Keeping it simple and sensible is never an easy task. As a matter of fact, it is extremely difficult to do, particularly when dealing with something as complex as 403(b) regulations. This is why the IRS's recent release of its 8955 FAQ's is so striking: in merely two FAQs, IRS and Treasury provided answers that not only make regulatory sense and further tax administration, but did it in a way which makes sense for 403(b) plan sponsors. And it surprisingly well co-ordinates with positions the DOL has taken.
TE/GE has spent considerable effort in 403(b) outreach over the past decade, even in face of much cynicism about the enhanced regulatory approach to these plans-developing an unusual amount of knowledge about the marketplace in the process. It clearly tapped into this expertise in developing the FAQs. They could not have been written without a number of highly knowledgeable regulators and auditors recognizing a challenge, and being committed to coming up with a workable solution. I have not, in the past, been shy at commenting on a number of different unfortunate choices staff has made when writing and implementing the 403(b) regulations. This time, however, staff impressed.
The following are the 403(b) questions from the FAQ. Even the most difficult part of them-the part about contracts which cease payments in 2008-arises from the requirements of the 8955 itself, but the IRS found a way to integrate it well.
Does the Form 8955-SSA filed for 2009 by a 403(b) plan sponsor have to report participants who separated from service prior to 2008 with a deferred vested benefit under the plan?
Generally, no. Form 8955-SSA filed for 2009 generally only has to report participants who separated from service in 2008. Thus, participants with a 403(b) contract or account who separated from service prior to 2008 are not required to be reported on the Form 8955-SSA filed for 2009 (or for any subsequent year).However, a participant should be reported on the Form 8955-SSA filed for 2009 if that participant separated from service in a year before 2008 and began receiving payments under the contract or account, but the payments stopped in 2008 before all of the participant’s benefits were paid. See the Instructions for 2009 Form 8955-SSA. See also Question and Answer 2 for an exception that applies even in the case where payments stopped in 2008.
Does a 403(b) plan sponsor have to report all participants who separated from service after 2007 with a deferred vested benefit under the plan?
No. A plan sponsor is not required to report a separated participant if the participant’s deferred vested benefits are attributable to an annuity contract or custodial account that is not required to be treated as part of the section 403(b) plan assets for purposes of the reporting requirements of ERISA Title I, as set forth in DOL Field Assistance Bulletin (FAB) 2009-02.
For this exception to apply, (1) the contract or account would have to have been issued to a current or former employee before January 1, 2009, (2) the employer would have ceased having any obligation to make contributions (including employee salary reduction contributions), and in fact ceased making contributions to the contract or account before January 1, 2009, (3) all of the rights and benefits under the contract or account would be legally enforceable against the issuer or custodian by the participant without any involvement by the employer, and (4) the participant would have to be fully vested in the contract or account. For further information, please see DOL FAB 2009-02, www.dol.gov/ebsa.
There are a couple of important nuances in the application of these rules. I invite you to read Conni's analysis in the Thompson quarterly 403(b)/457newsletter, coming out shortly, where she explains them.
Once again, there are several choices TE/GE could have made when developing its position. It used its knowledge and experience to make some pretty good ones here.