Interim Approach — Action Required by September 24, 2007
Employee Benefits Alert — Higher Education Services, Fall 2007

At this stage, most employers do not know which providers may be on the approved list over the long term. Some current providers may be unwilling to adhere to the policies and procedures that the employer institutes and may be unwilling to sign an information-sharing agreement by January 1, 2009. In that case, for exchanges that occur after September 24, 2007, the 403(b) contract may become taxable to the participant, and the plan may not be in compliance with the 403(b) regulations. A few different approaches are available, including:

A. Notice to Employees

Notify all employees and beneficiaries that it is recommended that no exchanges be made after September 24, 2007 because the 403(b) contract may lose its qualification and become taxable to the participant. It is generally expected that this freeze on exchanges will be temporary; however, the provider options available for future exchanges may be more limited than it has been in the past and will only include those providers on the approved provider list.

B. Request a Certification from Existing Providers

Request that each provider on the current approved list sign a certification that they will enter into, in good faith, an information-sharing agreement with the employer, and they will not exchange contracts with a provider who is not authorized or has not signed a certification (the signers list to be distributed by the employer).

Communicate with all participants and beneficiaries and indicate that after September 24, 2007, exchanges may only be made with providers on the approved provider list who have signed certifications.

C. Suspend Exchanges

Notify all participants, beneficiaries, and providers that no exchanges may be made after September 24, 2007 until further notice. Once plan design and administrative decisions have been made, final provider lists finalized, plan documents drafted, and provider agreements — containing information-sharing provisions — signed, exchanges will again be available. Some employers may decide to take other approaches.

Long-Term Approach

As a practical matter, it is anticipated that exchanges in the future be limited to providers on the approved provider list. It is expected that provider agreements will be in place by December 31, 2008 with each vendor and that the information-sharing requirements will be part of the provider agreements.