403(b) Plans Must Meet January 1, 2009 Deadline

ST. LOUIS, MO, October 27, 2008 -- Financial advisers, 403(b) administrators and plan sponsors who fail to understand the new 403(b) Plan rules face a rude awakening. All 403(b) plans must implement fundamental changes before January 1, 2009. We are finding many are totally unprepared.

If You Ignore It, It Will Not Go Away

We have less than 90 days until year-end - don't wait any longer to hear from other parties involved in your clients' plan investments and administration. Someone must take charge and assert their leadership in this relationship. Act now to ensure that your client's 403(b) will be fully compliant with these new rules. The longer you wait, the shorter the opportunity for your client to identify and fix problems before the deadline. The days of the traditional, informal 403(b) - where the employer is only passively involved - are over.

Background

Historically, 403(b) arrangements evolved under a specific set of rules that differed from the rules for other plan types such as 401k plans. However, there is a perception that many sponsors and advisers ignored the special 403(b) rules. This was often not intentional but merely the result of the complicated rules.

Congress, the Internal Revenue Service (IRS), the Department of Labor (DOL), plan sponsors and participants have become increasingly concerned over the operation of 403(b) plans. Congress included some 403(b) changes in the Pension Protection Act of 2006 ("PPA") and litigation against 403(b) arrangements and providers is on the rise. However, the most important news was the IRS issuance of Final 403(b) Regulations in 2007.

There are many compelling reasons to review current 403(b) arrangements. The most immediate concern is to ensure that each 403(b) arrangement complies with Final Regulations before January 1, 2009. Failure to do so could result in harsh penalties for plan sponsors.

First Steps

Communication between all parties is an immediate essential. Financial advisers can initiate the process by insisting that 403(b) clients (as well as administration, legal and tax advisers) meet to address plan design, administrative, investment and communication issues. The rules regarding each of these areas were significantly altered by the Final Regulations.

Major Changes Are Required

Some of the issues that must be addressed under the new rules include:

• All 403(b) plans must have some sort of "written document".
• 403(b) arrangements must satisfy a "universal availability" standard. Plans can no longer select certain employees for plan eligibility. With limited exceptions, all employees meeting eligibility requirement must have the opportunity to participate. For example, a school system 403(b), currently available only to teachers, must be made available to all system employees as of the effective date.
• Consider some of the implications for plan operations:
  • A plan document must be executed defining the role of each party involved.
  • Communication materials for eligible employees must be completed.
  • Payroll processing changes must be implemented. Will a single or multiple advisers be permitted to offer investments to plan participants.
• Limiting transfers only to fund providers that agree to share information with the plan sponsor.

Some of the issues are so complex, and final rules so unclear, that many 403(b) industry leaders are uncertain about their approach to and solutions for Plan Sponsors. The fundamentals have changed so much that it's difficult to predict what will happen. However, several things are good bets:

• Some 403(b)'s will terminate and adopt 401k arrangements.
• The broadening of this market will reduce the cost of investing for participants.
• Administrative cost for Plan Sponsors will increase.
• Some will shift to single custodial investment platforms using mutual funds.
• "Legacy Assets" will require information sharing agreements between custodians - many of which are not prepared - making accurate Form 5500 filings difficult or impossible.
• Regulatory scrutiny will increase due to the increased complexity of compliance.
• The use of local Third Party Administrators (TPA's) by advisers will increase.

Next Steps

Smart advisers will do their homework, seek home office support and seize this unique opportunity to serve a potentially huge client base with an immediate need. Don't focus on investments. Partner with plan sponsors and administrative firms to identify their issues and then design a plan that serves the needs of that plan sponsor and its participants. An optimal plan design encourages broad participation and maximizes retirement accumulations. When it is completed, you can provide competitive investment services that meet participant needs. Under this scenario, everyone wins:

• The plan sponsor will avoid significant problems.
• Participants will have access to broad investment choices with reduced costs.
• Advisers will access a huge new market.

This is a market segment that needs help and the payoff will be immediate. Act now!

About Benefit Plans Plus

Benefit Plans Plus, LLC offers customized retirement plan design and administration, fiduciary compliance management and consulting services for retirement plans. Through our unique offerings including the Fiduciary Health CheckSM and the SBO 401k we serve more than 500 clients nationwide. Benefit Plans Plus holds the Centre for Fiduciary Excellence, LLC (CEFEX) recordkeeper certification for third party administrator services and the American Society of Pension Professionals and Actuaries (ASPPA) seal of service for provider excellence -- the top recognitions in the industry. In addition, Our well credentialed team of retirement plan experts boasts more than 16 years experience each. For more information about Benefit Plans Plus, a subsidiary of Brown Smith Wallace, LLC, visit www.bpp401k.com or call 314.983.1200.

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