Transcript Overview of Final 403(b) Regulations and Restructuring

Oklahoma City Community College
403(b) Update
J. Dudley Hyde
McAfee & Taft A Professional Corporation
211 N. Robinson, Two Leadership Square, 10th Floor
Oklahoma City, OK 73102
www.mcafeetaft.com
[email protected]
Direct dial (405) 552-2229 • Direct fax (405) 228-7429
Discussion Topics
• Overview of the relevant changes imposed
by the 403(b) Final Regulations
• Explanation of the Proposed Restructuring
of the Oklahoma City Community College
Employees’ Retirement Plan
Final 403(b) Regulations
Effective Date
The final regulations are generally
applicable for taxable years
beginning after December 31, 2008.
General Purpose
To diminish the extent to which
403(b) plans differ from other
salary reduction arrangements
such as 401(k) and 457(b) plans.
Plan Document Requirement
All 403(b) programs must be maintained pursuant
to a written plan document that:
– Satisfies, in form and operation, the regulatory
requirements of the 403(b) rules; and
– Contains all material terms and conditions for
eligibility, benefits, applicable limitations, the contracts
available under the plan, and the time and form under
which benefit distributions will be made.
Contract Exchanges
A 403(b) contract may be exchanged for another
section 403(b) contract under the same 403(b)
plan if:
1.
2.
3.
4.
The plan provides for the exchange,
The accumulated benefit immediately after the exchange is at
least equal to such benefit immediately before the exchange,
The other contract’s distribution restrictions are not less
stringent than the contract being exchanged, and
The employer enters into an “information sharing agreement”
with the issuer of the other contract .
Information Sharing Agreement
Under this agreement the employer and the issuer
will from time to time provide each other with
information necessary for the resulting contract to
satisfy section 403(b) and other tax requirements,
such as information regarding:
–
–
–
–
The participant’s employment.
Whether a severance from employment has occurred.
Whether hardship withdrawal rules are satisfied.
Whether a plan loan constitutes a deemed
distribution.
Grandfathered Period
The final regulations provide a
grandfathered period for contract exchanges
which:
1. Satisfied the Rev. Rul. 90-24 rules at the
time it was exchanged, and
2. Occurred on or before September 24, 2007.
Permissive Service Credit
A 403(b) plan may transfer assets to a
qualified defined benefit plan that is a
governmental plan if it is either:
1. For the purchase of permissive service
credit under the receiving defined benefit
plan; or
2. A repayment to which section 415 does not
apply by reason of section 415(k)(3).
403(b) and 401(k)
The final regulations do not fundamentally
change the current distribution rules, but
they try to conform the 403(b) distribution
events to those applicable under section
401(k)
Failure to Satisfy 403(b)
• If a contract purchased by an employer for an
employee fails to satisfy 403(b) requirements,
that contract and any other contract purchased
for that employee is not a 403(b) contract.
• However, operational failures within one
contract will not adversely affect any other
contracts purchased by that employer for other
employees.
Increased Employer
Responsibility
• Requirement that written plan comply in both
form and operation increases administrative and
compliance oversight responsibilities associated
with maintaining a 403(b) plan
• Additionally, the IRS is expected to increase its
scrutiny and auditing of 403(b) plans as part of
the release of the regulations
Oklahoma City Community College
Employee’s Retirement Plan
The Current 403(b) Plan
• To the extent an employee contributes 1.5% of
compensation, the College contributes 4.5% into
an account.
• The 403(b) Plan allows participants to direct
their accounts into separate 403(b) annuities or
custodian accounts.
• There are currently about 46 separate vendors
• Approximately 89% of all College employees
currently participate in 403(b) Plan
Proposed Changes
• Reduce the number of vendors from 46 to no
more than 12 to facilitate control and ease of
administration
• Current accounts in that plan will remain in the
403(b) plan or can be transferred directly to
403(b) annuities and custodial accounts offered
by the 12 remaining vendors
Purpose of Changes
• Better pricing with regard to investment options
and additional services, e.g.
educational/investment advice
• Improved ability to monitor the investment
performance of the options in the 403(b) plan.
• Simplified communications regarding
investments
Additional Recommendations
• Hire an independent investment consultant to
assist in implementing the RFP process and
evaluating responses
• Establish a retirement/investment committee to
provide fiduciary oversight of the plans
• Adopt an investment policy statement to govern
the types of investments offered under the plans
Why use a Consultant?
• Plan fiduciaries may not have the expertise to
adequately analyze investment options
• Have qualifications to be an “expert”
• Independent of providers of investment options
to the plan
• May relieve plan fiduciaries of some
responsibility/liability in selecting and monitoring
investment options
Questions?