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TASBO 2008. The 403(b) Final Regulations; What You Need to Do and When!. Presenter: Ellie Lowder, MCRS, Consultant. Author: ASBO’s “403(b) Compliance Guide for Public Education Employers” (Rowman & Littlefield); “The Source” (NTSAA); “403(b) Plans” (Kaplan & Drysdale)

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Tasbo 2008

TASBO 2008

The 403(b) Final Regulations; What You Need to Do and When!

Presenter ellie lowder mcrs consultant
Presenter: Ellie Lowder, MCRS, Consultant

  • Author: ASBO’s “403(b) Compliance Guide for Public Education Employers” (Rowman & Littlefield); “The Source” (NTSAA); “403(b) Plans” (Kaplan & Drysdale)

  • Member: ASBO Retirement Plan Council

  • Independent Consultant; 45+ years 403(b) Experience

Special thanks to
Special Thanks to:

  • The Retirement Benefits Group; AXA-Equitable for sponsoring this presentation

  • And, making it possible for me to be here

  • Please stand and take a bow!


Ellie Lowder does not provide tax or legal advice, nor can anything in this presentation be used to avoid income taxes properly assessed by a US taxing authority.

The changes that most impact you
The Changes That Most Impact You

  • Written plan must be in place no later than January 1, 2009 (unless plan was collectively bargained)

    >Employer’s must treat 403(b) “programs” as plans and must assume (but can delegate) compliance responsibilities

  • Tax-free “exchanges” have new requirements on 9/25/07

  • No more separate life insurance contracts after 9/23/07

The changes that most impact you1
The Changes That Most Impact You

  • Must remit salary reduction contributions “timely”, e.g., no later than the 15th business day of the month following reduction (effective January 1, 2009)

    >state statute might require faster turn around time

  • Must provide annual “meaningful notice” to employees and “meaningful opportunity” to participate

    • Can exclude certain employees (more later)

    • New “1000” hour standard (more later)

Texas statutes and meaningful opportunity
Texas Statutes and “Meaningful Opportunity”

  • Texas law requires that you may not “limit the ability of an employee to initiate, change or terminate” an investment product “at any time the employee chooses”

  • Thus, salary reduction agreements must be accepted (subject to payroll deadlines) at any time

Can you simply terminate your plan avoid the new responsibilities
Can You Simply Terminate Your Plan & Avoid the New Responsibilities?

  • Final regulations state that a plan can be terminated if you first comply with the final regulations (other than the written plan) and,

  • Distribute all assets as soon as “practicable”

  • How will you distribute all assets when most are held in individually owned accounts?

    >employee permission required?

    >and, no provision for distribution of custodial accounts in the regulations

What the final regulations do not do
What the Final Regulations Do Not Do! Responsibilities?

  • They do not cause your ERISA exemption to disappear

    >governmental employers are exempt from the ERISA fiduciary standardsand other ERISA requirements

  • Only state statues can impose fiduciary responsibilities to non-ERISA plans

    >the regulations impose compliance responsibilities only; not fiduciary responsibilities

Immediate changes exchanges
Immediate Changes: Exchanges Responsibilities?

  • Tax-Free exchanges

    >all exchanges that take (or took) place after 9/24/07 are limited to providers with which you will enter into an Information Sharing Agreement before 1/1/09

  • Should determine which providers will share information; and limit exchanges to those that acknowledge they will

Immediate steps to take
Immediate Steps to Take Responsibilities?

  • Should communicate with your employees the risk of exchanging to a “non-authorized” provider

    >would cause exchanges accounts to be treated as distributions

    >new guidance does permit correction of “improper” exchanges if done by 6/30/09

Tax free exchanges cont
Tax-free Exchanges, Cont. Responsibilities?

  • Require affirmative agreement from providers (will share information)

  • Develop list of cooperative providers to:

    >share with all providers in your plan, and,

    >with your employees

  • And, when you adopt your written plan, include exchanges as a feature in the plan

Prohibition on separate life insurance contracts
Prohibition on Separate Life Insurance Contracts Responsibilities?

  • Ask for agreement from your providers that they do not and will not offer life insurance contracts in your 403(b) plan

  • In your employee communications, notify employees that such contracts are prohibited after September 23, 2007

Adopting your written plan
Adopting Your Written Plan Responsibilities?

  • IRS model language posted 11/27/07,

    >portion used have reliance (as long as terms are followed)

  • Model language “incomplete”, could be inappropriate in some areas

  • Does not permit flexibility (e.g., how you want your plan to look)

  • Comments are invited through 3/16/09

  • Meantime, where can you get written plan language?

Sources written plan language
Sources: Written Plan Language Responsibilities?

  • Association of School Business Officials 403(b) Resources web site (www.asbointl.org)

  • TPAs

  • Your vendors

  • Your legal counsel should review prior to adoption

Consider the features of your plan
Consider The Features of Your Plan Responsibilities?

  • Loans

  • Hardship withdrawals

  • Transfers (to & from another plan)

  • Exchanges (within your plan)

  • Acceptance of rollovers into your plan

  • Roth 403(b) option

  • Catch up options

  • Employer contributions

Your written plan continued
Your Written Plan, Continued Responsibilities?

  • Which “contracts” (providers) are included in your plan (on separate “addendum” or administrative list):

    >for ongoing contributions, and,

    >for exchanges (can have “exchange-only” providers)

  • Who will be delegated compliance responsibilities?

    >your product providers, or,

    >a Third Party Plan Administrator?

Can you require provider cooperation
Can You Require Provider Cooperation? Responsibilities?

  • Yes! Texas law (HB 2341) permits you to require that providers comply

  • You are not required to accept salary reduction agreements from providers that will not comply (and some won’t)

  • Must impose your administrative requirements “uniformly”

Cooperation of providers
Cooperation of Providers Responsibilities?

  • Your requirements must be necessary to comply with employer responsibilities imposed by the final regulations

  • You will need to eliminate some of your current providers, and,

  • Notify employees that participate with those providers they must redirect contributions

Texas law cont
Texas Law, Cont. Responsibilities?

  • You may not “grant exclusive access to information” about your employees’ products to “a company or agent offering qualified investment products” unless the employee consents in writing to the access

  • Clarification? AG opinion is pending; expected to be issued before 5/31/08

What about universal availability
What About Universal Availability? Responsibilities?

  • Note: these rules are in effect NOW, and,

  • The IRS is sending out compliance letters & questionnaires

  • Be sure that all eligible employees are included,

  • And, that you are communicating that the plan is available to them

Universal availability pitfalls
Universal Availability Pitfalls Responsibilities?

  • All common law employees can be included (not leased employee; not independent contracts; not elected officials unless elective office requires a background in education)

  • Some common law employees can be excluded, including:

    >those that “normally” work less than 20 hours per week (can use 1000 per year standard under final regulations)

The problem with excluding part time employees
The Problem With Excluding “Part Time Employees” Responsibilities?

  • You would need to track working hours

    >working hours could greatly vary (and you may not know in advance)

  • Consider making elective deferrals available to all employees

    >remember: most substitute teachers, other part timers won’t participate

    >by opening it up, you avoid potential violations

Plan violations
Plan Violations Responsibilities?

  • Violations that could disqualify your entire plan (after January 1, 2009) are:>violation of the universal availability requirement

    >failure to adopt and follow the terms of your written plan (by 1/1/09 for most)

    >ineligibility to sponsor a 403(b) plan

Who can help you
Who Can Help You? Responsibilities?

  • ASBO criteria & guidelines – visit the 403(b) resources page for:


    >planning matrix (what does to be done; who can help do it)

    >information sharing agreements

    >sample questions to ask service providers

    >Service Provider Agreement

  • And, more!

Who can help you1
Who Can Help You? Responsibilities?

  • The providers that have made a commitment to you and your employees

    >they have tools and resources

    >they have a vested interest in providing assistance

    >most are committed to working in a “multiple provider” environment (history of 403(b))

How do you decide tpa or not
How Do You Decide? TPA or Not? Responsibilities?

  • Will your product/investment providers share information with each other prior to granting loans; hardship withdrawals?

    • Some will; some won’t

    • You should determine (through Agreements) which will; eliminate those that won’t

    • You will have fewer providers

Tpa or not
TPA? Or Not? Responsibilities?

  • If a TPA is your choice, must determine whether TPA can meet your new needs

    >Prepared to monitor and coordinate loans in all of your plans?

    >Prepared to receive and act upon all hardship withdrawal requests, and,

    >Notify you for the suspension of voluntary salary reduction contributions to all plans

Evaluating selecting your tpa
Evaluating/Selecting Your TPA Responsibilities?

  • ASBO resources page has sample questions to ask

  • Suggest you utilize 403(b) competent TPAs only

  • Or, if you prefer; you can select through the Request for Proposal process

Sample rfps
Sample RFPs Responsibilities?

  • Available on the NTSAA Plan Sponsor web site (www.ntsaa.org)

  • Consider:

    >Costs vs. benefit and service

    >Knowledgeable/experienced in the non-ERISA 403(b) market?

    >Non-product affiliated?

If a tpa is your choice
If a TPA is Your Choice Responsibilities?

  • Who will pay the fees?

    >employees through debit to their 403(b) accounts?

    >you – the employer, or,

    >the final vendors chosen for your plan?

  • Pros and cons of each

As you prepared to meet the new requirements
As You Prepared To Meet The New Requirements? Responsibilities?

  • Use your resources!

  • Evaluate; ask questions

  • But, be sure to get started now; many employers wish to adopt and follow the terms of the written plan well before the January 1, 2009 deadline

Questions? Responsibilities?

Thank You!