Different Q on new 403(b) regs

[Bird]

Here's a different question/angle on the new regs:

Why did the IRS specificially say that a "plan" could use language that called for deferral contributions to be deposited no later than 15 business days after the end of the month? They cited that as an example of acceptable language, at least that's how I read it.

I understand that ERISA plans are still subject to the DOL as soon as practicable standard. And I understand that there's a world of difference between ERISA and non-ERISA plans from an employer's or fiduciary's standpoint. But from an employee's standpoint, I doubt that a nurse who worked for a separate department in a hospital, which had a 401(k) plan, and then goes to work for the hospital itself and is offered a 403(b) plan, sees much difference.

I don't do much with 403(b)s so maybe that's "just the way it is." But I found it curious.

[mbozek]

IRS rulings going back 35 years have permitted salary reduction contributions to be remitted as infrequently as once a year which is still permitted for non ERISA plans where there is no conflicting state law requirement. The proposed regs will require that all of the terms of the plan, including frequency of remitting contributions be stated in the plan document. The 15 day requirement is the IRS way of offering language that can be inserted in a plan document without requiring it in the regs. The question to be asked is will there be a sanction if the employer does not remit the contributions within the frequency specified in the plan document (or fails to follow any provision of the plan document).

Note: Rev. Rul 67-69 which permitted 1 yr delay in remitting salary reduction would be "obseleted" when final regs are issued.

[Bird]

Thanks, and that's a good question.

I still don't think the average Joe or Jane looking at the forest of deferral plans would see why there is such a drastic difference in deposit requirements, and I guess I don't either, except that the plans are, by definition, "different."

[mbozek]

Since under the IRC a 403b is still an individual arrangement between an employee and the employer, the frequency of remitting contributions should be negotiated in the salary reduction agreement. Since it the employees salary that is being deferred (and which the employer is otherwise required to pay) there should be no more than a 30 day delay before remitting the contributions. The problem arises where there are many vendors and/or the sponsor doesnt have the ability to track contributions and allocations on an automated basis.

[Bird]

Thanks again. I understand, but don't "get it"; most or all of what you said could be applied to 401(k) plans, I think, at least to some extent.

FYI, I just got an RIA update that pointed me to an IRS publication - found here:

http://www.irs.gov/retirement/article/0,,id=111442,00.html

that talks about the differences between 403(b) and 457 plans and 401(k) plans. It doesn't say "the Department of Labor may harass your employer to no end about "late" deposits of deferrals to a 401(k) plan, to the point of asking your employer to allocate a few pennies for a couple of days, but your employer can hold your money for 30 days or more in a 401(k) plan and we don't really give a crap."

[mbozek]

I dont understand what you are getting at. The DOL does not regulate non ERISA 403b programs of non profits and public schools or 401k plans sponsored by public employers such as NYC who can take as much time as they want to remit contributions as long as it is permitted under state law. 403b and 401k plans subject to ERISA must remit contributions under the DOL regs.

[Bird]

Sorry to beat it to death. I understand the difference between ERISA and non-ERISA plans, and that said difference results in different standards for depositing contributions. But, I don't think the average participant understands that there is such a difference, or why there should be a difference. (And I don't understand the "why" part, from a public policy standpoint.)