For over 40 years, The Legend Group has been providing comprehensive retirement programs to not-for-profit employers. Legend is fully prepared to provide all the necessary support to aid in compliance with each requirement.
Why did the IRS and Treasury Department promulgate new regulations?
Internal Revenue Code §403(b) regulations have not seen any major changes since the 1960s and the IRS would like all employer plans to be more consistent with §401(k) plans. They also found many deficiencies on §403(b) plan audits and feel that this is the only approach that will rectify those deficiencies.
When are the Final Regulations effective?
For the most part, the regulations were effective January 1, 2009. Church plans have until January 1, 2010 to comply. For plans maintained pursuant to one or more collective bargaining agreements that were ratified and in effect on July 26, 2007, the regulations do not apply before the earlier of (1) the date on which the last collective bargaining agreement terminates (without extensions) or (2) July 26, 2010.
What do the Final Regulations require §403(b) employers to do that they were not required to do before?
Legend has experience with all of the requirements above and can assist employers in complying with these regulations.
What is a plan document?
This is a document that includes the §403(b) rules for eligibility, benefits, applicable contribution limits, products available in the plan, and time and form of benefit distributions. It would also indicate any optional plan features, such as hardship distributions, loans, acceptance of rollovers and plan-to-plan transfers, in-service transfers to approved vendors, in-service distributions at age 59½, and exchanges to non-approved vendors.
What will employers need to do?
We suggest that an employer meet with a Third Party Administrator (TPA) to see if they can assist with these tasks. Employers have a responsibility to their employees to research existing and new §403(b) providers to ensure they are capable of providing the necessary services, complying with the contribution limits, and electronically communicating the data needed to monitor loans, distributions, transfers, exchanges and rollovers.
How will employees know who the approved vendors are?
The approved products must be listed in the employer's plan document and the employer should make an up-to-date list available to employees. This could be a function that a plan administrator performs.
Do the Final Regulations force employers to limit vendors?
No. An employer can appoint as many vendors as its Board sees fit. Most employers currently offer many different investment options to their employees and the final regulations do not require employers to shorten their lists. However, in the interest of administrative efficiency, vendors that cannot communicate data electronically may find themselves at a disadvantage.
Can employees transfer §403(b) accounts to vendors not approved by the employer for salary deferrals?
Yes, if the employer's plan allows for exchanges and the vendor enters into an agreement with the employer to supply information on distributions (especially hardships and terminations from employment) and loans.
Have the Final Regulations established contribution remittance deadlines?
The Final Regulations require that the employer include a provision in their plan document related to remitting contributions as soon as administratively feasible. The plan document should specify a period after the date the amounts would otherwise have been paid to the participants (15 business days is suggested in the regulations).
Who will monitor the §402(g) and §415 contribution limits?
The plan sponsor has this responsibility and can assign the duty to a TPA.
Where can I learn more?
For a complimentary consultation, consult your local Legend Group financial advisor, or our retirement plans specialists at (561) 694-0110.