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403(b) Retirement Plan Compliance Gary Mauger and Christine Dailey Managing Partners (704) 900-5566 gmauger@newpcg.com www.newpcg.com
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Agenda Key 403(b) regulations First year audit findings Employer responsibilities Next steps Resources for help Questions and discussion
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New 403(b) Regulations Major Changes and Requirements Written plan document Nondiscrimination testing changes Transfers In-service distributions Form 5500
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New 403(b) Regulations Written Plan Document Required for ERISA and non-ERISA plans Must be congruent with vendor contracts/custodial agreements SPD requirements
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New 403(b) Regulations Plan Transfers Transfers-in Target contract must be as strict Benefit must be equal Transfers-out require an Information Sharing Agreement (ISA)
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New 403(b) Regulations In-Service Distributions Employer must coordinate loan and hardship information May delegate to a third party Triggering event required for in-service withdrawals for employer contributions
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New 403(b) Regulations Nondiscrimination Testing Repeal of Notice 89-23 Elimination of permitted disparity safe harbor Age and service graded plans must now test each grade
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New 403(b) Regulations Form 5500 Full Form 5500 required beginning with 2009 plan years Significantly more complex Audit required for plans with 121 participants or more
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Timeliness of Contribution Remittance Rule: Remittance must be sent as soon as administratively feasible but no later than 15 business days following the month of withdrawal. Issue: Late remittances must be reported on the Form 5500 and a correction including lost earnings made for each participant. Best Practice: No safe harbor for large plans (more than 100 participants). Seven day safe harbor for small plans. Remit ASAP after every payroll.
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Hardship Withdrawal Compliance Rule: Use Safe Harbor Criteria; Stop deferrals for six months Issue: Who is determining eligibility for hardship? Have deferrals stopped for six months? Best Practice: Delegate eligibility determination to vendor if possible. Stop deferrals for six months.
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Plan Document Accuracy Rule: Plan document must accurately reflect actual administrative practice. Issue: Does the plan document accurately describe key administrative practice such as eligibility requirements, hours of service definition, etc. Best Practice: Carefully follow the plan document. If changes are made, amend the document.
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Definition of Compensation Rule: Elective deferrals must be calculated on “Includable Compensation” (Total Compensation). Employer contributions can be made on a different definition of Compensation. Issue: If the two definitions of compensation (elective deferrals and employer contributions) are different, this must be administered correctly with payroll deductions and the Salary Reduction Agreement. Best Practice: Review definitions of compensation for each and revise practice as necessary.
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Compliance Testing Rule: Plan must be tested for nondiscrimination each year.. Issue: Tests are not performed. Best Practice: Test annually and retain the results.
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Fidelity Bond Rule: A fidelity bond of 10% of plan assets with a max of $500,000 is required. Annuity only plans may be exempted. Issue: Many plans now have mutual funds requiring the bond and there is uncertainty about the annuity exemption. Best Practice: Purchase and maintain a bond.
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Employer Responsibilities Sound plan design Plan document/SPD Nondiscrimination Testing Reporting and disclosure More involvement in plan operations Investment Due Diligence
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Employer Responsibilities Fiduciary Duties What is your fiduciary responsibility? Learn duties Prudent expert standard Plan decisions Plan compliance and administration Investment due diligence process Named Fiduciary Fiduciary Insurance
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Next Steps Compliance Audit Adherence to Plan Document Provisions Nondiscrimination Testing Required Reporting and Disclosure Investment Due Diligence Process
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Resources Advisor Vendor information Consultant Regulator publications
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Resources Links Final 403(b) Regulations: http://www.treasury.gov/press/releases/hp501.htm http://www.treasury.gov/press/releases/hp501.htm IRS Information: http://www.irs.gov/retirement/article/0,,id=172430,00.html http://www.irs.gov/retirement/article/0,,id=172430,00.html Department of Labor Bulletin: http://www.dol.gov/ebsa/regs/fab2007-2.html http://www.dol.gov/ebsa/regs/fab2007-2.html
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Questions and Discussion Gary Mauger and Christine Dailey Managing Partners New Pinnacle Consulting Group, LLC (704) 900-5566 gmauger@newpcg.com www.newpcg.com
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