IRS Gives 403(b) Guidance Revenue Procedure December 2007

Model Plan Language Public School Districts only Other organizations can use, but at own risk Problem…some provisions, like automatic enrollment, can cause other organizations to suddenly have an ERISA plan If do not adopt Model Plan, employer must decide if it wants to receive “blessing” from IRS by private letter ruling process

Plan contains Optional Provisions Do not need to adopt optional provisions, but any part of plan that employer adopts, it must adopt word-for-word from the Model Plan Language Model Plan Language

Highlights of Plan Provisions Model Plan Language makes it clear if vendor is included in plan then there is no information sharing agreement needed (One will be needed later if the vendor is deleted from the Plan) Definition of a participant in the plan includes employees who have severed from service, but still have account balance

Optional provision that provides for automatic enrollment for new employees – Problem…what product would you use when they have withdrawal right for 90 days after first contribution made? Highlights of Plan Provisions

For participants covered by another 403(b) plan, administrator has to monitor the contribution limits Provisions for loans and hardship distributions Highlights of Plan Provisions

Plan-to-plan transfers to and from the plan must be only for a “class” of employees designated by the employer and all assets of the participant must be transferred As to exchanges within the plan, may exchange to an investment with a vendor not listed in plan if the employer enters into an information sharing agreement with the vendor Highlights of Plan Provisions

Plan contains the language from the regulations that account balances before the exchange must be equal to the account balance after … and the two accounts must be subject to the same restrictions Problem would be an ERISA 403(b) can not be exchanged for a non-ERISA 403(b) Highlights of Plan Provisions

Vendors Must Be listed Administrator is to maintain a list of vendors under the plan A good thing... the School Board, in most cases, must approve the plan, but the list can be changed without getting School Board approval each time If vendor is removed from list, it will need to enter into information sharing agreement with the employer

Optional Benefits that Should Be Included in the Plan Although provisions in Section 9 are considered optional, our opinion is that these should always be included… Allow QDRO’s, payments to minors, annuity and custodial agreements to be incorporated as part of plan, and general legal provisions usually included in all plans

What is not in Model Plan? Does not provide for Roth contributions Does not seem to provide for partial plan to plan transfers in or out Roth contributions with other Plans can not be exchanged or transferred into Plan No employer non-elective or match contributions

Orphan Contracts Contracts issued in that do not receive contributions for a year and issuer not in plan – They will remain 403(b) contracts as long as: 1.If a contract is not part of written plan, but the employer made good faith effort to make part of plan 2.Vendor tries to find employer before making distributions or loans and agrees to exchange information

Orphan Contracts (cont.) Contracts issued before 2009 held by former employees or beneficiaries – OK if not in plan – will still be a 403(b), however, vendor must make reasonable effort to determine compliance with loan limits and cannot rely solely on the representations of the participant

Re-exchange Provision More simply referred to as a correction procedure If contract exchanged after 9/24/07 and exchanged again before 7/1/09 with Vendor that is in plan or has ISA, policy OK as 403(b) even if intermediate company did not have ISA

IRS Gives 403(b) Guidance Revenue Procedure December 2007