Demystifying the Rumors Regarding 403(b)s for K-12

Kelli Smith, IRS Employee Plans Specialist, Kelli.smith@irs.gov

Ellie Lowder, TGPC, elowder@gainbroadband.com

Fiduciary responsibilities Disclosure of fees Written plan document failures

Items to be addressed

Notice 2009-3 – For 2009 year only◦ 403(b) Plans required to meet Final Regulations in

form & operation◦ Extension of time if:

Plan adopted by 12/31/09 – Effective on 1/1/09 During 2009 – plan operation meets 403(b) Before 12/31/09 – ER makes correction of any

operational failure during 2009

Written 403(b) Plan ~ Background

Discovered under examination- 2010

Plan language only ◦ Written plan not adopted by 12/31/09, but ER

corrects this prior to IRS contact Reasonable Sanction – depends on number of eligible

employees, not less than the VCP fee◦ Written plan not adopted by 12/31/09, not

corrected prior to IRS contact Sanction will be greater than above

Written 403(b) Plan ~ Failure to satisfy 2009-3

Discovered under examination- 2010

Plan language & Operational ◦ Correction will be done under same procedures

covered◦ Sanction may be increased depending on the

operational issues.

Written 403(b) Plan ~ Failure to satisfy 2009-3

Announcement 2009-89 provides for a Remedial Amendment Period (RAP) for:◦ Plans that have met Notice 2009-3◦ New Plans – adopted after 12/31/2009

What is a RAP?◦ A length of time where you may go back and

make changes to the plan to comply with the law with no penalty.

Written 403(b) Plan~Defective language

ER will have a RAP if:

◦Corrects the written plan language

AND

Written 403(b) Plan ~Remedial Amendment Period

◦Intends to adopt an approved 403(b) prototype Plan, OR

◦Intends to apply to the IRS for approval on their individual plan

Allows correction to be retroactive

No sanction will be assessed

Keeps the plan in tax favored status

Written 403(b) PlanBenefits of the RAP

Notice 2009-3 – Failure to have a written plan in place by 12/31/09◦ Correctable thru agreement and sanction

Announcement 2009-89 – Establish a RAP when plan is “in place”, by 12/31/09

Written 403(b) PlanSummary

Ellie Lowder, Tax-Exempt & Governmental Plan Consultant (TGPC)

Author; Section 403(b) Compliance Guide for Public Education Employers (ASBO, by Rowman & Littlefield

Volunteer member: ASBO Retirement Plan Council

elowder#gainbroadband.com

Fiduciary Responsibilities

Please note that Ellie Lowder does not provide legal or tax advice, nor can anything in this presentation be used for the avoidance of income taxes or penalties assessed by a USA tax authority.

Disclaimer

ERISA – but, all governmental employers are exempt from ERISA for their retirement plans (ERISA 3(32))

403(b) Final Regulations>But NO fiduciary obligations appear in those regulations>The regulations apply compliance responsibilities ONLY

Possible Sources of Fiduciary Applicability

Most states have legislation in place enabling public education employers to establish 403(b) plans

Most states do not impose fiduciary responsibilities to their 403(b) plans

What about Illinois statutes?

Sources: Fiduciary Responsibilities at the State Level

Possible changes in the works? Update, status, on HS 5495

Illinois Statutes, Cont.

Responsibility for selection of the investment options; monitoring the performance

Responsibility for determining that fees are reasonable for the services provided

Carry out duties with skill, prudence and diligence

What Does it Mean to be a Fiduciary?

Yes, failure to follow required standards of conduct may cause personal liability

Could involved restoration of losses IF losses due to “breach of their duties” including failure to remit contributions timely (as soon as practicable, but no later than the 15th business day of the month following the reduction from the paycheck

Can a Fiduciary be Held Personally Liable?

The employer Governing Board Plan administrator Money managers Perhaps your attorney or accountant

Fiduciary Liabilities Could Apply to:

Select investment providers based upon their willingness and/or ability to help you comply with the 403(b) regulations>select those willing to enter into written agreement to provide the information necessary to meet your compliance responsibilities

Note potential compliance issues with de-selected providers (will they cooperate?)

Avoidance of Fiduciary Responsibilities

What are your obligations? Note that the DOL will require fee

disclosures in ERISA plans Does not apply to you Best practices – do you want to disclose

fees even though not required to do so? If so, will your product providers or TPA

assume that disclosure for you?

Fee Disclosures

You may be approached by a consultant or other type of firm with the assertion that you are a fiduciary (often with an offer of services to help you manage the obligations)

Your response: “Please share with us the statutes or other citations that support your assertion that we are fiduciaries”

Ask your legal counsel to confirm or deny!

What to Do If You are Told You are a Fiduciary for your 403(b) plan?

Follow up questions?

Feel free to direct to either of us: e-mail addresses for both Kelli and Ellie on previous slides!

THANK YOU!

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