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Non-Profits and 403(b) plans. TIME TO TAKE ACTION

Tim Pitney, Manager of Investment Advisory Service at Sapers & Wallack, originally penned this brief on 403(b) plans with purpose of informing plan sponsors and their advisers that if they had not yet complied with new IRS regulations, then they need to take remedial action - now. However, just yesterday (December 11, 2008) the IRS extended the deadline for complying with the Written Plan Requirement, from January 1, 2009 to December 31, 2009. So while there is relief on the timing, there is a lot of work for plan sponsors to accomplish so the message is the same: It’s time to take action!

403(b) plans (retirement plans for not-for-profits) have long been the “Wild West” of retirement plans. Historically, these plans have not been subject to the same regulations or have been governed as closely as 401(k) plans. This will change due to new Internal Revenue Service (IRS) regulations published July 26, 2007 that are leading to the “401(k)- ification” of the 403(b) plans.

The regulations represent some of the most sweeping changes in the retirement plan space, and certainly the not-for-profit retirement plan space, ever enacted. The final regulations provide updated guidance on several administrative requirements which should have been complied with by January 1, 2009 (now December 31, 2009 for the Written Plan Requirement) with later applicability dates for governmental, church and collectively bargained plans. Examples of some of the important provisions of the final regulations include the following:

  • Plan Documents: All plans, including non-ERISA plans, must have a single plan document that describes the key characteristics of the plan
  • 5500’s: Plan Sponsors of ERISA plans will have to file a form 5500 for Plan Year 2009, complete with a full financial audit
  • Plan Terminations: Final regulations provide guidance for terminating a 403(b) plan and triggering a distributable event. Information Sharing: Agreements with providers required in order to comply with coordinated limits
  • Universal Availability: The IRS underscored the responsibility of plan sponsor to offer a 403(b) to all employees, with few exceptions.
  • Fiduciary Responsibilities: If the plan is qualified as an ERISA plan, fiduciary responsibilities under ERISA apply

Plan sponsors should inventory their current plan, procedures and providers to determine how the changes may impact them. Often times this will require the assistance of a qualified advisor and/or benefits law attorney. These professionals can help develop a plan document, organize procedures consistent with the terms of the document and review service providers and fees. They can also help educate the employees on any new plan or procedural changes. It’s time to take action!

For further information, please call Tim at 617-225-2600 or email tpitney@sapers-wallack.com