403(b) Retirement Plan Compliance

1. 403(b) Retirement Plan Compliance Gary Mauger and Christine Dailey Managing Partners (704) 900-5566 gmauger@newpcg.com www.newpcg.com

2. Agenda • Key 403(b) regulations • First year audit findings • Employer responsibilities • Next steps • Resources for help • Questions and discussion

3. New 403(b) Regulations Major Changes and Requirements • Written plan document • Nondiscrimination testing changes • Transfers • In-service distributions • Form 5500

4. New 403(b) Regulations Written Plan Document • Required for ERISA and non-ERISA plans • Must be congruent with vendor contracts/custodial agreements • SPD requirements

5. New 403(b) Regulations Plan Transfers • Transfers-in • Target contract must be as strict • Benefit must be equal • Transfers-out require an Information Sharing Agreement (ISA)

6. New 403(b) Regulations In-Service Distributions • Employer must coordinate loan and hardship information • May delegate to a third party • Triggering event required for in-service withdrawals for employer contributions

7. New 403(b) Regulations Nondiscrimination Testing • Repeal of Notice 89-23 • Elimination of permitted disparity safe harbor • Age and service graded plans must now test each grade

8. New 403(b) Regulations Form 5500 • Full Form 5500 required beginning with 2009 plan years • Significantly more complex • Audit required for plans with 121 participants or more

9. Timeliness of Contribution Remittance Rule: Remittance must be sent as soon as administratively feasible but no later than 15 business days following the month of withdrawal. Issue: Late remittances must be reported on the Form 5500 and a correction including lost earnings made for each participant. Best Practice: No safe harbor for large plans (more than 100 participants). Seven day safe harbor for small plans. Remit ASAP after every payroll.

10. Hardship Withdrawal Compliance Rule: Use Safe Harbor Criteria; Stop deferrals for six months Issue: Who is determining eligibility for hardship? Have deferrals stopped for six months? Best Practice: Delegate eligibility determination to vendor if possible. Stop deferrals for six months.

11. Plan Document Accuracy Rule: Plan document must accurately reflect actual administrative practice. Issue: Does the plan document accurately describe key administrative practice such as eligibility requirements, hours of service definition, etc. Best Practice: Carefully follow the plan document. If changes are made, amend the document.

12. Definition of Compensation Rule: Elective deferrals must be calculated on “Includable Compensation” (Total Compensation). Employer contributionscan be made on a different definition of Compensation. Issue: If the two definitions of compensation (elective deferrals and employer contributions) are different, this must be administered correctly with payroll deductions and the Salary Reduction Agreement. Best Practice: Review definitions of compensation for each and revise practice as necessary.

13. Compliance Testing Rule: Plan must be tested for nondiscrimination each year.. Issue: Tests are not performed. Best Practice: Test annually and retain the results.

14. Fidelity Bond Rule: A fidelity bond of 10% of plan assets with a max of $500,000 is required. Annuity only plans may be exempted. Issue: Many plans now have mutual funds requiring the bond and there is uncertainty about the annuity exemption. Best Practice: Purchase and maintain a bond.

15. Employer Responsibilities • Sound plan design • Plan document/SPD • Nondiscrimination Testing • Reporting and disclosure • More involvement in plan operations • Investment Due Diligence

16. Employer Responsibilities • Fiduciary Duties • What is your fiduciary responsibility? • Learn duties • Prudent expert standard • Plan decisions • Plan compliance and administration • Investment due diligence process • Named Fiduciary • Fiduciary Insurance

17. Next Steps • Compliance Audit • Adherence to Plan Document Provisions • Nondiscrimination Testing • Required Reporting and Disclosure • Investment Due Diligence Process

18. Resources • Advisor • Vendor information • Consultant • Regulator publications

19. Resources Links • Final 403(b) Regulations: http://www.treasury.gov/press/releases/hp501.htm • IRS Information: http://www.irs.gov/retirement/article/0,,id=172430,00.html • Department of Labor Bulletin: http://www.dol.gov/ebsa/regs/fab2007-2.html

20. Questions and Discussion Gary Mauger and Christine Dailey Managing Partners New Pinnacle Consulting Group, LLC (704) 900-5566 gmauger@newpcg.com www.newpcg.com