It is easy to forget that the fiduciary’s exclusive obligation is to provide retirement income from these plans. ERISA is pretty clear that even 401(k) plans and 403(b) plans are actually meant to provide retirement income. They are “employee pension benefit plans” under ERISA Section 3(2)(A) which each “provides retirement income to employees, or results in a deferral of income by employees for periods extending to the termination of covered employment or beyond.” In the day to day operation of a plan loan program, this raises a troubling issue- particularly when a plan design forces an loan default offset of a participants accrued benefit following an involuntary employment (such as a layoff, death or disability), where the retirement benefit is lost under difficult circumstances where there is little chance to recover.
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When Is an Organization a “Church” that Sponsors a Retirement Plan?
We may know what is a “Qualified Church Controlled Organization” (which we refer to as QCCOs), and even what a “Non-Qualified Church Controlled Organization (or Non-QCCO), but nothing ever defines just what qualifies as a “church.” In the 403(b) world we often refer to them as “steeple churches,” but that seems just to beg the question as well.
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The IRS Tightens Plan Examination Process With New Rules for Plan Sponsors and IRS Examiners
With the IRS’s focus on “black belt” business practices, it announced on November 21, 2016 a new process for its retirement plan audits. These rules center on the timing of the “Information Document Requests” (IDR), which are central to an audit. The problem, as tends to be the problem with many such structured business process improvement efforts, is that-as good as they may appear to the designer on paper-they often leave little room for the actual business experience.
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A Potential Impact of the 403(b) University Lawsuits on 401(k) Self Directed Brokerage Accounts
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.
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The Unusual Matter of 403(b) Ethics
Conundrums can be caused by the “mismatching” of the 403(b) rules to pension professional, as well as the lawyer , registered rep and CPA, under their ethical rules.
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403(b) Policy Loan’s Continued Form 5500 Reporting Problem
One of the more intractable issues with which ERISA 403(b) plans sponsors must deal with every year arises from the “policy loans” issued by insurance carriers under the 403(b) annuity contracts held under the plans. There is simply no good way to report these loans on the Form 5500, and the newly proposed Form 5500 changes do not address this ongoing issue.
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Auditing Distributed 403(b) (and 401(a)) Contracts
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.
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MEPS Aren’t What They Are Seem; Alternative More Efficient at Achieving Scale
A more effective alternative at providing scale than the MEP platform, and one which really is made possible by technology, is what the DOL describes in its MEP IB as the “Prototype Approach,” versions of which are apparently being considered by several states. It provides those small plans the buying power and access to expertise which are at the heart of MEPs, doing so without that platform’s inherent difficulties.
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DOL and Lifetime Income
Even with all of the interest in the Fiduciary Rule, the DOL is still paying attention to lifetime income-so much so that the Qualified Longevity Annuity Contract (the “QLAC”, established by the IRS) was granted broad relief under the Rule. This relief is so favorable that one of the claims being brought in the 5
403(b) and the Fiduciary Rule
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.
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