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TASBO 2008

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TASBO 2008

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  1. TASBO 2008 The 403(b) Final Regulations; What You Need to Do and When!

  2. 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

  3. 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!

  4. Disclaimer 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.

  5. 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

  6. 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)

  7. 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

  8. 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

  9. What the Final Regulations Do Not Do! • 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

  10. Immediate Changes: Exchanges • 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

  11. Immediate Steps to Take • 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

  12. Tax-free Exchanges, Cont. • 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

  13. Prohibition on Separate Life Insurance Contracts • 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

  14. Adopting Your Written Plan • 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?

  15. Sources: Written Plan Language • Association of School Business Officials 403(b) Resources web site ( • TPAs • Your vendors • Your legal counsel should review prior to adoption

  16. Consider The Features of Your Plan • 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

  17. Your Written Plan, Continued • 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?

  18. Can You Require Provider Cooperation? • 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”

  19. Cooperation of Providers • 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

  20. Texas Law, Cont. • 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

  21. What About Universal Availability? • 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

  22. Universal Availability Pitfalls • 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)

  23. The Problem With Excluding “Part Time Employees” • 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

  24. Plan Violations • 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

  25. Who Can Help You? • ASBO criteria & guidelines – visit the 403(b) resources page for: >Checklist/timing >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!

  26. Who Can Help You? • 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))

  27. How Do You Decide? TPA or Not? • 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

  28. TPA? Or Not? • 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

  29. Evaluating/Selecting Your TPA • 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

  30. Sample RFPs • Available on the NTSAA Plan Sponsor web site ( • Consider: >Costs vs. benefit and service >Knowledgeable/experienced in the non-ERISA 403(b) market? >Non-product affiliated?

  31. If a TPA is Your Choice • 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

  32. As You Prepared To Meet The New Requirements? • 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

  33. Questions? Thank You!