The 403(b) regulations replaced the "contract exchange" rules under Revenue Ruling 90-24 (which allowed the tax free transfer of 403(b) contracts between different vendors, including that of different plans, as long as certain, minimal conditions were met) with a new scheme of exchanges and transfers. After September 24, 2007, the former "90-24 transfers" between unrelated plans could only be accomplished through a formal "transfer agreement" between plans, much in the same manner as 401(a) plans.
The IRS also imposed new rules for exchanging contracts between vendors in the same plan. These new rules include the infamous "Information Sharing Agreement" (or "ISA") requirement, that conditions the exchange on the employer entering into an agreement with the issuer of the contract into which the funds will be exchanged. Under the ISA, the employer and the new issuer agree to, "from time to time in the future," provide each other Information necessary for the new contract, or any other contract to which contributions have been made by the employer, to satisfy section 403(b). This includes information concerning the participant’s employment status, eligibility for a hardship, and ability take a loan (and in what amount), as well as Information necessary to satisfy other tax requirements.
In response to these new data exchange requirements, a number of friends and colleagues from a variety of 403(b) vendors joined together and worked diligently and effectively over several years following the publication of the regulations to establish information standards for the exchange of this data. They are known as the SPARK 403(b) Information Sharing Data Elements Best Practices.
Now, however, there appears to be a number of parties that are touting these ISA standards as the solution to 408(b)2 and 404a-5-compliance; that the SPARK standards will provide a solution to these new DOL disclosure rules; or that adopting the SPARK Standard suggests capability to successfully implement the disclosure rules.
Don’t be misled; nothing can be further from the truth. The SPARK standards address the basic contract information which is necessary for compliance with the ISA requirements. There is no fee data; there is no investment data; there is no description of services. Reference to the "SPARK Standard" as a solution to the DOL rules does present a very catchy marketing and sales hook, but one which is also very wrong.
As an aside, the ISA standards were well developed by dedicated professionals, many of whom are passionate about this business. They have been, in effect, a tremendously successful "Skunk Works." Much of the standards’ current value derives from volunteers who have moved on to other positions within and without the original organizations which were committed to the process. So sustainability now becomes an issue. The standards were also developed under the auspices of a small organization with very limited professional and administrative staff which-in addition to attempting to establish annuity data standards along side the 403(b) standards-is very much focused on establishing its own new "brand." Sustainability, structure and support are necessary elements for the maintenance and further development of these standards as they mature.
Ultimately, as I’ve suggested in the past, the answer may well lie in the formation of a consortium funded in large part by user fees; supported by a well established center such as a public university; and governed by a wide variety of stakeholders-not just vendors. This is not just a pipe dream, this is how a number of standard setting organizations and consortia are run with a degree of permanence. I admit here to a bias, as a number off us had proposed and developed just such a structure in the early days of the new regs, and a number of critical parties were interested.
It will be interesting to see what happens over time.
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