The IRS announced last week that final 403(b) regulations will be issued this month and that they will be effective for 2006.
I am willing to take the IRS at its word as to issuance, although they could be delayed a month or two. The second element, making them effective for 2007, is more problematic. For starters, the 403(b) industry is not exactly designed for efficiency. Second, both charities and governments have more cumbersome processes for taking "corporate" action. Third, lots of employers (e.g., school districts) have an array of 403(b) products from different vendors and will be getting different advice from each. Fourth, six months isn't much time anyway. Last, effective dates seem to be pushed back infinitely for governmental employers. Employers should move as quickly as possible, but the regulations will probably not go into effect until 2007.
Reports say that some providers are charging on the order of $3000 to help meet the written plan document requirement. We are hoping that our solution, which is quick, efficient, written to avoid fiduciary status and a lot less money will become popular. Employers need to be very careful about not volunteering for a fiduciary status that they do not have to assume.
I am looking forward to the 414 part of the final regulations. The IRS operates under way too many different standards for nonprofit/governmental employers. These included 414 (which appears to require an 80% board control), 415 (50% board control by the employee), the church plan and governmental plan standards in 414 and ERISA, the requirements for getting a group determination letter of tax-exempt status and the operated, supervised or controlled by or in connection with standard for determining private foundation status. It would be far preferable if one set of standards were used, even if that requires legislation. Wherever the line is drawn, a lot of analysis and hard decisions will need to be made, as multiple 415 limitations disappear or appear, as plan become or cease being multiple employer plans, among other possible effects. Any line is better than no line, so that at least people know what to do, but one line would be preferable.
Should be exciting, at least. And maybe this will help trigger the professionalism and efficiency improvements that 403(b) markets need so much.
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I am a financial professional and I understand that there is a way to transfer money from an existing 403B plan into a 403b7 account for Non-erisa plans. The HR people at the hospital do not want to allow this and the administrator/investment company also say that the plan does not allow it. The way I understad it is that you are not discontinuing the plan you are just doing a like kind transfer. Do you have any idea if I can use any language from the ACT to make this happen?
ReplyDelete403(b) does not have as consistent a set of patterns and terms as 401(k), so there is no quick answer for your question. What you are probably referring to is the capacity to make like-kind exchanges from one 403(b) vehicle to another. All that this rule does is not prevent plans and participants from moving to new investment media, it does not require that the plan or the employer allow like-kind exchanges. If the employer is treating this as a plan, whether it is subject to ERISA or not (schools, church organizations), the plan's terms can permit this or bar it. I suggest as a starting point you go to FreeERISA.com and see if they are filing Form 5500s. If they are, have the participant request the plan document, a Summary Plan Description and the plan's most recent form 5500. At that point, you will probably hit a wall and be done. If there is no 5500, partcipants can still ask for the plan document, but ask nicely, and you will probably hit the same wall. If it's not a plan at all, please get back in touch.
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