The Service Finally Speaks as to 403(b) Plans
Over forty years in the waiting, the Internal Revenue Service (IRS) has at long last turned its attention to 403(b) plans - namely how 403(b) retirement plan design, administration and operation are impacted by numerous laws enacted over the past several decades - including SBJPA, GUST and EGTRRA. The IRS issued proposed regulations governing 403(b) plans on November 16, 2004.
As expected, the proposed regulations issued by the IRS for 403(b) plans will require profound changes with respect to the 403(b) plans of many colleges and universities. Perhaps most significantly, the regulations require that the terms of all 403(b) plans - including those maintained by public educational institutions - must be set forth in writing. This means that all material terms of your 403(b) plan must be completely and accurately set forth in written documentation. This new document requirement applies even if your 403(b) plan consists only of voluntary employee salary reduction contributions with minimal involvement by the
employer.
For public and private institutions that already have a written plan document, it is extremely important to ensure that:
- the document accurately reflects actual plan operation,
- the document has been approved by the institution's board or appropriate officer,
- the document has been appropriately executed, and
- the institution's fiduciaries and vendors understand the terms of the plan to ensure proper administration.
While the proposed 403(b) regulations will require both private and public colleges and universities to invest time and resources to ensure that their 403(b) plans are compliant, taking control of your retirement plan now will significantly reduce your institution's liability and fiduciary exposure in the long term. Institutions have historically placed unwarranted reliance on their vendors to administer their (sometimes multiple) 403(b) plans without consideration of their potential fiduciary exposure for mistakes and noncompliance with the plan's terms or the Internal Revenue Code. A consolidated, well-drafted plan document that is clear and
accurate, combined with a vendor agreement that sets forth appropriate responsibilities and reciprocal indemnification, will facilitate legal compliance and go a long way towards satisfying the institution's fiduciary responsibilities. This is particularly important in light of the current focus of the Department of Labor, the media, and plaintiffs' attorneys on potential breaches of fiduciary duty in administering retirement plans.
The IRS is accepting comments on the proposed regulations through February 14, 2005, and the regulations are scheduled to become final for taxable years beginning on or after January 1, 2006. For a copy of the 403(b) regulations, please go here. For a copy of the press release regarding the proposed 403(b) rules, please go here. To see a copy of related temporary regulations regarding FICA taxation of 403(b) elective deferrals, please go here. Questions? Please contact your Ice Miller employee benefits attorney, or Tara Schulstad Sciscoe or Jim Kemper, who authored this article. |
