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Business of Benefits

Category Archives: 403(b)

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Mitigating Factors in Calculating a 403(b) Plan’s Maximum Payment Amount under CAP: “Inside Build-Up,” Partial Failures, and Non-Deductibility

Posted in 403(b), Plan Administration
But it’s interesting to see the effect on a 403(b) plan going through the edit CAP process: There is no tax exempt trust here that is enjoying 501(a) tax exempt treatment; the employer is a tax-exempt entity; and, though the individual will suffer taxation, the amount of which should be included in the MPA, there are a couple of important factors which come into play here.… Continue Reading

403(b) Document Delays; the “Once In Always In” Rule; and the “Effective Date Addendum”

Posted in 403(b), Plan Administration
One of the roots of the problem is what the IRS generally refers to as the “once in, always in” rule of 403(b)’s “universal availability” requirement. “Once in, always in” refers to the IRS position that once an employee has become eligible to make elective deferrals into the plan by reaching the 1000-hour benchmark in one year, that employee will remain eligible to make elective deferrals in future years-even in years where that employee does not complete 1000 hours of service. That person can only lose that ability to defer if they become part of one of those limited categories of employees which can be excluded (such as certain students).… Continue Reading

How to Do a 403(b) Collective Trust: “Reverse-Engineering” the University of California 403(b) CIT

Posted in 403(b)
The University of California made news when it announced that it has found a way to apply the collective trust rules in such a way to make just such an offering to its 403(b) plan. The downside to this is that it still does not "crack the nut" to make CIT's available on a bulk basis as 81-100 trusts for unrelated employers. But it still is an interesting tool. It appears they could have done the following. Make sure you have a copy of your US Code handy (or at least you've pulled up the Cornell's on-line US Code tool). Its complicated.… Continue Reading

IRS’s New 401(k) Pre-Approved Document Rules Suggests a Path To Address 403(b) Document Challenges

Posted in 403(b)
One of the more difficult rules that the IRS has imposed on the 403(b) market in recent years is the complete ban on issuing determination letters on individually designed 403(b) plan documents, under any circumstance. But buried in Rev Proc 2017-41 is something we have been looking for in the 403(b) space, which actually would help alleviate some of the concerns document drafters have with these long-standing plans. … Continue Reading

Managing Critical 403(b) Issues through Proper Allocation of 3(16) and 3(21) Fiduciary Responsibility

Posted in 403(b), Fiduciary Issues, Multiple Employer Plans
The complex nature of handling 403(b) plans-and, in particular, the unique manner in which the fiduciary rules apply to them-make these plans uniquely suited to customized fiduciary services. It is well beyond the skill set of many 501(c)(3) organizations to make sense of their often complicated 403(b) programs, and to put them into some kind of sensical order. This must be done all the while applying a number of rules intended for the 401(k) market (with their centralized recordkeeping systems) in a plan which may have significant assets held by multiple vendors under a variety of contracts with differing terms. … Continue Reading

403(b)’s “Limitation Year” Rules Demonstrate their “Individual” Nature-and Their Potential Value of the Universal Platform of the Future

Posted in 403(b), Plan Administration
The 403(b) limitation year is determined on a person by person basis, it is not a plan wide rule. Only the individual can change the limitation year, and only for its contracts. To change the year, the individual must attach a statement to his or her income tax return filed for the taxable year in which the change is made. To change a plan's limitation year, the administrator would need each employee to make that 1040 filing.… Continue Reading

Correcting the “best guesses” on 403(b) Plan terms by using the first 403(b) Remedial Amendment Period under Rev Proc 2017-18

Posted in 403(b)
The IRS decided to handle this "best guess" period by announcing that any 403(b) document could be corrected under a new, special 403(b) Remedial Amendment Program, by that new RAP's end date. It announced that the beginning of the RAP was the required adoption date for 403(b) plan documents (generally, January 1, 2010). The end of the RAP would be announced once the IRS approves its first set of pre-approved 403(b) documents. Once those first pre-approved documents are released, the IRS promised to announce the "end date." It has now done that, with Rev Proc 2017-18 announcement of March 31, 2020 as the end of the RAP-which also suggest that the pre-approved documents will be released by that date. … Continue Reading

A Potential Impact of the 403(b) University Lawsuits on 401(k) Self Directed Brokerage Accounts

Posted in 403(b), Fiduciary Issues
There is a potential impact of the 403(b) University Lawsuits on the ability of 401(k) plans to maintain self-directed brokerage accounts. These 403(b) plans, with their wide variety of investments which are subject only to the control of the participants, are essentially structured in the same manner as SBDAs (without many of the security law protections that are given 403(b) participants). Should the plaintiffs succeed in their calms that it was imprudent to permit employees the ability to invest in a wide range of securities without fiduciary oversight, this may well be the death knell of SBDAs.… Continue Reading

Auditing Distributed 403(b) (and 401(a)) Contracts

Posted in 403(b), Lifetime Income, Plan Administration
How do you audit a 403(b) in-kind distribution? There is no financial transaction, no cash changes hands, there is no change in investments. It really is only a nominal change in the records of the insurer. Yet, somehow, GAAP requires that the "transaction" be verified. There is no answer, yet, to this question, which means the industries (that is, auditors, insurers, and lawyers) will be pressed for finding a standardized approach for bringing audit certainty to this process. It even becomes a bigger issue than 403(b)s: QLACs and other distributed annuity contracts are all able to be distributed as "in-kind" distributions from 401(a) plans as well, and there is no acceptable "recordkeeping" method to audit.… Continue Reading

403(b) and the Fiduciary Rule

Posted in 403(b), Fiduciary Issues
As in all things 403(b), it seems, retirement rules of generally applicability take unusual twists when applied to 403(b)plans. The DOL's fiduciary rule is not saved from that same problem. A close look reveals interesting twists in the manner in which the rule affects (or doesn't at all!) 403(b) plans, which simply do not apply to other participant directed defined contribution plans.… Continue Reading

A 403(b) Collective Trust? A Note of Caution…..

Posted in 403(b), B/D-IA Issues
Two issues need to be addressed with a 403(b) plan's purchase of the collective trust interests of the sort that are typically sold to 401(k) plans: Code Section 403(b) only permits investments in mutual funds and annuity contracts. The CIT interests purchased by 401(a) plans, however, are typically "unitized" non-mutual fund interests. Even if one could overcome the legal and logistical challenges to making them work for the IRS 403(b) rules, there is a serious securities law problem. … Continue Reading

Fiduciary Liability for 403(b) Non-ERISA Plans?

Posted in 403(b), Fiduciary Issues
In what appears to be one of the first reported appeals court cases involving school district liability under state law related to a wrongfully administered 403(b) plan a Wisconsin court found was that an action alleging a failure to exercise ordinary care in the administration of a 403(b) plan, if proven, could be a fiduciary breach under state law. This breach then may entitle the participants relief in state court. … Continue Reading

State Auto-IRAs and Federal Law: “We’ve already stepped on that rake…..”

Posted in 403(b), Auto-IRA, Automatic Workplace Pension, B/D-IA Issues, Lifetime Income, Retirement Plan Securities Issues, Uncategorized
Chuck Thulin, a fine ERISA attorney from Seattle, WA, chaired the DOL practitioner panel at the latest (and very successful) annual meeting of the 5 regional TE/GE Councils, in Baltimore.  When I commented that we’d  “been there, done that” when discussing some obscure rule,  he told me of reading of the Russian language version of that… Continue Reading

Trouble Ahead for the Non-ERISA 403(b) Plan*

Posted in 403(b)
* Except,of course for governmental 403(b) plans and non electing churches…… It is difficult to maintain the non-ERISA status of a 403(b) arrangement. Those who wish to do so really have to work at it, with the irony being that “working at it” just may be what triggers ERISA status for those plans. In essence,… Continue Reading

Rome was not built in a day… build internal controls one step at a time

Posted in 403(b)
After many years of wading through a variety of retirement plan platforms and services, I can honestly say “I will never stop being fascinated”.  I do believe, with 100% certainty, that I will never be able to anticipate every possible compliance issue.    However, with as much certainty, I can say “processes, procedures and effective internal… Continue Reading

The “Balancing Problem” in Reporting “403(b) Policy Loans” on the Form 5500 Schedule H

Posted in 403(b)
The 403(b) annuity "policy loan" is much different. The cash from the loan is obtained from the insurer's general account, and no investment funds are ever liquidated from the participant's annuity contract. An amount equal to the value of the outstanding value of the loan remains as a "restricted" investment held in one of the annuity contract's investment funds, or in a separate account specially designed to pay a special rate of interest on that investment. The participant has no access to those funds, and the funds are released over time as the loan (with interest) is repaid to the insurer… Continue Reading

About Reporting Those Late Deposits to 403(b) Plans…….

Posted in 403(b)
Though late deferrals to an ERISA 403(b) plan do need to be reported under the Compliance portion of the Form 5500 Schedule H or Schedule I, Form 5330 cannot be filed-in spite of the silence in the Form 5500 instructions. This is because the Tax Code's prohibited transaction rules, Section 4975, do not apply to 403(b) plans-even if it is an ERISA 403(b) plan. Form 5330 is only for plans to which 4975 applies.… Continue Reading

Bringing Some Sanity to Calamity: 403(b)’s New Document Rules

Posted in 403(b)
When considering these new plan document rules and the new EPCRS together, there is a massive volume of sometimes difficult detail in the guidance. Much of it is thoughtful, some of it controversial and, I would venture to say, some of it innovative. For example, it ventures into the world of effectively requiring pre-approved plans while staying within its regulatory bounds (as we'll be discussing in future blogs). The most striking aspect of this effort, however, is what seems to be a newly institutionalized view that 403(b) plans are, in fact, much different than 401(a) plans, and often demands much different treatment.… Continue Reading
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