicable, but no later than the 15th business day of the month following the reduction from the paycheck

17. Fiduciary Liabilities Could Apply to: • The employer • Governing Board • Plan administrator • Money managers • Perhaps your attorney or accountant

18. Avoidance of Fiduciary Responsibilities • Select investment providers based upon their willingness and/or ability to help you comply with the 403(b) regulations >select those willing to enter into written agreement to provide the information necessary to meet your compliance responsibilities • Note potential compliance issues with de-selected providers (will they cooperate?)

19. Fee Disclosures • What are your obligations? • Note that the DOL will require fee disclosures in ERISA plans • Does not apply to you • Best practices – do you want to disclose fees even though not required to do so? • If so, will your product providers or TPA assume that disclosure for you?

20. What to Do If You are Told You are a Fiduciary for your 403(b) plan? • You may be approached by a consultant or other type of firm with the assertion that you are a fiduciary (often with an offer of services to help you manage the obligations) • Your response: “Please share with us the statutes or other citations that support your assertion that we are fiduciaries” • Ask your legal counsel to confirm or deny!

21. Contact Us! • Follow up questions? • Feel free to direct to either of us: e-mail addresses for both Kelli and Ellie on previous slides! • THANK YOU!