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COLLECTED WISDOM™ on 403b Plans

A 403b tax-sheltered annuity (TSA) plan is a retirement plan, similar to a 401k plan, offered by public schools and certain 501(c)(3) tax-exempt organizations. The following are some resources to help manage and administer your 403b.

This archive contains not only the most current material on the topic, but also older items that are still relevant, provide background, perspective or are germane to the topic.

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Report Reveals 403b Plan Sponsors Support Retirement Saving and Investing

Employers' commitment to their 403b plan participants is evident in a new report just released by the ICI. Analyzing the plan year 2020 data for large 403b plans filing Form 5500 under the ERISA, the report finds that nearly one-third of large ERISA 403b plan participants were in plans that put their employees on the path to retirement saving with automatic enrollment.

Source: Ici.org, April 2024

Too Little, Too Late? Plan Contribution Timing Requirements and How to Correct Delays

One of the most basic duties of a defined contribution plan sponsor is to ensure that that there is no delay and participants' salary deferral elections are correctly and timely deposited into the retirement plan. Not only is this duty necessary for proper administration of the plan, but it is also part of a plan sponsor's fiduciary duties under ERISA. This is a review of the plan contribution timing requirements and how to correct delays.

Source: Brickergraydon.com, April 2024

403b Compliance Check: Universal Availability and the Student-Employee and Part-Time Employee Exclusions

If you administer a 403b plan you should be familiar with the term "universal availability." This concept means that, as a general rule, all employees must be allowed to make elective deferrals into the plan immediately upon hire. There are a few limited exceptions to this rule that permit the plan sponsor to exclude certain groups of people, but compliance with these exclusions is often akin to traversing a minefield.

Source: Brickergraydon.com, April 2024

Automatic Enrollment: This Is The Way

Thanks to SECURE Act 2.0, newly established 401k and 403b plans must now have automatic enrollment. Plans with an automatic enrollment feature immediately enroll employees in the employer-sponsored plan once employees satisfy eligibility requirements. 401k and 403b plans established after December 29, 2022, must have the automatic enrollment feature.

Source: Benefitslawadvisor.com, March 2024

Yale University Challenges Appeal in 403b Excessive Fee Suit

In a lengthy filing (109 pages), Yale University says the plaintiffs who lost their excessive fee case in a jury trial shouldn't get a "do-over." More specifically, the Yale fiduciary defendants in that case have filed the aforementioned brief stating that the Second Circuit need not concern itself with entertaining an appeal of that judgment, the first (and to date only) jury trial in this genre of cases.

Source: Napa-net.org, March 2024

CITs in 403bs Bill Headed to Senate

A bill that would authorize the use of collective investment trusts in 403bs is headed to the Senate after the House of Representatives passed it. The Expanding Access to Capital Act (HR 2799), sponsored by House Financial Services Committee Chair Patrick McHenry, includes three measures that were approved as amendments, including the 403b plan measure.

Source: 401kspecialistmag.com, March 2024

Calculating Earnings for 401k and 403b Plan Corrections: Do Your Best to Do Better

Practitioners tend to use the DOL's online calculator for late deferral deposits since EPCRS permits estimates, but to the extent one is being practical and making participants whole, the cheaper result of the online calculator should not prevail over the participant's, the plan's, or the default investment alternative's actual rate of return. Some other alternatives are presented here.

Source: Belfint.com, February 2024

Nearly Three Quarters of Higher Ed Institutions List Retirement Readiness as Top Concern

A new study on retirement plans in higher education institutions likens the past year's challenges to those during the COVID-19 pandemic and highlights how continuing economic fallouts have marred retirement planning for participants. According to Transamerica's latest Pulse survey, 71% of institutions say retirement preparedness is one of their top concerns, yet 86% cite the cost of living and inflation as their leading worry.

Source: 401kspecialistmag.com, February 2024

DOL Guidance on Pension-Linked Emergency Savings Accounts

The DOL has provided guidance on pension-linked emergency savings accounts, a special type of short-term savings account within a 401k or 403b account. The SECURE 2.0 Act authorized PLESAs to encourage elective contributions to 401k or 403b accounts because the limited ability to access money from those accounts in the event of an emergency has tended to discourage those who are lower paid from making elective contributions and thereby receiving an employer match.

Source: Segalco.com, February 2024

When It Comes to Vesting, the IRS Says Once a Long-Term, Part-Time Employee, Always a LTPT Employee

Under the SECURE Act and the SECURE 2.0 Act, employers must provide long-term, part-time employees the opportunity to make elective deferrals under their 401k plans and, beginning in 2025, their 403b plans. However, long-term, part-time employees are not required to be eligible for employer matching or profit-sharing contributions until they satisfy the regular plan rules. Despite this fact, one of the most salient issues surrounding the implementation of the new rule is how it impacts -- and complicates -- tracking when employees become vested in such contributions.

Source: Mwe.com, February 2024

IRS Confirms Long-Term, Part-Time Employees Excludible From Certain Nondiscrimination Testing

Under the SECURE Act and the SECURE 2.0 Act, employers must provide long-term, part-time employees the opportunity to make elective deferrals under their 401k plans and, beginning in 2025, their 403b plans. When this occurs, certain special rules apply to such employees that impact whether they must be included in annual nondiscrimination testing or receive required top-heavy vesting and benefits. As a result, employers need to understand these requirements, as they may impact how annual testing is performed and the results.

Source: Mwe.com, February 2024

Whatever Happened to CITs in 403bs?

403b plans still may not use collective investment trusts, an investment similar to a mutual fund that is subject to fewer regulations and requirements and often carries lower fees for defined contribution retirement plans. This is despite other defined contribution plans, such as 401ks and 457s, being able to use CITs and, according to recent data, doing so in greater volume every year. At the moment, the best chance in the near term for 403bs to access CITs is a bill in the U.S. House of Representatives that could come up for a vote in early March.

Source: Plansponsor.com, February 2024

IRS Confirms Same Hours-Counting Rules Still Add Up for Long-Term, Part-Time Employees

The new long-term, part-time employee rule has generated questions about whether all employers will now be required to track the actual hours all employees work to ensure compliance with this rule. The recently proposed regulations released by the IRS confirm that the answer is no. Employers do not need to change how they count periods of service toward plan eligibility. However, employers should revisit how such service is currently counted under their plans and consider the impact that may have on if and how the long-term, part-time employee rules apply.

Source: Mwe.com, February 2024

The Maximum Contribution May Be Lower Than You Thought: ADP and ACP Test Basics for 401k and 403b Plans

Business owners and Highly Compensated Employees are often shocked to hear that they cannot contribute the maximum 401k or 403b deferral because their plan did not pass the discrimination tests. Much to their surprise, through the Actual Deferral Percentage and the Aggregate Contribution Percentage tests, the Internal Revenue Code prevents HCEs from benefiting from tax deferrals significantly more than NHCEs, unless the plan is a safe-harbor plan. Maria T. Hurd, CPA, provides a full review of the issue.

Source: Belfint.com, February 2024

Can 403bs and CITs Some Day Be Friends?

403b plans still may not use collective investment trusts, an investment similar to a mutual fund that is subject to fewer regulations and requirements and often carries lower fees for defined contribution retirement plans. But, legislation to permit the pooled investment into 403b plans continues to inchworm its way through Congress.

Source: Planadviser.com, February 2024

A Long-Term, Part-Time Employee or Not a Long-Term, Part-Time Employee, That Is the Question

Under the SECURE Act and the SECURE 2.0 Act, employers must provide long-term, part-time employees the opportunity to make elective deferrals under their 401k plans and, beginning in 2025, their 403b plans. Because certain special rules apply to employees who enter an employer's plan as long-term, part-time employees, all employers need to understand when an employee is long-term, part-time.

Source: Mwe.com, January 2024

New IRS Guidance on Roth Employer Contributions

The IRS gave plan sponsors an early Christmas gift with the release of new guidance late last year addressing several key provisions contained in SECURE 2.0. A welcome portion of the notice was further guidance on the new option allowing for participants in 401k and 403b plans to elect to receive employer matching and nonelective contributions on a Roth basis. While this guidance is welcome, Plan Sponsors who wish to adopt this provision should first have an in-depth conversation with their recordkeeper to ensure that their recordkeeping system has been updated to support this new option.

Source: Brickergraydon.com, January 2024

SECURE 2.0 for 403b Plans

The SECURE 2.0 Act of 2022 is a sprawling bill, affecting 403b plans with many provisions that have come into force since passage. Retirement experts at PLANSPONSOR's recent webinar, SECURE 2.0 for 403b Plans, examined the provisions of the law that took effect this year and before.

Source: Plansponsor.com, January 2024

IRS Highlights Changes to Pre-Approved DC Plan Program

There have been significant changes to the IRS Pre-Approved Defined Contribution Plan Program, and two of the IRS officials involved in the thick of it recently provided a refresher on the program rules and recent developments. Central to recent developments is Revenue Procedure 2023-37, which the IRS issued in November 2023. It provided fresh guidance on qualified pre-approved plans and 403b pre-approved plans, and combined, conformed, clarified, and updated rules for those plans outlined in prior revenue procedures.

Source: Asppa.org, January 2024

Mandatory Auto-Enrollment is Coming for Some Plans: What to Know

Studies show that auto-enrollment increases plan participation, and soon it will not be optional for some plans. Among the many changes enacted in SECURE 2.0 is a requirement that new 401k and 403b plans have auto-enrollment and auto-escalation beginning in 2025. As with most of the SECURE 2.0 changes, there were many questions about how the rules would work in practice. Part of the "grab bag" guidance issued in recent Notice 2024-02 fills in some of the blanks but also leaves important questions unanswered.

Source: Cohenbuckmann.com, January 2024

2024 Benefits Limits

Employee benefits limits for 2024 have been promulgated by the government. Here is a one-page 2023-2024 comparison chart of important employee benefits limits.

Source: Clarkhill.com, January 2024

The Plan Sponsor's Guide to PEPs

This guide to PEPs is a resource for employers interested in providing 401k or 403b benefits using a pooled employer plan. Each section of the Guide takes 401k and 403b plan sponsors through the steps of how PEPs work and whether they are an appropriate approach for an employer; how to evaluate pooled plan providers; best practices for implementation and monitoring; and reviewing plan design and investment menus that can help meet the retirement needs of their participants.

Source: Pionline.com, January 2024

Bipartisan Bill Would Lower DC Plan Eligibility Age to 18

The Helping Young Americans Save for Retirement Act (S 3305) seeks to spur more savings by younger workers in DC plans. The bill would require sponsors of 401k and ERISA-covered 403b plans to let employees aged 18 through 20 contribute after they complete one year of service. However, employers could exclude these younger workers from receiving any employer-matching or nonelective contributions.

Source: Mercer.com, January 2024

IRS Notice 2024-2 Provides Guidance for Multiple SECURE 2.0 Provisions

On December 20, 2023, the IRS released guidance concerning certain provisions of the SECURE 2.0 Act of 2022. Notice 2024-2, which is in a Q&A format, is not intended to be comprehensive guidance but rather to offer assistance in commencing implementation of these provisions. The Treasury Department and IRS invite comments on the matters discussed in the Notice. Additional guidance is anticipated.

Source: Voya.com, January 2024

2024 Retirement Saver's Credit

The Saver's Credit, also known as the Credit for Qualified Retirement Savings Contributions, was designed to help low- to moderate-income individuals save for retirement by providing an additional credit toward tax liability on top of existing retirement savings incentives. Learn who is eligible and how it works.

Source: Usicg.com, January 2024

EBSA Releases Form 5500 Series for 2023 Reporting

New year, new forms. The Department of Labor's Employee Benefits Security Administration on Jan. 1 released Form 5500, Form 5500-SF, and Form 5500-EZ for reporting concerning the 2023 plan year.

Source: Asppa.org, January 2024

De Minimis Financial Incentives to Participate in a 401k or 403b Plan

On December 20, 2023, the IRS issued Notice 2024-2, which provides question-and-answer guidance on various aspects of the SECURE 2.0 Act. This article focuses on "de minimis financial incentives" under SECURE 2.0 Act Section 113.

Source: Spotlightonbenefits.com, December 2023

Why SECURE 2.0 Act Auto Enrollment and Escalation Will Boost Financial Wellbeing

The SECURE Act 2.0 contains dozens of changes to retirement plans, but perhaps none bigger than these two: New 401k and 403b plans will be required to automatically enroll participants in the respective plans, and employee salary deferral rates will automatically escalate each year. Here's what you need to know.

Source: Hubinternational.com, December 2023

403b vs. 401k - 2024

403b plans are generally subject to fewer technical requirements and less administrative burdens than 401k plans. But there are other differences as well. Here is a 4-page chart comparing the two types of plans.

Source: Consultrms.com, December 2023

403b Participation Hits All-Time High: PSCA

While participation rates in 401k plans dropped in 2022, participation rates increased in 403b plans last year and hit a record high, according to PSCA's 2023 403b Survey. The survey gathered information from 250 nonprofit organizations that sponsor 403b plans for employees and revealed that 80% of eligible employees contributed to their plans in 2022.

Source: 401kspecialistmag.com, December 2023

How Does the New Long-Term Part-Time Rule Affect 403b Plans?

Experts from Groom Law Group and CAPTRUST answer the question, "How does the new Long-Term Part-Time employee rule under the SECURE 2.0 Act of 2022 affect 403b plans since we already have a universal availability requirement?"

Source: Plansponsor.com, December 2023

IRS Updates Publication 571 for 403b Tax-Sheltered Annuity Plans

The IRS has released a draft of the updated version of Publication 571. This publication is intended to help taxpayers better understand the tax rules that apply to 403b tax-sheltered annuity plans. It covers maximum contribution amounts, excess contributions, the retirement savings contributions credit, and basic rules for distributions and rollovers.

Source: Napa-net.org, December 2023

Can a Plan Sponsor Limit Hardship Distributions?

The article answers this question, "Our 403b plan currently allows for hardship distributions, but the number of such distributions has been on the uptick in recent years. We don't wish to eliminate hardship distributions, but is there any way we can restrict their availability?"

Source: Plansponsor.com, November 2023

IRS Issues Guidance on Pre-Approved Plans

The IRS in Revenue Procedure 2023-37 has issued fresh guidance on qualified pre-approved plans and 403b pre-approved plans which combines, conforms, clarifies, and updates rules for those plans set forth in prior revenue procedures.

Source: Asppa.org, November 2023

Cornell Captures Another Win in Long-Standing Excessive Fee Suit

Another university 403b plan has won yet another victory in staving off an excessive fee suit by the Schlichter law firm. The case involved Cornell University, which had already successfully fended off most of the claims in 2019. In this most recent ruling in the U.S. District Court for the Southern District of New York, Judge P. Kevin Castel ruled that the plaintiffs had plausibly argued that it was imprudent to pay annual recordkeeping fees of more than $115 per participant but presented no evidence that this caused the plan to suffer losses.

Source: Napa-net.org, November 2023


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