When the IRS extended the deadline for meeting the written plan requirement for 403(b) arrangements from January 1 to December 31, 2009 in Notice 2009-3, it did so with some conditions attached. In particular, the IRS is requiring sponsors to operate their plans during 2009 in accordance with a reasonable interpretation of 403(b) and the final regulations.    The Notice also requires 403(b) plans to make its best efforts to correct any operational failure that occurs in 2009 by the end of the year. Therefore, while the Notice was very welcome, relieving some of the pressure caused by the original deadline, it is hardly a one year’s free pass from compliance with the final regulations.

Under the final regulations, one of the biggest challenges for plans with multiple investment providers is to establish procedures so that the venders can effectively share information with the employer and with each other.   Historically, each investment provider in 403(b) plans has operated largely independently, typically with little or no communication between them. Changing this structure to facilitate compliance across investment providers is a significant task that will not happen overnight.   

A number of investment providers, individually and together (most notably, through the SPARK Institute data sharing standards) have made efforts to provide services that try to tackle this issue. (The various information sharing services that are emerging will be discussed in a subsequent post.) But many plans have yet to implement any form of process for exchanging plan information. Even more critical, many plans have also not yet resolved the question of who is ultimately signing off on plan transactions such as loans or hardship withdrawals: the plan administrator, the vendor, or a third party.

Despite the Notice 2009-3 delay and encouraging statements from IRS officials about how the IRS is not “expecting perfection”, plan sponsors should not lapse into complacency in 2009. Now is the time to establish effective compliance programs that integrate information from all the investment providers.

 One of the biggest challenges for the benefits professional is trying to weed through all of these new 403(b) rules, and explain them in a meaningful way to their clients. Monica and I wrote this checklist designed specifically for that purpose-to give advisors a tool to use when they need to work with employers on their 403(b) issues.

This list is not intended to  replace the employer’s need to do a compliance review. This is designed help advisors educate employers about the challenges they face, and in an organized way. 

You are welcome to use the checklist for personal use. If you intend to reproduce it for any other use, please contact us for permission.

 

It is back to the future, in an odd sort of way. There is growing trade press coverage on the interests of 401(k) plans and plan participants on turning a portion of participants’ account balances into a "defined benefit-like" guaranteed income stream. Follow, for example, this link to Plan Advisor.com.

There are really two ways transform that 401(k) account balance into annuity payments.  The first is to annuitize from within the 401(k) plan itself. This means that you need to

  • take care that you don’t turn the 401(k) plan into a defined benefit plan;
  • deal with the pesky issue of handling an "outside asset" not typically held by the plan’s custodian; and
  • figure out how to make those guarantees portable.

The second way is to offer a distribution option from the plan of a  "plan distributed annuity." This opens up a whole world of guarantees that can be provided using a 401(k) account balance, as well as being a potential answer to the portability issue mentioned above.  

We will post over the next several weeks a number of blogs which will discuss some of the legal and technical issues related to these sorts of programs. For starters, if you’re interested, take a look at the articles we published with BNA and CCH last year which discusses some of the legal issues involved: 

Please note that the reference in the BNA paper to my former law firm is now incorrect!

We look forward to carrying on the conversation.