ERISA 403(b) administration

[Guest JPotosky]

A client of mine currently has a self administered 403(B) with 18 different vendors. They are freezing the contributions to those vendors and starting a new 403(B) with a single vendor who will also provide administration. Are there any requirements of the new administrator regarding the 403(B) assets already in place with the 18 prior vendors? Is there any recordkeeping or administration requirements for these outside assets.

Joe P.

[Guest STLGiant]

Query: Is this an ERISA 403(B) or a non-ERISA 403(B)?

[MGB]

Well, there is the elusive maximum exclusion allowance.

Yes, it seems to be gone starting in 2002. However, there is a sunset date on this "repeal". So, in 2011, it officially comes back. Therefore, data will need to be retained in the meantime until the law is changed to do away with the sunset.

That is not from my wandering thoughts...that comes from discussions with Treasury and may be in the guidance they will be issuing later this summer.

[Guest JPotosky]

Originally posted by STLGiant

Query:  Is this an ERISA 403(B) or a non-ERISA 403(B)?

This is an ERISA 403(B)

[Guest STLGiant]

As you have an ERISA plan, somebody is still going to need to report and track ALL the assets for 5500 purposes. This really sounds like it's a new investment custodian, not a new plan per se. You're may be restating to the new vendor's document and moving assets to the new vendor's investment choice, but it doesn't sound as if it's a new plan. Is the action of freezing due to the client's entity being merged or acquired?

Is the new vendor/administrator providing this administration service on the old investment accounts as well as the new contributions, or do they plan to move all the assets into their investment? If Schedule As are involved, has anyone contacted the prior carrier to provide an update/address of who is now responsible for doing the new TPA work?

Like many of the posts here, there is not much specific information...these may be moot, but off the top of my head these items come to mind...

Obviously, you need to review the document. Specifically the aspects of valuation (Is it daily? If not and the new vendor is, an amendment is necessary); distributions (can the new vendor distribute as timely, as well as utilizing the elected payout method(s) within the document?); are their any protective benefit issues...?

While the client is moving from 18 vendors to one, they may wander into DOL investment related issue(s). Is this single investment prudent? Does the client understand his/her fiduciary role in freezing future contribution to the 18 current investments, especially if the participants have full investment direction rights under the plan? What happens if this new single investment does not perform as well as the other 18?

If the new investment is an annuity (especially a replacement of existing annuity(ies)), are there new internal expenses to this new vendor's single investment? Do all the participants understand they will be paying or possibly paying expenses like mortality again? Does the plan have an investment policy that has been violated by the 18 existing vendors, giving the Sponsor/Trustee cause to make this change?

Plan might want to seek some kind of release from the participants stating they understand why change is being made, they've consulted with their financial/tax advisor(s) and have no issues...a kind of hold harmless agreement (ha!) against the Sponsor/Trustee???

FWIW make sure everything (meeting minutes, observations/objections, decision-making process) is documented! Qualified plans have been doing this for years...moving to different investments/custodians or trustees. The more trees you kill keeping good records of who, what, where, when and why you can help your client protect him/herself!

[Guest Tom Geer]

To supplement the last, a couple of points.

First, the assets aren't going anywhere unless so directed by whoever has the power to so direct. A lot of 403(B) arrangements (whether or not plans) leave this power in the hands of the individual employee, so the employer can't move assets all at once.

Second, I can almost guarantee that some of the 18 vehicles now in place are going to have some sort of back-end load, contingent deferred sales charge, market value adjustment or the like. Figuring out how to transition assets over in an orderly way to eliminate or at least reduce these is a complicated issue, and different current vehicles may be transferring assets at different times and rates to avoid big hits. Any hit could end up as an employer/fiduciary liability unless the reason for the hit is well considered and very well documented.

These make 403(B) takeovers potentially a real headache, and reduce their attractiveness to product-based providers. Non-product-based providers, which we are, can simply assess the expected difficulty of the transaction(s) and price accordingly.

With 18 existing options, it sounds like you may not have a plan now, but have one in the future. If that's true, I don't see any reason why the old non-plan assets would suddenly become plan assets, unless you wanted them to do so. Assets could be moved over gradually from all or some, and only require full ERISA-type accounting and reporting as received, if you do it right.

Last, you are clearly going to have plan document issues at least as long as any of the current investment options still has assets. Given the complexity of your situation, I would be putting in specific language on the existing assets, the extent to which they are under the plan, how they transition to the new investment options, and what choices or vetoes you intend to give affectyed participants.very well documented