Taking this one step at a time, there are a significant number of employer/plan sponsors, administrators and others tackling this question.  I have had a number of conversations with individuals and groups that began pulling together the "Written Plan" for their 403(b) plan(s) and were simply stumped when posed with defining the original start date of the plan.  I have found this question alone can be the primary reason a "written plan" was not finalized for some 403(b) plans.  

Once we get past the "chicken and egg" conversation, the conversation progresses to somewhat of a dart board effect.  Well, a reasonable guess would be to date the plan as of 01-01-2009, but your investments would possibly age prior to that date.  Another reasonable guess is the oldest date on the first investment contract or account holding current assets.  There is a solid argument for this approach, but it can result in a bit of an art, rather than a science. 

Sometimes the right answer is very much tied to your facts and circumstances, within reason.  If you can identify the date of the first contribution or funding to your 403(b) plan, begin there and work forward.  Read on for additional challenges that have surfaced while capturing the "written plan"...

Those plan sponsors that found it was absolutely necessary to formally craft a plan document that satisfied their "written plan" and satisfied their auditor's request to review such plan document may have resulted in "the square peg in a round hole" syndrome.  Using a plan document and adoption agreement originally meant for a 401(k) or 401(a) plan has left some plan sponsors with a "written plan" that does not accurately define "Universal Eligibility" correctly.  Or, they find the age 50 catch-up contribution language was in the original document and simply added the 15 year catch-up language without understanding there is a priority and sequence in utilizing these catch-up contributions.  Other areas overlooked would fall with defining compensation and actually checking the control in place that supports the payroll department actually uses the same compensation definition. 

It would be so much easier to stick our heads in the sand as the circumstances of the 403(b)  "written plan" unfold and evolve.  However, never pulling the information together or taking your best efforts to craft a "written plan" will only make the situation much worse.  I've heard the proverbial saying "Well, I'm waiting for the approved 403(b) prototype".  REALLY?   Don't wait, it won't make it any easier and you will still need to gather the same types of materials to complete your plan document when the 403(b) Prototype Plans are available later this year.  

And please don't fall into this trap.  If you have someone who identified a possible concern or issue suggesting you need to file with the Voluntary Correction Program, (VCP), put on the brakes before you incur unnecessary expenses.  There are several submissions for 403(b) retirement plan failures that are just not currently eligible for correction through VCP.  Ineligible submissions include cases where:   

• the plan failed to adopt a written plan program before December 31, 2009; or
• the plan’s "written plan" did not satisfy the legal requirements under Code §403(b) and the 403(b) final regulations, or
• the plan failed to operate according to its written program’s terms.

These VCP submissions (including fees) containing ineligible failures are currently and will continue to be returned until we receive further modifications and expansion to EPCRS.  Yes, the submissions will be returned including filing fees is good news.  However, the expenses you may have incurred by the firm or organization that prepared your submission will still expect to be paid for their time and contribution for creating your submission and unlikely willing to refund that expense.  These expenses can run well over $10,000 to $15,000 dollars.   

See the March newsletter from the Internal Revenue Service Tax Exempt and Government Entities Division located at:

  http://www.irs.gov/pub/irs-tege/epn_2011_4.pdf

 An employer sponsoring a 403(b) plan may currently use VCP to correct employer eligibility and demographic failures,and the operational failures listed in Revenue Procedure 2008-50 §5.02(2)(a).  Revenue Procedure 2008-50 is currently in the process of expanding EPCRS to include post-December 31, 2008 failures.  Stay tuned! 

Expenses related to plan documentation, investment products and administrative services are usually the first items to hit the list for consideration on what plan is best suited for the plan sponsor. Weighing the cost is certainly an appropriate approach.  But don't end up paying the piper because you failed to consider potential limitations with your new plan design... 

1. Have you identified all the contracts that the IRS considers "issued as part of the employer plan"?  Once this is done...
2. Determine if the written plan allows for plan termination.
3. Have you included representation from the Union, if applicable.  
4. Harmonize the variety of investment contracts with the written plan by making sure all the characteristics within the investment contracts are not in conflict with the written plan.  
5. Determine feasibility and potential for success of  timely investment liquidation.
6. Create a time line of events with participant level education and communication.  

This list is not intended to be all inclusive of what needs to be done to terminate your plan.  It does begin to paint the picture for the types of activities that should be considered.  The main idea is KNOW your plan well before taking the steps to terminate.  

If you are considering a 403(b) plan termination because it was explained to you that a 401(k) plan is less complicated, consider the following prior to taking the steps to terminate the 403(b) plan:  

1. What is the potential for loss of assets during the plan termination of the prior plan?  Participant's will be given the option to take a distribution vs. a rollover of assets into the new plan.  
2. What impact does the actual loss of assets have on the pricing of your new investment contracts? 
3. Explore and understand the required modifications to internal HR and Payroll processes with the new plan design.  Do you currently have the necessary resources, knowledge and capacity for additional "in house" functionality?  
4. What type, amount and frequency of data will be expected from you? 
5. Your 403(b) did not require an Average Deferral Test (ADP).  However, your new 401(k) plan will require this non-discrimination test for salary deferral.  This could increase administrative cost.  

Again, this list is certainly not inclusive of all things to consider, but where you may "pay the piper" when you least expect it, is when introducing a 401(k) plan with an ADP test, if the non-highly compensated employees (NHCEs) are not contributing at a level that allows the highly compensated employees (HCEs) to maximize their salary deferrals, then the 401(K) plan may be less complicated, but much less effective for saving retirement funds.  

It is very important to consider cost of administration and regulatory guidance that has matured and appears to be less complicated, but I encourage you to take a broad look at the before and after prior to making the decision to terminate your 403(b) plan with the intent to set up a 401(k) plan.  At times, it will make perfect sense, but there have been times when the "piper" got paid.   

Growing up, I often listened to Paul Harvey with great fascination. His stories were most interesting in topic alone. However, I grew to understand that capturing even the smallest of details could shift the entire meaning of a story. I must confess my intrigue with details is probably deeply rooted with years of listening to Mr. Harvey, a broadcasting legend.

The significance of details has once again been confirmed. Just last week, I read an article titled “Recession No Hindrance to 403(b) Transformation” on planadviser.com.

Several colleagues and I found we were skeptical with the results because the survey indicates that plan sponsors are adjusting well to the final 403(b) regulations. These results are simply not consistent with the perception in the market.

Spending many years working with defined contribution plans, with a focus on 403(b) in the more recent years, my curiosity drove a need to understand the missing details that would help explain these survey results.  With much appreciation, I want to thank Aaron Friedman, National Practice Leader – Non-Profit, at The Principal and Terri Hale, Media Relations at The Principal for allowing me the opportunity for candid conversation while learning “the rest of the story!”

We explored the topic of expertise involved in completing such a survey.  My initial concern about expertise was quickly minimized when I learned about the Profit Sharing/401(k) Council of America, PSCA, committee that includes representatives from The Principal, Fidelity, MetLife, TIAA-CREF, Diversified and five 403(b) plan sponsors.  Without question, this committee brings leading experts together to analyze data captured during the survey.  

A sampling of other topics included what seemed to be a high participation rate; low percentage of hardship distributions; multiple vendor vs. exclusive vendor arrangements and centralized compliance platforms.  The administration platforms and the variety or types of investments associated with the plan sponsors who make up the population of employers surveyed would certainly influence the survey results.  Mr. Friedman and Ms. Hale enlightened me greatly and provided a brand new paradigm in which to absorb the survey results of The 2010 403(b) Plan Survey from the Profit Sharing/401(k) Council of America, PSCA.  

We pondered the survey results and found a very positive story.  It seems the populations surveyed, even though challenged with new complex regulations, were generally ERISA plans and may have benefited from services provided by an established centralized compliance administration platform. In February 2010, TIAA-CREF published survey results indicating challenges for plan sponsors and that many remained confused with new IRS regulations.  However, keep in mind that the population for TIAA-CREF may be highly concentrated with public education and non- ERISA 403(b) plans.    

It is clear that the 403(b) market is shifting and evolving.  It is very important to understand the characteristics of the population of plans surveyed when considering results as they are not created equal and may be facing significantly different challenges when factoring in elements such as ERISA vs. Non-ERISA, multiple vendor vs. exclusive vendor and centralized compliance platforms with active plan sponsors.  The devil is certainly in the details! 

It seemed to me the overall WOW factor for the PSCA survey was the increase of 43% of plan sponsors responding to the survey.  This curious reader concluded that plan sponsors are becoming more familiar with and comfortable sharing their plan designs and investments.  This is exactly what the IRS and DOL want to see.  These results may be a good example of “It’s working!” 

NOW YOU KNOW THE REST OF THE STORY!