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.
If you find a broken link or an items that you feel is outdate, irrelevant or no longer appropriate, please let us know.
Viewing SECURE 2.0 Through a 403b Lens
The SECURE 2.0 Act of 2022 continues the trend by making a handful of changes specifically for 403b plans. SECURE 2.0 also makes changes for defined contribution plans, in general, apply to 403b plans. This article gives a high-level overview of the SECURE 2.0 provisions affecting 403b plans and their sponsors.
Source: Mercer.com, May 2023
Another 403b Excessive Fee Settlement Announced
The parties in a two-year-old 403b excessive fee suit against a $2.3 billion plan have come to terms. The suit against the fiduciaries of the $2.3 billion Wake Forest Baptist Medical Center 403b Retirement Savings Plan -- the Medical Center, the Board of Directors of Wake Forest University Baptist Medical Center, and the Retirement Benefits Committee of Wake Forest University Baptist Medical Center -- for breaches of their fiduciary duties to the 19,000 participants of that plan.
Source: Ntsa-net.org, May 2023
Key Congressional Committee Approves Bill Allowing CITs in 403bs
Legislation that would allow 403b plans to invest in collective investment trusts has taken a significant step forward in the House of Representatives.
Source: Ntsa-net.org, May 2023
Enhancing 403b Plans to Be More Like 401k Plans
It seems like 403b plans are going through the process of becoming more like a 401k plan. Recent regulations in SECURE Act 2.0 are making this more so. This article examines this process.
Source: Orba.com, May 2023
House Officially Introduces Bill to Allow 403bs to Invest in CITs
The bill, titled "The Retirement Fairness for Charities and Educational Institutions Act of 2023" and backed by House Financial Services Committee Member Rep. Frank D. Lucas would amend federal securities laws to enhance 403b annuity plans in part by adding a CIT option.
Source: Napa-net.org, May 2023
Coming Soon: Determination Letter Program for Individually Designed 403b Plans
Starting in June 2023, the IRS will start accepting determination letter applications for individually designed 403b plans. As announced in Revenue Procedure 2022-40, plan sponsors of such plans will have the limited opportunity to receive favorable determination letters from the IRS in the case of an initial plan determination, upon plan termination, and in certain other circumstances identified by the IRS in published guidance.
Source: Truckerhuss.com, May 2023
Important Alert for 401k and 403b Plans That Do Not Allow Participants to Make Roth Contributions
SECURE 2.0 made an important change to the rules regarding catch-up contributions. Under the new rules, catch-up contributions must be made as after-tax Roth contributions if the participant contributing earned more than $145,000 in FICA wages from the employer sponsoring the plan in the prior calendar year. Moreover, if the Roth requirement applies to any participant, participants making under $145,000 must be permitted to make catch-up contributions as Roth contributions as well.
Source: Frostbrowntodd.com, May 2023
A 403b CIT "Fix" Gets Closer to Happening
A bill that would allow 403bs to invest in collective investment trusts could be headed for Congressional markup in the next few weeks.
Source: Napa-net.org, April 2023
Defined Contribution Plan Profile: A Close Look at ERISA 403b Plans, 2019
The BrightScope/ICI Defined Contribution Plan Profile is a collaborative research effort between BrightScope and the Investment Company Institute that analyzes plan-level data gathered from audited Form 5500 filings of private-sector defined contribution plans, providing unique, new insights into private-sector DC plan design. The report is 68 pages.
Source: Ici.org, April 2023
Study Shows ERISA 403b Plan Sponsors Design Plans to Promote Retirement Saving
The report found that the wide array of nonprofits that sponsor 403b plans design their plans to engage participants and promote retirement savings. Many large 403b plans subject to ERISA automatically enrolled employees into the plan. Four-fifths of large ERISA 403b plans had employer contributions and three-quarters of large ERISA 403b plan participants were in plans that offered employer contributions in 2019. And a majority of large ERISA 403b plans offered the flexibility of plan loans.
Source: Ici.org, April 2023
The Key Role of the Quirky 403b "Master Custodial Agreement"
Many practitioners will point to the 2007 403b regs as being a real seminal moment in the market. However, an even more fundamental development occurred some 7 or 8 years earlier, which still has deep reverberations in the way these plans operate: the quirky 403b master custodial arrangement.
Source: Businessofbenefits.com, April 2023
Northwestern University's Alternative Explanations Not Strong Enough to Defeat ERISA Excessive Fee Claims
On remand from the U.S. Supreme Court, the Seventh Circuit issued its opinion in Hughes v. Northwestern University, concluding that participants in two Northwestern 403b plans plausibly pled fiduciary-breach claims based on allegations of excessive recordkeeping and investment management fees, but dismissed their claim that too many investment options caused them "decision paralysis."
Source: Erisapracticecenter.com, April 2023
Secure 2.0: Treating Student Loans as Elective Deferrals
SECURE 2.0 was signed into law in December 2022 as part of the Consolidated Appropriations Act of 2023. Effective for plan years beginning after 2023, certain types of plans containing elective deferral features may choose to treat student loan payments as elective deferrals and make matching contributions on those amounts. These optional provisions are available to 401k plans, 403b plans, SIMPLE IRAs, and governmental 457b plans.
Source: Boutwellfay.com, March 2023
Long-Standing 403b Excessive Fee Suit Settles
The parties in one of the first university 403b excessive fee suits -- by participant-plaintiffs represented by the Schlichter law firm -- have unveiled the terms of a big settlement. The suit involved two plans sponsored by the University of Southern California.
Source: Ntsa-net.org, March 2023
Nerding Out on Secure 2.0: Long-Term Part-Time and 403b Plans
SECURE 2.0 reduced this eligibility period to only 2 consecutive years of service, starting in 2025. SECURE 2.0 also included language to subject ERISA 403b plans to the LTPT fun, starting in 2025. Questions have arisen as to whether the LTPT rules will override a class exclusion in a 403b for employees working fewer than 20 hours and/or student employees. Some practitioners have opined that the LTPT requirements will not override the exclusion rules.
Source: Ferenczylaw.com, March 2023
SECURE Act 2.0: 403b Plan Expansion and Enhancement
Over the years, 403b plans have been becoming more like their qualified plan cousin, the 401k plan. Despite this trend toward uniformity, legal, investment, and administrative differences have persisted. The SECURE 2.0 Act of 2022 includes several provisions that eliminate some of these remaining differences.
Source: Mcdonaldhopkins.com, March 2023
SECURE 2.0 Gives Long-Term Part-Time Employees Faster Access to 401k and 403b Plans
Among other things, SECURE 2.0 strengthens and expands the special 401k plan eligibility requirements for long-term part-time workers by shortening the eligibility service period for such workers and extending the application of the special rules to most 403b plans. Although these changes are effective for plan years beginning after December 31, 2024, plan sponsors must start tracking the service of long-term part-time workers much sooner than that to support compliance with the new rules.
Source: Verrill-law.com, February 2023
SECURE 2.0 Act: Cheat Sheet
On December 29, 2022, President Biden signed into law the "Consolidated Appropriations Act, of 2023," which included a major package of retirement savings provisions known as the SECURE 2.0 Act. As expected, the final package contained many of the same provisions included in the U.S. House and Senate bills that were previously considered. This is a 6-page summary with the effective dates of key provisions applicable to workplace plans.
Source: Troweprice.com, February 2023
Plan Fiduciaries Strike Quick Settlement in 403b Excessive Fee Suit
The parties in an excessive fee suit have struck a deal mere months after the suit was filed. The plan fiduciaries here are Springfield, Massachusetts-based Baystate Health Inc. They were sued last Nov. 17 by participant-plaintiffs Michael Chechile and Sonia Lopez. They claimed that the $910 million, 15,000 participant plan paid, on average, $70/participant for recordkeeping fees, compared to those in similarly sized plans that allegedly paid $31/participant for what were said to be comparable services.
Source: Napa-net.org, February 2023
How SECURE 2.0 Impacts 403b Plans, MEPs and ESOPs
The reach of SECURE 2.0 is extensive. Its general provisions affect all types of retirement plans, but SECURE 2.0 also has some provisions targeted at plans subject to their own set of statutory and regulatory requirements. Sponsors of 403b plans, ESOPs, and employers participating in or considering joining multiple employer plans should keep these changes on their radar.
Source: Cohenbuckmann.com, February 2023
Nonprofit Nemours Foundation Faces 403b Lawsuit
Former employees have filed a class-action complaint against the 403b retirement plan at the Nemours Foundation -- a nonprofit operator of children's hospitals -- in U.S. District Court. The suit, Jeanna Cannarozzo et. al. v The Nemours Foundation, alleges plan participants were charged excessive fees by recordkeeper Transamerica.
Source: Plansponsor.com, February 2023
IRS Updates Operational Compliance List for 403b Requirements
The IRS has updated the operational compliance list relevant to 403b requirements effective during the calendar year. The update adds a discussion of provisions that became effective in 2022. The IRS intends the list to help plan sponsors and practitioners achieve operational compliance by identifying changes in qualification requirements.
Source: Ntsa-net.org, February 2023
What Deadlines Apply to 403b Plans
Whether you are a school business official or a human resources employee of a nonprofit organization, chances are that you are juggling so many responsibilities that your time is at a premium. Knowing deadlines for amending your employer's 403b plan document helps keeps that plan compliant.
Source: Voya.com, February 2023
SECURE 2.0 Act: Optional Treatment of Employer Matching or Non-elective Contributions as Roth Contributions
Historically, employers were not permitted to provide employer matching or nonelective contributions in their 401k, 403b, and governmental 457b plans on a Roth basis. These types of employer contributions were allowed only on a pre-tax basis. Under a new provision of the SECURE 2.0 Act, effective immediately, plans may now allow participants to elect to receive matching and nonelective contributions on a post-tax basis.
Source: Schneiderdowns.com, January 2023
Early Excessive Fee Case Nears Settlement
The parties in one of the first university 403b excessive fee suits -- by participant-plaintiffs represented by the Schlichter law firm -- have come to terms on the eve of going to trial. The suit, filed in August 2016, involved two plans sponsored by the University of Southern California.
Source: Ntsa-net.org, January 2023
7th Circuit Poised to Revive Northwestern ERISA Suit
The U.S. Court of Appeals for the Seventh Circuit appeared receptive to reviving an ERISA class action suit against Northwestern University, claiming mismanagement of the workers' 403b plan, albeit on a limited scale. The employees alleged that Northwestern breached their fiduciary duties under ERISA by allowing too many investment options, causing them to pay excessive fees. In addition, they claimed that including the more expensive share classes of mutual funds precluded their access to lower-fee institutional share classes of mutual funds.
Source: Hallbenefitslaw.com, January 2023
Proposed IRS Regulations Would Make Permanent the Availability of Remote Spousal Consent Elections
On December 27, 2022, the IRS issued proposed regulations permitting remote witnessing, in the presence of either a notary public or plan administrator, as an acceptable alternative to the physical presence requirement if certain conditions are satisfied.
Source: Wagnerlawgroup.com, January 2023
Should We Continue to Refer to Our 403b Plan By an Outdated Name?
Article response to this question, "I work in employee benefits for a health care entity, and I noticed that our 403b plan is named the XYZ Hospital Tax Deferred Annuity Plan, even in the plan document. Our plan hasn't even had annuities for several years (we converted to an all-mutual-fund platform a decade ago) and we also now have Roth 403b account in addition to traditional tax-deferred accounts. Is there any reason that we should continue to refer to our plan by a name that is so outdated and potentially confusing to participants?"
Source: Plansponsor.com, January 2023
Secure 2.0's Unresolved 403b CIT Securities Law Issue
One of the more curious circumstances under SECURE 2.0 arises from the Acts Section 128, which purports to permit 403b plan custodial accounts to invest in interests in Collective Investment Trusts, referred to as "81-100" group trusts in the Act. But, as the Senate Finance Committee noted in its own Committee Report to the EARN Act, "In order to permit 403b plans to participate in a group trust, certain revisions to the securities laws will be required." Those necessary revisions, however, never made it into SECURE 2.0.
Source: Businessofbenefits.com, January 2023
Court Dismisses 403b ERISA Claim Against Employer, but Not the Plan's Adviser
The U.S. District Court for the Northern District of Texas filed a partial order on December 29, 2022, ruling on summary judgment motions from both defendants. District Judge Brantley Starr ruled that the plaintiffs have standing to bring the suit, but Legacy Counseling Center is exempt from the ERISA requirements in this case. Peveto Financial Group, on the other hand, cannot be held liable for IRS corrective damages, yet can still be held liable for not permitting wider plan participation if they are found to be a fiduciary.
Source: Planadviser.com, January 2023
After Committee Change, SECURE 2.0 Does Not Allow CITs in 403bs
Disregard any coverage to the contrary: SECURE 2.0, as passed, does not permit 403b plans to invest in collective investment trusts. House Financial Services had "consumer protections" concerns. The required amendments to securities laws did not make it into the final SECURE 2.0 Act.
Source: Planadviser.com, January 2023
Secure 2.0: Congress Enacts Wide-Ranging Changes to 401k and 403b Plans
As part of its mammoth 2022 year-end spending bill, Congress passed Secure 2.0, which makes dozens of modifications to the laws governing retirement savings. These revisions, almost all of which were driven by concerns that Americans are failing to accumulate sufficient resources to fund their retirement, build on changes Congress made in 2019 in the SECURE Act. This is a list of key provisions in Secure 2.0 that employers with existing 401k and 403b plans need to pay attention to.
Source: Blankrome.com, January 2023
What Does SECURE 2.0 Mean for 403b Plans?
The SECURE 2.0 Act makes several changes to 403b plans, aiming to standardize them with 401k plans to give 403b plan sponsors and participants broader retirement saving options. Experts weigh in on how SECURE 2.0 may make 403b plans operate more like 401ks, including being able to participate in PEPs.
Source: Planadviser.com, December 2022
How Does One Implement a Student Loan Matching Benefit?
The SECURE 2.0 Act passed Congress and would allow employers to offer matching 401k, 403b, 457b, and SIMPLE IRA contributions if the participant elects to pay down student loans instead of contributing to a retirement plan. This option would be available starting after December 31, 2023. How should plan sponsors go about implementing this provision, if they choose to?
Source: Planadviser.com, December 2022
IRS Expands Determination Letter Program for 403b Plans
IRS is expanding its determination letter program for individually designed plans to include many 403b plans. Rev. Proc. 2022-40 provides the first opportunity for 403b plan sponsors to get a determination letter, which gives assurance that their plan documents comply with all applicable IRC and regulatory requirements. IRS is also updating the program to incorporate changes for qualified plans made since the program's overhaul in 2016.
Source: Mercer.com, December 2022
New Determination Letter Program for 403b Plans
The IRS recently issued Revenue Procedure 2022-40, which permits the submission of determination letter applications for individually designed 403b plans used by certain public schools, churches, and charities. Beginning June 1, 2023, plan sponsors maintaining individually designed 403b plans will be able to request a determination letter for initial plan qualification, upon plan termination, or for other limited circumstances to be announced by the IRS.
Source: Buck.com, November 2022
What Deadlines Apply to 403b Plans
Whether you are a school business official or a human resources employee of a nonprofit organization, chances are that you are juggling so many responsibilities that your time is at a premium. Knowing deadlines for amending your employer's 403b plan document helps keeps that plan compliant. Here is a good review.
Source: Ntsa-net.org, November 2022
IRS Signals Employers Will Have Less Discretion Over Discretionary Match
Employers offering discretionary matching contributions have less discretion to set the terms of those contributions outside of plan documents. The IRS recently noted that 403b plan documents submitted for preapproval must include provisions on the computation period and allocation formula for a discretionary match. This likely means that going forward, all employers using preapproved documents for their defined contribution plans -- 403b and qualified plans -- should expect to specify these terms in newly adopted documents.
Source: Mercer.com, November 2022
New 403b Plan Determination Letter Program
Continuing a recent trend to more closely align 403b plans with tax-qualified 401k plans, the IRS recently issued Revenue Procedure 2022-40 to create a limited determination letter program for individually designed 403b plans. For the first time, 403b plan sponsors can request an IRS determination letter for their "individually designed" 403b plans on initial plan qualification, on plan termination, or in other limited circumstances to be established by the IRS.
Source: Groom.com, November 2022
IRS Provides Extension to Certain Retirement Plan Amendment Deadlines
On Aug. 3, 2022, the IRS issued Notice 2022-33 which extends the deadlines for certain plan sponsors to adopt amendments under the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and the Bipartisan American Miners Act of 2019 (Miners Act) until Dec. 31, 2025. This extension applies to non-governmental qualified retirement plans, 403b plans as well as collectively bargained plans, and IRAs.
Source: Bsk.com, November 2022
New IRS Revenue Procedure for 403b Plans
The IRS has now issued Revenue Procedure 2022-40, allowing the sponsor of an individually designed 403b plan to submit a request for a determination letter. Under this program, for the first time, an individually designed 403b plan will be able to rely on the IRS' approval that the form of the document meets all IRS requirements.
Source: Boutwellfay.com, November 2022
Plan Approval Program Expands to 403b Retirement Plans
The IRS and Treasury will let the churches, public schools, and charities that have 403b retirement plans take advantage of some of the same individually designed retirement plan determination letter program used by qualified retirement plans, beginning in June 2023.
Source: Thetaxadviser.com, November 2022
A Boon for the 403b: IRS Expands Tax-Favored Approval Process
The IRS announced the expansion of one of its programs for approving retirement plans, allowing 403b plans -- which are used by certain public schools, churches, and charities -- to apply for the same tax-favored treatment as qualified retirement plans. As of June 2023, the IRS will allow 403b plans to use the same individually designed retirement plan determination letter program used by 401ks.
Source: 401kspecialistmag.com, November 2022
403b Plan Fiduciaries Fend Off Excessive Fee Claims
Yet another excessive fee suit has been dismissed for failing to make a "plausible" case. The plaintiff, in this case, is Kaila Gonzalez, a participant in the Northwell Health 403b Plan, who filed suit against Northwell Health, Inc., the Northwell Health 403b Plan Committee, and 10 other unidentified Plan fiduciaries. She alleged that the defendants here allowed the Plan to be charged excessive recordkeeping fees and imprudently retained certain investment options in the Plan's investment menu in violation of ERISA.
Source: Ntsa-net.org, October 2022
Among Higher-Ed, DC Plans Viewed as Top Benefit for Attracting Talent
Findings from a bi-annual survey of retirement plan decision-makers in the higher education sector show that the DC plan is the No. 1 most important benefit for attracting and retaining talent. What's more, 90% also agree that a DC retirement plan helps attract high-quality employees, and 87% agree it helps retain high-quality employees.
Source: Napa-net.org, October 2022
Yale 403b Plaintiffs Move Ahead to Jury Trial
Plaintiffs in one of the first university 403b suits to be filed will get their day in court. The suit against Yale University was one of the first to be filed in this area by Schlichter Bogard & Denton LLP in August 2016. As has been the case with most in this genre, it alleged that employees paid excessive recordkeeping fees in addition to selecting and imprudently retaining funds which the plaintiffs claim have historically underperformed for years.
Source: Napa-net.org, October 2022
SECURE 2.0's 403b PEP Rules Will Be, Well, Different
With so much change continuing to be in the air, it seems all too rare to be able to take the opportunity to step back to broadly reflect on all of these moving pieces. The changes from CARES and SECURE, for example, are just working their way through the system, and now we expect to see SECURE 2.0 bring several further changes to the market. 2.0 is fascinating in many ways, especially given that right now it is just a mashing together of three different legislative efforts- plus some.
Source: Businessofbenefits.com, October 2022
PSCA Releases 2022 403b Survey
As employers everywhere continue to recover from the long-term impacts of the COVID-19 pandemic and compete for talent, employer contribution rates to 403b plans rose almost 24% year-over-year from 4.6% in 2020 to 5.7% of gross annual pay in 2021, according to an annual 403b Plan Survey from the Plan Sponsor Council of America, part of the American Retirement Association.
Source: Psca.org, October 2022
Who Are the Top 403b Providers in 2022?
As a small nonprofit, there are just some things that you struggle to find the time, resources, or staff to do. Looking for a 403b provider is one of those things. As a result, many nonprofits just default to one of the larger providers. Here is a comparison chart of the larger providers.
Source: Forusall.com, September 2022
Wake Forest University Retirement Plan Lawsuit Will Proceed
A federal judge has allowed an ERISA lawsuit to proceed. Defendants previously alleged that the 403b university plan was mismanaged by plan fiduciaries because it was filled with excessive-fee investments, that the plan fiduciaries misused revenue sharing to pay for administrative expenses, and that they failed to conduct periodic bids to the market to ensure that the recordkeeping and administrative costs remained competitive.
Source: Plansponsor.com, September 2022
What Qualifies as an "Immediate and Heavy Financial Need" Under Hardship Withdrawal Rules?
Do specialists have a list of the types of expenses for which distributions are deemed to be made on account of an immediate and heavy financial need from a 401k/ 403b plan under the hardship withdrawal rules? Experts from Groom Law Group and CAPTRUST answer the question.
Source: Plansponsor.com, September 2022
IRS Extends Retirement Plan Amendment Deadlines
Many tax-qualified retirement plans, including non-governmental 403b plans and IRAs, were running short on time to make needed amendments to plan documents before the December 31, 2022, deadline to comply with recently enacted law changes. Under the new Notice 2022-33, plans and IRAs now have until December 31, 2025, to amend those documents.
Source: Bdo.com, August 2022
Swift Settlement for Excessive Fee Suit
Capozzi Adler and Miller Shah have wrested another settlement in an excessive fee suit in record time. This time it's the $1.2 billion Rush University Medical Center 403b plan (which was sued by four former workers just a few months ago) that has agreed to settle for $2.95 million as well as "meaningful non-monetary relief related to the ongoing management and administration of the Plan."
Source: Napa-net.org, August 2022
Record Increases Projected for 2023 Retirement Plan Limits
The announcement of the official limits is still a few months away, but early projections from Mercer suggest that nearly all qualified retirement plan limits will increase by unprecedented amounts next year.
Source: Asppa.org, August 2022
403b and Lifetime Income
With all of the current focus on unique programs designed to enhance the attractiveness to participants and fiduciaries of adopting lifetime income programs under defined contribution plans, there is little discussion about how all of this plays out in the 403b market.
Source: Businessofbenefits.com, July 2022
University 403b Plan Faces ERISA Breach Lawsuit
Northeastern University is the latest plan sponsor to confront a lawsuit alleging breach of fiduciary duty to participants. The plaintiff has alleged excessive fees for recordkeeping, administrative services, and investment management in a new fiduciary breach lawsuit.
Source: Planadviser.com, July 2022
How Retirement Plans Can Correct Required Minimum Distribution Errors
When an error in administering required minimum distributions from a defined benefit or defined contribution plan violates Internal Revenue Code requirements, plan sponsors may be able to fix the problem by making corrective distributions under IRS procedures. This article outlines the solutions available when qualified or 403b plans miss or miscalculate RMDs. The coverage includes streamlined procedures for plans applying for IRS approval of a proposed correction and options for requesting a waiver of participants' excise taxes.
Source: Mercer.com, July 2022
Access to CITs Creates Opportunity for 403b Plans
The topic of making CITs permissible investment vehicles in 403b plans has been covered extensively over the past several years. This 5-page paper focuses the dialogue on what will be the most important innovations and their potential outcomes should 403b plans be allowed to use CITs, namely: potentially lower costs and opportunities for greater administrative efficiency, flexibility for more investment innovation, and more choice in short-term investing options.
Source: Dciia.org, June 2022
Universal Availability Audit Steps
Universal Availability violations often result in material adjustments to the financial statements due to the size of the corrective contributions that must be funded by the employer when eligible employees are improperly excluded from participation. For that reason, auditors do need to see census and payroll data for all employees who have been excluded from plan participation, as well as annual notices of the opportunity to defer for those who are eligible but not contributing.
Source: Belfint.com, June 2022
IRS Provides Guidance for Late Pre-Approved Plan Restatements
This IRS clarification allowing correction of these late adoptions without requiring a corresponding VCP filing is very helpful. While the IRS did not specifically address pre-approved defined contribution plans, for which the deadline to adopt a restatement for the current cycle is July 31, 2022, it is reasonable to conclude that this guidance will apply to those plans as well.
Source: Groom.com, June 2022
403b Universal Availability Rules
The 403b plan regulations realized the benefits of inclusion a long time ago, providing that if any employee can elect to make elective deferrals, then all the plan sponsor's employees must be allowed to defer, with very limited exceptions. For this universal availability requirement of the Internal Revenue Code to be satisfied, ensuring that employees have an effective opportunity to make elective deferrals at least once a year is imperative. Having a plan and not telling anyone or telling only the "cool kids" is not enough.
Source: Belfint.com, June 2022
Top Five Operational Errors of 403b Plans
No matter how hard we try, there are mistakes we are doomed to make again and again, even when we know the rules all too well. The reasons are valid, and they are countless: mindlessness, being in a rush, employee turnover, deadlines, distractions, the complexity of the rules, and failure to verify the plan provisions. Not surprisingly, the list of common mistakes financial statement auditors find is nearly identical to the list of common errors published by the IRS. Whether you have a large plan or a small plan, you should perform frequent self-reviews to ensure that you are not systematically making the following top five common mistakes.
Source: Belfint.com, May 2022
IRS Issues Updated Language for Section 403b Plans
The IRS recently issued its List of Required Modifications for pre-approved plan documents that are commonly used by employers that offer and/or contribute to Internal Revenue Code section 403b plans. Insurance companies, recordkeepers, and other providers of such pre-approved documents must now update their documents to incorporate changes reflected in the LRMs and must submit the updated documents to the Internal Revenue Service for approval during the one-year period that begins on May 2, 2022.
Source: Bsk.com, May 2022
IRS Provides Sample Language for 403b Plan Provisions
The IRS has published an information package that contains samples of plan provisions that have been found to satisfy certain requirements of Internal Revenue Code Section 403b and related regulations. The IRS says it has prepared the package to assist providers that are drafting 403b pre-approved plans, and to accelerate the agency's review of them.
Source: Planadviser.com, April 2022
IRS Updates LRMs for 403b Plans
The IRS recently issued an updated Listing of Required Modifications and Information Package for 403b plans. These LRMs contain quite a few changes, from simple clarifications and explanatory notes to more substantive revisions to plan language reflecting changes arising from the PATH, SECURE, and CARES Acts. While the LRMs are intended for 403b plans that use "pre-approved" plan documents, sponsors of individually designed 403b plans also frequently look to the LRMs for insight into what the IRS views as acceptable plan language. This article points out some of the more noteworthy changes in the latest LRMs.
Source: Groom.com, April 2022
Additional 403b Plan Document Guidance Released
The IRS has released a revised Section 403b Pre-Approved Plans Listing of Required Modifications and Information Package, which includes sample plan provisions to assist drafters of 403b pre-approved plan documents in satisfying the requirements of Internal Revenue Code Section 403b and associated regulations.
Source: Ascensus.com, April 2022
Washington University ERISA Lawsuit Reaches Settlement
A settlement agreement has been struck in the ERISA lawsuit filed against Washington University in St. Louis in the U.S. District Court for the Eastern District of Missouri. Though the defendants admit no wrongdoing in the settlement agreement, they have agreed to pay $7.5 million into a gross settlement account from which the funds will be distributed to class members and used to pay the plaintiffs' sizable attorneys' fees.
Source: Planadviser.com, April 2022
Study Finds Wide Range in 403b Plan Fees
A key finding of a recent GAO study is that fees for 403b plans varied widely. The agency surveyed ERISA and non-ERISA plan sponsors and service providers and reviewed the most recent Form 5500 data. It noted in its report that non-ERISA 403b plans are not required to file a Form 5500 with the Department of Labor, making it difficult to get information about this segment of the market.
Source: Plansponsor.com, April 2022
Proposed IRS RMD Regulations Present Challenges, Risks for 403b Plans
The IRS is strategically working to execute the statutory changes that were outlined by the SECURE Act of 2019. However, the IRS's efforts to streamline the required minimum distribution requirements for 403b plans with Section 401(a) qualified plans, such as 401k plans, may have unforeseen challenges and risks.
Source: Employeebenefitsblog.com, April 2022
Attorney Calls Proposed Changes to RMDs From 403bs "A Big Deal"
A change to required minimum distribution rules for 403b retirement plans proposed by the IRS is causing industry chatter. Proposed changes would require a participant to take calculated amounts from each 403b contract they have.
Source: Planadviser.com, April 2022
403b Assets Up, but Fees Can Have Big Effect, Says GAO
The parties in an excessive fee suit focused on the adoption of collective investment trusts have come to terms. The suit alleges that "defendants selected and retained Wells Fargo products over materially identical, yet cheaper, non-proprietary alternatives; selected Wells Fargo products that had no performance history that could form the basis of a fiduciary's objective decision-making process; and failed to remove proprietary funds despite sustained underperformance." More specifically, the plaintiffs took issue with the use of target-date CITs with a relatively short (less than three years) track record.
Source: Ntsa-net.org, April 2022
Is Restricting 403b Vendors Legal in California?
The author says, "A strange thing is occurring in K-12 403b plans in California. Many employers are not allowing new vendors on their 'approved vendor list' or have erected significant barriers to entry. The irony is that these barriers were not in place for the worst vendors this state has ever witnessed and those bad vendors continue to be allowed to hawk their wares with little restriction. New vendors that have something real and different to offer are being denied access. What is going on with vendor lists and what is actually legal according to California law?"
Source: 403b.substack.com, March 2022
403b Plan Design Continues to Evolve
403b plans have undergone many changes since IRS regulations were finalized in 2007. A report from BrightScope and the Investment Company Institute notes that it is difficult to get a full picture of the 403b plan market as some plans are not governed by ERISA. However, the report offers a profile of the 403b plan market and how it has evolved over the years.
Source: Plansponsor.com, March 2022
Defined Contribution Plan Profile: A Close Look at ERISA 403b Plans, 2018
This 68-page report focuses on ERISA 403b plans in 2018. It first analyzes 403b plans in the Department of Labor 2018 Form 5500 Research File. Focus then shifts to more than 6,200 audited 403b plans in the BrightScope Defined Contribution Plan Database, which typically have 100 participants or more.
Source: Ici.org, March 2022
Unanimous Supreme Court Provides Victory to Plaintiffs in ERISA Fee Litigation
The U.S. Supreme Court recently issued a unanimous decision in Hughes v. Northwestern University, reversing and remanding a lower court ruling that had dismissed the case against a retirement plan sponsor. This decision reaffirms that ERISA fiduciary duty of prudence requires continuous monitoring of all investment options under a plan, especially when lower-cost share classes are available for funds.
Source: Employeebenefitslawreport.com, March 2022
On the Hunt for Good Fiduciary Processes? What to do After the Supreme Court Decision in Hughes
The Supreme Court recently handed down its eagerly-awaited decision in Hughes v. Northwestern University. Plan sponsors and 401k and 403b plan administrators had hoped the decision would create clearer pleading standards to free them from the endless line of ERISA class actions alleging fiduciary malfeasance when selecting investment menus and plan service providers. It didn't and now those fiduciaries have some more thinking to do.
Source: Cohenbuckmann.com, March 2022
Individual and Pre-Approved 403b Plan Documents: Evaluating What to Do in 2022
The IRS has announced in recent Rev. Proc. 2021-37 that it will start accepting filings in the second cycle for pre-approved 403b plans on May 2, 2022. In connection with that, the IRS has also indicated that it is considering opening a determination letter process for individually designed 403b plans after all, and has been soliciting comments on doing so. These developments raise several considerations for 403b plan providers and employers regarding their plan documents that are worth considering. This article reviews some key considerations.
Source: Groom.com, February 2022
District Court Enforces 403b Plan Arbitration Clause
A federal district court in Florida sent a proposed ERISA breach of fiduciary duty class action to individual arbitration based on a plan arbitration clause that allowed for individual relief and plan-wide injunctive relief. The case is Holmes v. Baptist Health South Florida.
Source: Erisapracticecenter.com, February 2022
Hughes v. Northwestern University: Key Takeaways for 401k and 403b Plan Sponsors and Fiduciaries
The Court issued a narrow, unanimous opinion that vacated the Seventh Circuit's decision and remanded for further proceedings so that the participants' allegations may be reevaluated as a whole. Despite the high level of industry attention focused on this case, the Court passed on the opportunity to elaborate on what the applicable pleading standard should be for bringing a claim of fiduciary imprudence in violation of ERISA in connection with the management of a defined contribution plan.
Source: Ropesgray.com, February 2022
IRS Issues Required Amendments List for Individually Designed Qualified and Section 403b Plans
The Required Amendments List is an annual list of changes in retirement plan qualification requirements. It also establishes amendment deadlines for individually designed plans. On November 30, 2021, the IRS issued Notice 2021-64, which provides the 2021 Required Amendments List for qualified retirement plans and 403b retirement plans.
Source: Hallbenefitslaw.com, January 2022
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