1. SAVING : INVESTING : PLANNING EXPERTISE How to Prepare For and Survive a 403(b) Plan Audit Joseph S. Kendy III Senior Counsel

2. 403(b) IRS Examinations What are they? Review of organization’s, books and records in regard to maintenance of their 403(b) plan Initial focus – > Specific tax year > Potential for expansion Objective – look for non-compliance

3. What is the basis of the exam? It could be any Code Section 403(b) compliance matter: > Timely plan adoption > Form compliance > Operating in accordance with plan terms > Universal Availability > Plan terminations > Form 5500 and internal audit – not applicable to public schools

4. Who is examined? & How are they selected? Education > Public & Private > K-12 & Higher Education Healthcare > Public & Private −Tax-exempt only (501(c)(3)) Other 501(c)(3)s Selection process > National Plan > Local Selection

5. What is the process? Step 1: They’re coming! > Phone call or letter Step 2: They’re here! > The importance of the initial meeting −Assemble the right team −HR / Payroll / Counsel −Have them in the room Step 3: Information Document Requests (IDRs) > Identifies: −What documents −What timeline −Negotiating Scope & Requests > Count on additional IDRs

6. Gathering IDR Documents & Records Employer’s Records Investment Provider Records Other service providers records > Compliance service provider, > TPA, etc. Negotiate scope and delivery

7. How is the exam resolved? Examiner’s initial findings Plan sponsor team review of initial findings Discussion, modification, & negotiation Final findings Closing Agreement (Audit CAP) Generally involves correction & sanction

8. Reality Check What are the odds of an audit? > Can vary by location & over time Is playing “Audit lottery” a good strategy? > No! > Ignorance isn’t bliss A lot at stake: > Your institution > Your participants IRS compliance activity – doesn’t end here

9. Compliance through correspondence (The non-exam) Employee Plans Correspondence Unit (EPCU) > An Employee Plans activity > Not to be confused with Exempt Organizations Extends the reach of limited IRS Resources > Beware the innocent inquiry from the IRS The EPCU Process > Targeted initiatives > Initial questionnaire and follow-up

10. EPCU 403(b) Initiatives K-12 Universal Availability > Phase I - completed 2009 > Over 5,500 letters sent out: −11 exams −1,000 identified for potential issues. Other 403(b) initiatives possible

11. Main Issues for IRS Activity Universal Availability > Potentially significant tax consequences to plan & participants Contribution Dollar Limitations > Records are data driven

12. Universal Availability Review Who can be included? > All common law employees can be eligible Who can be excluded? > Employees who work <20 hours/week > Students may be excluded −avoid pitfalls of misclassification > Leased employees & independent contractors −are never eligible Effective communication and opportunity needed

13. Review of 403(b) 2013 and 2014 Contribution Dollar Limits Overall DC limit: $52,000 for 2014, $51,000 for 2013 Includes elective deferrals (unchanged for 2014) > Basic: $17,500 > Long term Employer Catch-up, up to: $3,000 > Age 50 catch-up: $5,500

14. 2013 Updates 403(b) prototype program > Currently found in Revenue Procedure 2013-22 Update to Employee Plans Compliance Resolution System (EPCRS) > Currently found in Revenue Procedure 2013-12 > Voluntary Correction Program > Self Correction

15. Resources Published IRS guidance > Regulations > Notices > Revenue Procedures > Revenue Rulings Individual rulings and determinations > Relied on only by recipient IRS website ( www.irs.gov) www.irs.gov DOL website (for ERISA plans) www.dol.gov www.dol.gov Legal Counsel, Investment Providers, Other Service Providers

16. QUESTIONS ?

17. SAVING : INVESTING : PLANNING THANK YOU

18. Securities and investment advisory services are offered by VALIC Financial Advisors, Inc., member FINRA and an SEC-registered investment advisor. The information in this presentation is general in nature and may be subject to change. Neither VALIC nor its financial advisors or other representatives give legal or tax advice. Applicable laws and regulations are complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. For legal or tax advice concerning your situation, consult your attorney or professional tax advisor. VALIC represents The Variable Annuity Life Insurance Company and its subsidiaries, VALIC Financial Advisors, Inc. and VALIC Retirement Services Company. Copyright © The Variable Annuity Life Insurance Company. All rights reserved. VALIC.com Template (04/2009) J73125 EE For Plan Sponsor Use Only