2/23/2010

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New 403(b) Regulations:

The Impact on 501(c)(3)s Thursday, February 24, 2010

2:00 – 3:00 pm Eastern Time

Hosted by ASAE Business Services, Inc. and the Principal Financial Group®

Your Presenters:

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Vince joined The Principal in 1997 as a retirement

plan specialist, and then served as a regional pension

specialist role for tax exempt business, focusing on

hospital/healthcare and association retirement plans

before moving into his current role in 2005. He has

extensive experience with retirement plan design

consultation, 403(b), 401(a), 401(k), Defined Benefit,

457(b) Nonqualified and 457(f) Nonqualified plans

and current trends in the tax exempt market. Prior to

joining the company, Vince was an umpire for Minor

League Baseball for ten years.

Michelle has been in the financial services industry

with The Principal Financial Group since 1999. She is

responsible for managing and growing relationships

at the corporate level with key distribution alliances

for retirement plan business. Michelle is a strategic

partner with these firms to build awareness of

Principal’s products and capabilities. In addition, her

efforts to develop and implement customized

marketing and business plans for each firm help to

increase sales for both entities and build a successful

partnership.

Vince Rainforth

Vice President, Tax Exempt Market

Principal Financial Group

Michelle Ladenthin

Relationship Manager

Principal Financial Group

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Learning Goals:

�Understand the Internal Revenue Service

(IRS) and Department of Labor (DOL)

regulations for 403(b) plans and the

increased fiduciary demands

�Identify the top challenges for plan

sponsors

�Learn how to build and maintain a

responsible retirement plan

�Determine the next steps for your

403(b) plan

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Polling Question

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Does your organization currently participate in a 403(b) plan?

� Yes, solely participating in a 403(b) plan

� Yes, it’s one of multiple retirement plans we offer

� No, but sponsoring another type of retirement plan

� No, do not offer retirement benefits

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Impacted by the Change

�Most common organizations impacted:

• Private organizations —

charities, association foundations, research

firms, cultural

• Hospitals and healthcare services

• Private schools, colleges and universities

• Religious organizations

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The Evolution of Non-Profit

Organization Retirement Plans

Origination of 403(b) plans1940’s

1974: Employee Retirement Income Security Act (ERISA) allowed 403(b)(7)

Custodial Trustee (Mutual Fund)

Origination of 401(k) plans

403(b) audits found high fail rate

401(k) plans allowed for ALL tax exempt organizations

Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA):

• Consistent limits [403(b), 401(k), and 457(b)]

• Portability

Pension Protection Act (PPA):

• Auto enrollment

• Lifecycle portfolios allowed as a Qualified Default

Investment Alternative (QDIA)

403(b) regulation changes:

• Plan document requirements

• Changes transfer rules

• Termination of 403(b) — distributable event

1970’s

1980’s

1990’s

2002

2006

2009

*Retirement Resource Inc., 2006

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Final 403(b) Regulations

�Requires a plan and plan document

• Plan Governance

• Establish a Process

�Universal availability - “Effective Opportunity”

�Allows distribution on plan termination under certain

circumstances

�Implementation of the regulations-(Notice 2009-3)

• Effective Dec 31, 2009

Department Of Labor Requirements:

�Form 5500 (ERISA plans only)

• Limited scope accounting audit (100 eligible participants)

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Benefits of a 403(b) Plan vs. a 401(k)

403(b):403(b):� No actual deferral

percentage (ADP) test

� No top heavy testing

� Universal availability –

allows certain exclusions

� 5 years after separation

contribution

� 15 years of service catch-up

for qualified organizations

� Potentially separate 415

rules if use 403(b)/401(a)

design

401(k):401(k):� Safe harbor 401(k) - can you

make the required 3% flat

or 4% matching

contribution in future

years?

� Coverage testing if you

exclude employees in 401(k)

� Cannot merge 403(b) with

401(a) or 457

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Top 403(b) Plan Sponsor Challenges

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Outside contract challenges:

�Plan level reporting/Information sharing

�Administrate/Monitor plan activities

�Partnering with a third party for assistance

Overall challenges:

�Evaluating ERISA coverage

�Adopting written plan terms and governance practices

�Employee education

• Consistent messaging

*ERISA plans, audit only for plans with over 100 eligible participants

Plan Sponsor Challenges:

Outside Contract Implications

1. Are assets ERISA or non-ERISA?

2. Are contracts grandfathered?

3. When is information sharing needed?

4. What information is needed?

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Steps to Determine:Steps to Determine:

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Plan Sponsor Challenges:

Actively vs. Non-Actively Plan Sponsoring

Actively Sponsored:� Like a typical qualified 401(k) plan

� Governing plan document

� If ERISA, the plan fiduciary is responsible for the administration of the underlying plan

� Generally ERISA for private 501(c)(3)- Exception: (Quasi-Govt. and Church status)

Non-Actively Sponsored:� Most often used by public 501(c)(3) organizations (public schools)

� No plan document (traditionally)- Change in 2009

� Multiple service providers sell annuities or mutual funds in custodial accounts to individual

participants, primarily in a retail environment – referred to as the cafeteria approach

� Non-ERISA plans

Actively Sponsored Hybrid Model:� May have actively sponsored plan with a conscious decision to allow multiple vendors

� May have old, non-actively sponsored contracts due to changing service providers in the

past or moving from a non-actively sponsored plan to an actively sponsored plan

� Outside contracts that are ERISA are plan assets even if you have not

coordinated in the past

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Plan Sponsor Challenges: ERISA

� Providing any EMPLOYER contribution

� Making hardship, loan, qualified domestic relations order

(QDRO) determinations

� Satisfying qualified joint and survivor annuity requirements

� Encouraging participation in the plan

� Selecting or promoting certain investment options/vendors

*Please work with your legal counsel to make final determination

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What makes a plan subject toWhat makes a plan subject to

ERISA?ERISA?

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Plan Responsibilities:

ERISA / IRS / Fiduciary

ERISA DOL:� Form 5500 oversight

� Fiduciary Standards and Plan Participant protection

� Limited scope accounting audit (80-120 rule applies)

IRS/Treasury:� Writes the tax regulations

� Enforces tax law

� Grandfathering may apply here for coordination of contract purposes only

Fiduciary Role� Plan Governance

� Participant education

� Investment monitoring

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Considerations:

�Successor plan rules • No new 403(b) arrangement

• 401(k) plan is an option

�Deemed distributions• Fully, paid-up contracts

�Don’t over-simplify the regulations

Overall Challenges: Plan Termination

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Plan termination is aPlan termination is adistributable event.distributable event.

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Plan Design

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Plan Sponsor

Plan Design

�Many organizations have multiple

plan types:

• 403(b)

• 401(a) qualified

�Money Purchase; Profit Sharing;

Defined Benefit; 401(k) - Safe Harbor

• 457(b)/457(f)

�Governmental; Tax Exempt

Forward-looking ERISA Retirement Program — Streamline the Design

What combination makes the most sense for

your organization?

Coordination of the Plan

� Education from one vendor• One message

� Compliance• Ongoing testing with one

vendor

• Some limits need to be

coordinated with outside

vendors (loans, hardships,

SAFO, QDRO’s)

� Administration• Reports at the employer level

• One contact for plan questions

• Participants see all retirement

funds on one statement

• Single provider platform

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Plan

Compliance

Participant

Education

Administrative

Services

Record Keeping

Plan Sponsor

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Investment Options

� Individual contracts or group

arrangements• Mutual funds under a custodial

account; annuity contracts;

• Individual contracts moving to

single provider plans – what are

the rules?

• Surrender charges

• Determine what you have

• Identify assets required to be

reported on Form 5500

� Investment policy statements• Fiduciary review

• Investment committee

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Plan Sponsor

Investment

Options

� Form a committee

�Determine under what model the plan falls

� Identify contracts in actively sponsored plan• Document key provisions of each contract

�Determine future approach• Form 5500 (identify plan assets)

• Withdrawal features

• Update plan document

�Determine approach for past structures• Consider strategies to consolidate plan assets

• Review and approve plan restatement

�Determine approach with multiple plan types• What to do with 401(k) and 403(b), or money purchase and 403(b)

The Next Steps

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While this communication may be used to promote or market a transaction or an idea that is discussed in the publication,

it is intended to provide general information about the subject matter covered and is provided with the understanding that

The Principal is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid

penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters

pertaining to legal, tax, or accounting obligations and requirements.

No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical,

including photocopying or recording, or by any information storage and retrieval system, without prior written permission

from the Principal Financial Group®.

Insurance products and plan administrative services are provided by Principal Life Insurance Company,

a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.

Disclosures

WE’LL GIVE YOU AN EDGE®

© 2008 Principal Financial Services, Inc.

PQ 8850 | 10/2008 | #9896102010

Vince Rainforth

Principal Financial Group(877) 916-2900 ext.251

rainforth.vince@principal.com

www.principal.com/retirement/asae

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Questions?To submit your questions:

1. Type your questions in the box located in the lower left corner.

2. Click the “Send” button.

Michelle Ladenthin

Principal Financial Group(515) 362-0208

ladenthin.michelle@principal.com

www.principal.com/retirement/asae