When preparing to present a webinar for the NTSA on its Professional Code of Conduct (which is shared by ASPPA and NAPA as well), I was struck by the conundrum the “mismatching” of the 403(b) rules can cause the pension professional, as well as the lawyer, registered rep and CPA, under their ethical rules.

I have long discussed the non-sensical nature of many of the rules which now apply to 403(b) plans, while also applauding the regulatory efforts of the agencies to attempt to address them. Try as they might, however, there is a fundamental problem with attempting to regulate 403(b) arrangements as employer plans: they are functionally designed under the Tax Code as individual retirement plans, much as the manner in which IRAs are designed.  Consider just a sampling: the vast majority of these contracts and accounts are actually owned by the plan participant, and only those participants can choose their investments and direct distributions from those contracts. The RMD rules are designed in the same manner as IRAs. The 402(g) limit is a personal, not plan, limit. 415 limits are combined with those of an unrelated org, if the participant controls one of the organization’s plans in which he or she participates.  Prior to the 2007 tax regulation changes, they were completely portable retirement arrangements, providing an answer to the question of retirement plan leakage which typically occurs otherwise when employees change jobs.

This is just a sampling. Those with long experience in this area can come up with quite a list, themselves.

So it really isn’t a surprise that particularly sensitive conundrums, unique to the nature of the 403(b) space,  arise when  attempting to apply professional ethics rules to often unresolvable 403(b) issues, with occassionally the result of exposing  small, charitable organizations to all manner of liabilities.

A lesson for us all is to make sure we are well familiar with our professional codes of conducts when giving advice in this difficult arena. The simple, seemingly “right” answer for the client often is not.

If you are interested, you can purchase a replay of the webinar starting August 1st at this link.  It really isn’t pretty.