Demystifying the Rumors Regarding 403(b)s for K-12
Kelli Smith, IRS Employee Plans Specialist, [email protected]
Ellie Lowder, TGPC, [email protected]
Fiduciary responsibilities Disclosure of fees Written plan document failures
Items to be addressed
Notice 2009-3 – For 2009 year only◦ 403(b) Plans required to meet Final Regulations in
form & operation◦ Extension of time if:
Plan adopted by 12/31/09 – Effective on 1/1/09 During 2009 – plan operation meets 403(b) Before 12/31/09 – ER makes correction of any
operational failure during 2009
Written 403(b) Plan ~ Background
Discovered under examination- 2010
Plan language only ◦ Written plan not adopted by 12/31/09, but ER
corrects this prior to IRS contact Reasonable Sanction – depends on number of eligible
employees, not less than the VCP fee◦ Written plan not adopted by 12/31/09, not
corrected prior to IRS contact Sanction will be greater than above
Written 403(b) Plan ~ Failure to satisfy 2009-3
Discovered under examination- 2010
Plan language & Operational ◦ Correction will be done under same procedures
covered◦ Sanction may be increased depending on the
operational issues.
Written 403(b) Plan ~ Failure to satisfy 2009-3
Announcement 2009-89 provides for a Remedial Amendment Period (RAP) for:◦ Plans that have met Notice 2009-3◦ New Plans – adopted after 12/31/2009
What is a RAP?◦ A length of time where you may go back and
make changes to the plan to comply with the law with no penalty.
Written 403(b) Plan~Defective language
ER will have a RAP if:
◦Corrects the written plan language
AND
Written 403(b) Plan ~Remedial Amendment Period
◦Intends to adopt an approved 403(b) prototype Plan, OR
◦Intends to apply to the IRS for approval on their individual plan
Allows correction to be retroactive
No sanction will be assessed
Keeps the plan in tax favored status
Written 403(b) PlanBenefits of the RAP
Notice 2009-3 – Failure to have a written plan in place by 12/31/09◦ Correctable thru agreement and sanction
Announcement 2009-89 – Establish a RAP when plan is “in place”, by 12/31/09
Written 403(b) PlanSummary
Ellie Lowder, Tax-Exempt & Governmental Plan Consultant (TGPC)
Author; Section 403(b) Compliance Guide for Public Education Employers (ASBO, by Rowman & Littlefield
Volunteer member: ASBO Retirement Plan Council
elowder#gainbroadband.com
Fiduciary Responsibilities
Please note that Ellie Lowder does not provide legal or tax advice, nor can anything in this presentation be used for the avoidance of income taxes or penalties assessed by a USA tax authority.
Disclaimer
ERISA – but, all governmental employers are exempt from ERISA for their retirement plans (ERISA 3(32))
403(b) Final Regulations>But NO fiduciary obligations appear in those regulations>The regulations apply compliance responsibilities ONLY
Possible Sources of Fiduciary Applicability
Most states have legislation in place enabling public education employers to establish 403(b) plans
Most states do not impose fiduciary responsibilities to their 403(b) plans
What about Illinois statutes?
Sources: Fiduciary Responsibilities at the State Level
Possible changes in the works? Update, status, on HS 5495
Illinois Statutes, Cont.
Responsibility for selection of the investment options; monitoring the performance
Responsibility for determining that fees are reasonable for the services provided
Carry out duties with skill, prudence and diligence
What Does it Mean to be a Fiduciary?
Yes, failure to follow required standards of conduct may cause personal liability
Could involved restoration of losses IF losses due to “breach of their duties” including failure to remit contributions timely (as soon as practicable, but no later than the 15th business day of the month following the reduction from the paycheck
Can a Fiduciary be Held Personally Liable?
The employer Governing Board Plan administrator Money managers Perhaps your attorney or accountant
Fiduciary Liabilities Could Apply to:
Select investment providers based upon their willingness and/or ability to help you comply with the 403(b) regulations>select those willing to enter into written agreement to provide the information necessary to meet your compliance responsibilities
Note potential compliance issues with de-selected providers (will they cooperate?)
Avoidance of Fiduciary Responsibilities
What are your obligations? Note that the DOL will require fee
disclosures in ERISA plans Does not apply to you Best practices – do you want to disclose
fees even though not required to do so? If so, will your product providers or TPA
assume that disclosure for you?
Fee Disclosures
You may be approached by a consultant or other type of firm with the assertion that you are a fiduciary (often with an offer of services to help you manage the obligations)
Your response: “Please share with us the statutes or other citations that support your assertion that we are fiduciaries”
Ask your legal counsel to confirm or deny!
What to Do If You are Told You are a Fiduciary for your 403(b) plan?
Follow up questions?
Feel free to direct to either of us: e-mail addresses for both Kelli and Ellie on previous slides!
THANK YOU!
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