District Administration - February 2009 - (Page 42)

The Aftermath of the New 403(b) Regulations final regulations AND 3. The employer uses the principles of the Employee Plans Compliance Resolution System revenue procedure (the current version is outlined in Revenue Procedure 2008-50) to correct any operational failures occurring in 2009. Thus, the simple adoption of the written plan is likely the easiest of the employer’s new responsibilities to meet. All of the other requirements of the final regulations apply as of the original effective date, and failure to adopt and conform to the terms of a written plan as of January 1, 2009, as originally required could create some real headaches for employers. For example, screening and eliminating the insurance companies and mutual fund companies that cannot or won’t cooperate with the employer’s new compliance responsibility should have taken place before January 1, 2009. Any employee making contributions on and after January 1, 2009, to an insurance or mutual fund company that is not subsequently included in the written plan risks “loss of the exclusion”—meaning the account is not a 403(b) account and is subject to disqualification. Also, failure to conform to the terms of the plan is potentially a disqualification “failure.” Thus, if the written plan has not yet been adopted, there could be some real difficulties conforming to terms that may or may not be in place. The regulations make it difficult in many cases to comply, because there were millions of individually owned 403(b) accounts in existence prior to the general effective date of the final regulations (January 1, 2009, for most employers). The real challenge lies in identifying accounts that may have been accumulated through one’s current employer with issuers that have not had “payroll slots” in recent years— and/or accounts that may have been properly transferred to issuers that never held a payroll slot with the employer. In other words, there was no possible way for the employer to identify all of the accounts that may have been “informally” attached to the employer’s plan. Some employers have made hasty 42 February 2009 decisions since the new rules were implemented. Even more unfortunate, some of those decisions were based on advice from consultants who did not know that public education employers are exempt from any requirements under Title I of the Employment Retirement Income Security Act (ERISA). Additionally, some employers have noted they have terminated their 403(b) plans; however, they may not have complied with the requirements in doing so. Employers will want to be aware of these issues following implementation. Here are answers to some important questions you might have. are based on such things as performance. Any employer considering such actions should consult experienced legal counsel. Do the regulations cause public school districts and community colleges to be subject to ERISA? Absolutely not! Governmental employers are exempt from ERISA coverage for any and all of their retirement plans. Thus, there is no action that a public education employer could take that would cause ERISA to apply, including the making of nonelective employer contributions to the 403(b) plan. Unfortunately, the IRS responded with Notice 2009-3 on December 11, 2008, which we might describe as “too little” and “too late.” Are public education employers fiduciaries because of the final 403(b) retirement regulations? No! Only state statutes could impose such responsibilities, and it has been reported that in most states such responsibilities are generally applied under state trust laws. Because 403(b) assets—unlike 401(a) pension plans, 401(k) plans, and 457(b) deferred compensation plans— are not required to be held in trust, there generally is no applicability of such state statutes. Obviously, every employer will want to be familiar with the statutes in its specific state; however, if a state statute imposes a fiduciary role on the public school district, the final regulations have nothing to do with that. But exercise caution. Unless the employer wishes to be viewed as having assumed a fiduciary role, it may be important not to take actions that could create a fiduciary role. Such actions being seen include the appointment of an investments committee to monitor and assume oversight of the investments in the 403(b) plan, and choosing a single source provider of investments where the selection criteria Can 403(b) plans be successfully terminated to avoid compliance? Some employers have asked whether the 403(b) plan can simply be terminated to avoid compliance with the final regulations. However, one of the major issues in successfully terminating a 403(b) plan is that all assets must be distributed from the plan as soon as administratively practical. While the regulations do not speak to the meaning of “as soon as administratively practical,” verbal comments by the IRS tell us that assets should be distributed within a period of one year following plan termination. The problem in distributing these assets is that the bulk of them may be held in annuity contracts or custodial accounts, which are individually owned by each employee who is participating. The underlying contractual language in those accounts may (and often does) prevent the insurance or mutual fund company from distributing those accounts without the authorization of each participant. (This is thought to include all nongrandfathered “orphan” accounts held by current and former employees and their District Administration

Table of Contents Feed for the Digital Edition of District Administration - February 2009

District Administration - February 2009 Contents Advertiser Index Editor's Letter News Update Security Curriculum Crisis Response Supervisor's Opinion The Rise of the Virtual Teacher Speaking Their Language Alternate Transportation Routes Opinion The Aftermath of the New 403(b) Regulations How Well Does This Web Site Work? Problem Solution New Products Product Focus Professional Opinion

District Administration - February 2009

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.