New 403(b) Rules Coming Online Soon

by Michael Thomas

The good old days are about to end for employers who sponsor
non-ERISA 403(b) plans.

It used to be that all an employer had to do was to arrange for several vendors to make independent approaches to employees and let participants assume the risk for the decisions they made as to where they would invest their money. The employer could easily avoid fiduciary responsibility for the quality and performance of the investments offered.

Things are about to change. New regulations for 403(b) plans are set to go into effect on Jan. 1, 2009. Plan sponsors should take an extra look at their plans and visit with their consultants, administrators, or ERISA attorneys to make sure they are prepared for the changes. For the most
part, the new regulations add clarity to the non- ERISA environment while making few changes to those plans that already have a plan document and are currently being administered as ERISA plans. The stand-out provisions of the new regulations are:

• All plans small or large, ERISA or non- ERISA must have a plan document in place by Jan. 1, 2009. The document must detail plan provisions and designate investment options for plan participants.

• Multiple vendors may still be utilized, but plan sponsors will now have fiduciary esponsibility
for any vendors you make available in your plan. An investment policy should be adopted to clarify the criteria used for investment selection.

• In general, all employees upon hire must be allowed to participate in your 403(b) plan. All
new employees must be notified of their opportunity to enroll, and those who do not enroll must
be notified again once a year of their opportunity to enroll.

• ERISA plans must now file full 5500 forms for each plan year beginning in 2010 for plan year 2009. An audit requirement may be imposed on plans that have more than 100 eligible
participants.

• Rules for governing transfers between investments in the plan have been clarified. Transfers
can occur only between investments that have been approved by the plan sponsors. Information Sharing Agreements must be signed with each sponsored vendor by Dec. 31, 2008.

In light of these changes, plan sponsors may wish to consider some revisions to the way they are currently managing their organizations’ 403(b) plans.

Plan sponsors must have a document and must retain fiduciary responsibility for insuring that all investment options offered are consistent with the plan document and investment policy. Given these considerations, it may be prudent for sponsors of non-ERISA plans to adopt a sponsored portfolio of investment options that meet specific criteria. By limiting the number of options available, a sponsor could limit his or her exposure and simplify administration.

However, because this exercise of judgment could suggest more employer control than is consistent with that usually recommended for a non-ERISA plan, some sponsors may find it more
reassuring to simply adopt an ERISA plan with a good administrator and investment counselor.

In any event, change is coming and it is best to check again to make sure your 403(b) plan will meet the new requirements. Visit with your plan consultant. A review now could save costly reparation later.

 

Michael Thomas, Financial Services Branch Manager.
P     |    913.339.0800
E     |    FMichael.Thomas@siionline.com