403(b) Plan Reminder
The click is ticking...   
by Andrea Cook
School Advisor, 2008 Issue No. 3

With the effective date of the final regulations under IRC section 403(b) right around the corner, there is still much work to be done. The final 403(b) regulations are effective January 1, 2009 and require that a written plan document and formal administrative procedures be in place by that date to ensure compliance with the rules.  

Here are some items to take note of in the homestretch: 

ISD/Inter-district Consortiums

If your district intends to use a third-party administrator (TPA), then there may be an opportunity to join a consortium of districts that has evaluated the capabilities and costs associated with one or more pre-selected TPAs. However, it has become clear that no two districts necessarily view their needs or the approach and style of a given TPA the same. The TPA that a consortium “recommends” may not fit the needs of your district. Nevertheless, the evaluation process that the consortium used to make its recommendation and a review of TPA documentation may assist in your TPA selection process. 

Third-party Administrator Plan Documents

Many districts who are using a TPA for their 403(b) plan administration will take advantage of the plan document template provided by their TPA. Our review of several plan documents shows that modifications may well be necessary for a template plan document to meet a district’s needs. 

For example, a standard template plan document may not include provisions allowing for Roth 403(b) contributions to the plan. Additionally, there may not be language to support the approach by which employer contributions are made to the plan. It is also not uncommon for a template document to be silent on permitting contributions in the five years following retirement, which may be necessary to support terminal leave payments or early retirement incentive payments being made directly to the plan. 

Each of these provisions, and others, though discretionary, require appropriate documentation within the 403(b) plan document and may require discussion and coordination with your TPA. 

403(b) Self-administration

Districts who have decided to self-administer their multi-vendor 403(b) should have made progress in signing agreements and gathering data from each vendor. An understanding must be gained with respect to the plan features that each vendor will support and the responsibilities that each vendor will assume. It appears that TPAs, many of whom work with hundreds of districts, are receiving more attention from vendors than individual districts when it comes to coordinating and approving information sharing agreements, provider agreements, plan documents, and electronic information sharing. Because of this, districts may need to either be more accommodating and take on more administrative duties, or step up the degree of persistence in convincing providers to assume more responsibilities. 

Vendor Participation

Even this late in the game, it is still unclear which vendors are willing (and able) to continue as vendors for 403(b) plans. The degree of flexibility that a TPA or district is willing to offer may ultimately dictate whether a vendor will continue to receive ongoing contributions or participate in plan features such as loans or hardship distributions. For instance, a district may delegate certain administrative tasks to their vendors, such as hardship distribution processing, that some vendors may not agree to provide. Because of this, there may still be some uncertainty as to which vendors will be able to continue as ongoing vendors within a district’s 403(b) plan.

With these considerations in mind, districts can better prepare for the January 1, 2009 due date with respect to their plan documentation and administrative procedures.