403(b) documents on ftwilliam.com

By: Aimee Nash

September 3, 2008

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Agenda

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QuestionsOverview of 403(b) frequently asked questions

– 403(b) unique features– ERISA or not ERISA?– Types of churches under 403(b)– Nondiscrimination– Transfers, exchanges, rollovers– Information sharing agreements– Plan termination vs. freeze– Distribution basics– recurring part-year comp (teachers) and 409A/457(f)

ftwilliam plan documents– Full Scope plan (ftwilliam)– Limited Scope plan (ftwilliam)– ftwilliam.com software introduction

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403(b) features

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3 Plan Sponsor Types– Public School (PS)– Non-profit, 501(c)3– For the benefit of a minister

Special Catch-up for 15 years of service w/ qual org (in addition to age 50 catch-up)Plan Doc requirementNo IRS plan doc approval programPost-severance nonelective contributions allowed (up to 5 yrs)

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ERISA

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Is the Plan subject to ERISA?– Governments and Church Plans exempt

(Churches can elect to be covered – 410(d))– Non-profits must follow safe harbor if not Church

or government to be exempt

ERISA implications– 5500 filing requirement, SPD – QJSA, retirement age restrictions, claims

requirements, etc. – state law preemption

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Non ERISA option for Nonprofits (that are not govt or church plans)

l Background– If 403(b) is “established” or “maintained” by

employer subject to ERISA

– 29 CFR 2510.3-2(f) non-ERISA 403(b) safe harbor issued in 1979

New final regs (July 2007) – does the safe harbor still apply?

– FAB 2007-02: yes, with some clarifications

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Non ERISA option for Nonprofits 29 CFR 2510.3-2(f) safe harbor

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Participation “completely voluntary” for employeesRight enforceable solely by employeesEmployer receives no compensation/consideration for offering plans Employer involvement limited:

– Permitting vendors to publicize products to employees, Summarizing/compiling info re vendors avail

– Collecting salary reductions and remitting to vendors– Holding group annuity contracts in the employer's name – Limiting vendors available to employees (to a number and

selection designed to afford employees a reasonable choice in light of all relevant circumstances, listed factors)

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FAB 2007-02 interpretation of 29 CFR 2510.3-2(f)

Employers can:

perform duties as necessary to ensure tax compliance (nondisc, max contrib limits),

adopt a 403(b) plan,

perform information collection and compilation duties,

terminate a plan

and still meet the safe harbor

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FAB 2007-02 interpretation of 29 CFR 2510.3-2(f) cont.

The employer can not “have responsibility for, or make, discretionary determinations in administering the program.” This includes (as examples):

– authorizing plan-to-plan transfers, – processing distributions, – satisfying applicable joint and survivor annuity requirements, – making determinations regarding hardship distributions, – making determinations regarding QDROs, and – eligibility for or enforcement of loans

Negotiate with vendors “to change the terms of their products... such as setting conditions for hardship withdrawals”

Allocation of discretion permitted:“The documents should correctly describe the employer’s limited role and allocate discretionary determinations to the annuity provider…” or other third party 1.403(b) – 3: plan is permitted to assign admin functions to third party for whom a substantial portion of their duties are admin of the plan.

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Church plans under 403(b)

Church-related org

Implica-tions for 403(b)

definition

“FICA Church”

ERISA Church Plan

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403(b)(9) RIAs;

qualified org - special 403(b) catch-ups

Code 414(e)(3)

Exempt from:

Univ Avail and

nondisc

Exempt from ERISA

Code 3121(w)(3)

ERISA (3(33))

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403(b) Nondiscrimination

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Depends on type of plan sponsorElective deferrals– NO ADP test– Universal Availability applies (except FICA

Churches)

Employer contributions– No nondiscrimination applies if FICA Church – No nondiscrimination (except 401(a)(17)) if govt

plan– Otherwise: 401(a)(4), (5), (17), (26); 401(m)

(ACP); 410(b) apply

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Universal Availability

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Notice given at least once per year of right to elective deferral

limited exclusions allowed:– Employees eligible for another 403(b), 457(b) or 401(k) plan

– NRAs

– students performing 3121(b)(10) services (school, college, university)

– less than 20 hours per week (employer “reasonably expects” less than 1,000 HOS in 12 months)

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transfers, exchanges, rollovers

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Transfer:– Participant is an Employee or former Employee of the Plan Sponsor – with/without the consent of the affected Employees – distribution restrictions as stringent as those in the transferor plan – both plans must allow for transfer– permissive service credit transfers - gov’t DB plan only

Exchange:– fund not specifically approved by the Employer – distribution restrictions as stringent as those in the transferor plan– information sharing agreement required

Rollover in/out:– rollovers in need not be allowed under the plan– at option of Participant at distributable event– rollovers in: eligible plans can be restricted (403b, IRAs, all eligible plans)– Direct/mandatory rollover rules apply (out)

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Information Sharing Agreements

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Term “information sharing agreement” (ISA) never used in final regs - Rev Proc 2007-71

When is ISA required?– Regulations require ISA for contract exchange

on/after 9/24/07

– Rev Proc 2007-71 covers exchanges before 9/24/07 (Section 8)

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ISAs continued

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contracts issued after December 31, 2004 and before January 1, 2009

– for active employees: employer must make “reasonable, good faith effort" to arrange ISAVendor should make attempts to contact the employer before making a distribution or loan and exchange any information that may be necessary to meet 403(b) if the employer has not contacted the vendor/issuer.

– for former employees or beneficiaries: vendor required to make "reasonable efforts" before making a distribution / loan.

Employer is not required to make a reasonable, good faith effort to include the contract as part of the employer's plan.

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ISAs continued

Contracts issued before January 1, 2005 or before September 24, 2007 pursuant to Revenue Ruling 90-24

(issued to vendors that were not specifically approved under the plan):Employers and vendors with both of these types of contracts are not required to exchange information. Grandfathering rule takes into account employers will not have adequate information about these contracts' existence. These grandfathered contracts are not required to be maintained pursuant to a plan.

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ISAs continued

When is ISA not “required”?

contracts under the plan

transfers

These situations may realistically require ISA-like arrangements

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Plan Termination vs. plan freeze

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Plan Termination– Must distribute accumulated benefits under the plan “as

soon as administratively practicable”

– All of the contracts issued under the plan must satisfy the requirements of final regulations (other than plan doc)

– May immediately/concurrently start 401(k) plan

Freezing a plan– must still maintain a document

– must still file 5500s if subject to ERISA

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Distribution basics

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Elective deferrals / Custodial Accounts – Severance from Employment,

– death,

– disability,

– age 59 1/2

Annuity contracts – Severance from Employment,

– other event (stated age, disability, fixed number of years)

Required minimum distribution rules apply

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Notice 2008-62 457(f) and 409A: recurring part-year compensation

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No 457(f) or 409A deferred compensation if: – no pay deferred beyond the last day of the 13th month

following the beginning of service period – Pay deferred from one taxable year to another is not greater

than 402(g) limit ($15,500 2008) – must agree to defer before the service period begins

Example: 8/1/08 - 5/31/09 school year w/ $186,000 salary

– Earn: $93,000 in 2008 and 2009 (5 months in each year) – Pay: $77,500 in 2008 and $108,500 in 2009 – $15,500 paid in 2009 that is earned in 2008

ftwilliam.com 403(b) documents

Full Scope

Limited Scope

ftwilliam.com software

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Full Scope Plan

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ERISA or non-ERISA (govt/Churches) optionElective deferrals (including Roth)Voluntary contributionsMatching contributionsNonelective ContributionsLoans, Hardship and other in-service withdrawalsOther features:

– QACA / traditional automatic enrollment– EACA

Uses model language and 401k volume submitter language (fav letter) whenever possible/appropriate

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Limited Scope Plan

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Non-ERISA onlyElective deferrals (including Roth)Loans, Hardship and other in-service withdrawals“Individual Agreement” btw vendor and planState law rules Other features:

– Traditional automatic enrollment– EACA

Based very closely on IRS model document