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News Items, by Subject

403(b) plans

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Brown University Retirement Plan Lawsuit Advances
"The workers can move on with their claims related to record-keeping services, including that Brown acted imprudently by using more than one record-keeper, not employing competitive bidding in its selection, and allowing the plans to pay excessive administrative fees ... The workers also can advance their claim that the university breached its fiduciary duties by selecting more expensive funds with poor historical performance, such as the CREF stock account and the TIAA real estate account[.]" [Short v. Brown Univ., No. 17-318 (D.R.I. July 11, 2018)] (Bloomberg BNA)
How Do College Employees Choose Between Defined Benefit and Defined Contribution Plans?
"This study examines how faculty and staff at the University System of Georgia make this decision ... Mid-career, female, black and lower-paid employees all tend to prefer the defined benefit plan. Preference for the defined benefit plan rose for faculty during the period studied and fell for other staff. Those who choose the defined benefit plan often cite its perceived financial security. Those who choose the defined contribution plan often cite the likelihood of leaving their employer before the end of the defined benefit plan's 10-year vesting period." (TIAA Institute)
Lawsuit Alleges Fraud by Matrix Trust in Connection with Theft by TPA
"[P]laintiffs claim that [Matrix Trust Company, custodian for the plans administered by Vantage Benefits,] 'fraudulently transferred at least three million dollars from the Section 403(b) plan accounts in its custody ... The plaintiffs say that these 'unsanctioned' transfers were taken from at least five 403(b) plans and deposited into a private Bank of America business account maintained by Vantage or its agents." (National Tax-Deferred Savings Association [NTSA])
Matrix Trust Company Accused of Making Unauthorized Transfers of 403(b) Plan Assets
"Matrix [allegedly] ... did not verify that the transfers were authorized by the participants in the 403(b) plans or permissible under the terms of the plans. [Plaintiffs allege that] the plans for which Matrix was custodian could only be invested in certain mutual funds as specified by the 403(b) plans' documents, [and that] the bank account maintained by Vantage or its agents was not one of them." (planadviser)
[Official Guidance] Text of IRS Form 14568-B: Model VCP Compliance Statement -- Schedule 2: Other Nonamender Failures and Failure to Adopt a 403(b) Plan Timely (PDF)
"The plan identified above was not amended to comply with the applicable provisions of the following legislative and regulatory requirements by the applicable deadlines in accordance with Internal Revenue Code (IRC) Section 401(b) and the regulations thereunder[.]" [Rev. June 2018] (Internal Revenue Service [IRS])
[Official Guidance] Text of IRS Form 14568-E: Model VCP Compliance Statement -- Schedule 5: Plan Loan Failures (PDF)
"The plan identified above did not comply with the requirements of Section 72(p)(2) of the Internal Revenue Code (IRC). (Note: The conditions of IRC Section 72(p)(2) must be satisfied for a participant loan to be exempt from being treated as a distribution to the participant under IRC Section 72(p)(1).) The failure occurred for the following reason(s) (check applicable boxes and provide the information requested)." [Rev. June 2018] (Internal Revenue Service [IRS])
GWU Tells Court 403(b)s Cannot Be Compared to 401(k)s
"In a brief supporting a motion to dismiss a case against George Washington University related to the management of its 403(b) plan, the defendants note that 403(b)s have always looked differently and were set up for a different purpose than 401(k) plans." (PLANSPONSOR)
The Differences Between 403(b) and 401(k) Pricing
"[T]he recordkeeping fees for 401(k) plans are generally less expensive than those for 403(b) plans of the same asset size.... Assets in 403(b) plans typically reside in multiple contacts ... many will be individual in nature, where the plan sponsor will have little say.... [Annuities are] offered as an option in 68% of 403(b) plans.... Annuities are more difficult to recordkeep, particularly in the daily-valued environment that dominates retirement plans today ... 401(k)s rarely utilize more than one recordkeeper, where it is not unusual for a 403(b) plan to have multiple recordkeepers." (Cammack Retirement Group)
Non-ERISA 403(b) Plans May Be Subject to Proposed SEC Regulation Best Interest
"[T]he proposed [SEC] regulation could apply to a non-ERISA plan, such as a non-ERISA 403(b) plan.... [T]he employee owning the annuity contract would likely be treated as a 'retail customer' and subject to the protections of the Best Interest rules. To that end, although they are treated differently for tax purposes, the participant in the non-ERISA 403(b) plan would seem to be in the analogous position to the owner of an IRA." (The Wagner Law Group)
Top 10 Issues Found in 403(b) Plans
"[1] Universal availability Issues ... [2] Excess 402(g) contributions ... [3] Plan loans that violate IRC Section 72(p) ... [4] Financial hardship distribution failures ... [5] Ineligible plan sponsors ... [6] No plan document by 12-31-2009 ... [7] ERISA vs. non-ERISA ... [8] No discrimination testing ... [9] The definition of compensation in the plan document is not followed ... [10] Multiple 403(b) plans and 403(b) annuity contract limitations and correlation." (QBI)
Northwestern University Defeats 403(b) Lawsuit
"[P]laintiffs alleged that Northwestern University and its fiduciaries ... mandated the inclusion of particular stock accounts in the plans, impos[ed] excessive record-keeping fees, improperly allowed payment for record-keeping expenses through revenue sharing, and included too many investment options. The Court rejected all of plaintiffs' fiduciary duty claims." [Divane v. Northwestern Univ., No. 16-8157 (N.D. Ill. May 25, 2018)] (McDermott Will & Emery)
Suit Against Vanderbilt University Amended to Include Use of Participant Data for Marketing
"Jerome Schlichter, ... attorney for the plaintiffs, said ... 'Vanderbilt allowed TIAA to use its access to confidential sensitive financial information about participants to benefit itself by selling insurance and other products outside the plan. We also allege that not only was this improper but that Vanderbilt violated its duty to work for the exclusive benefit of plan participants rather than TIAA's benefit.' " [Cassell v. Vanderbilt Univ., No. 16-2086 (M.D. Tenn., 164-page amended complaint filed June 6, 2018)] (Pensions & Investments)
Unapproved 403(b) Plan Documents: Plan Sponsors Can Take Remedial Steps Now
"[1] If your plan was established or restated in the last year, confirm whether or not your current document is a pre-approved prototype or volume submitter plan with an opinion or advisory letter. If so, it is likely that no further action is required. [2] If the current plan document does not have an opinion or advisory letter, consider adopting ... a pre-approved plan document retroactively to January 1, 2010 or, if later, the plan's effective date." (Benefits Bryan Cave)
Northwestern University Beats 403(b) Excessive Fees Case
"[Plaintiffs] alleged that inclusion of a CREF Stock fund was a breach of fiduciary duty because the fund underperformed and charged a high expense ratio. The court refused to find that including the fund was a breach of fiduciary duty.... The court also rejected the plaintiffs' allegation that offering too many funds was a breach of fiduciary duty, finding the plans offered them the types of funds they wanted -- low-cost index funds." [Divane v. Northwestern Univ., No. 16-8157 (N.D. Ill. May 25, 2018)] (Greensfelder)
Administrative Fee-Leveling to Impact Penn State Retirement Program Participants
"Beginning July 1, Penn State will adopt a 'fee-leveling' approach, an industry best practice, to create a more fair and equitable way to account for administrative expenses. Fee-leveling ensures that all participants pay the same percentage of their account balances for record-keeping and administrative fees, regardless of the funds in which they invest.... In 2018, the annual administrative fee is 0.052 percent, or $0.52 per $1,000 invested." (Penn State)
Excessive Fee Suit Targets TIAA Arrangement
"[T]he defendant university fiduciaries are alleged to have failed to take advantage of their size and clout as a 'jumbo' plan to negotiate for 'low-cost high-quality administrative services.' The plaintiff here notes that in addition, the defendants failed to 'properly inform participants of the fees they were paying to TIAA as required by law, and most importantly, to act prudently with such information.' " [D'Amore v. Univ. of Rochester, No. 18-6357 (W.D.N.Y., complaint filed May 11, 2018)] (National Association of Plan Advisors [NAPA])
Closed MEPs Offer Efficiencies and Benefits to Not-For-Profit 403(b) Plans
"[T]he efficiencies MEPs provide to 403(b) plans include: [1] Use of independent, renowned professionals; [2] Complete transparency and objectivity; [3] Reduce administrative burden; [4] Economies of scale; and [5] De-risk plans, i.e. balances complexity of choice with scale; ensures payroll data is clean; provides consistent communication to adopting members and participants; maintains one fund menu of independently selected/managed fund (no conflicts); and delegates authority to mitigate risk." (planadviser)
Litigation, Scale Push Private Colleges to Adopt Multiple Employer Plans
"Small and independent, nonprofit private colleges -- in search of ways to improve the retirement outlook for faculty and staff, and mindful of regulatory and litigation risks -- are banding together at the state level to establish multiple employer plans, or MEPs. State associations of independent private colleges in both Virginia and Wisconsin recently established MEPs using 403(b) plans, blazing a trail that others may want to follow. Pennsylvania and New York are reportedly exploring their own MEPs." (InvestmentNews)
403(b) University Cases Move Forward
"The lawsuits allege that ... plan fiduciaries breached duties of prudence and loyalty, and engaged in prohibited transactions.... [T]he court allowed plaintiffs' claim that defendants failed to solicit competitive bids for record keepers ... [and] claims alleging a failure to adequately monitor 'revenue sharing' agreements and use of multiple record keepers to proceed." [Cassell v. Vanderbilt, No. 16-2086 (M.D. Tenn. Jan. 5, 2018)] (McDermott Will & Emery)
403(b)s Are Not 401(k)s: Higher Education Organizations Come to the Defense of 403(b) Plans
"A recent amicus brief involving one of the cases in the ongoing litigation against university 403(b) plans is interesting because it came to the defense of 403(b) plans and their distinctiveness.... The brief involves the appeal of a lawsuit against the University of Pennsylvania over the management of its 403(b) plan that was dismissed by a district court.... [The brief] can essentially be summarized in a single assertion: 403(b) plans are most certainly not like 401(k) plans, and the law requires an apples-to-apples comparison, and therefore, a 403(b) apple should not be compared to a 401(k) orange." (Cammack Retirement Group)
Improve 401(k)/403(b) Participant Education Efforts
"Developing an effective educational program starts with an assessment of current investment behavior in the plan and asking employees about their financial concerns.... [A]im to use customized topics for different segments of the workforce instead of issuing broad messages to everyone.... [P]articipant education efforts are not a one-and-done effort. Programs in place for many years tend to be more successful." (PlanPILOT)
[Guidance Overview] Ignore Those Form 5500 Instructions: 403(b) Plans Do Not Use Form 5330 for Late Deposits
"Though late deferrals to an ERISA 403(b) plan do need to be reported under the Compliance portion of the Form 5500 Schedule H or Schedule I, Form 5330 cannot be filed-in spite of the instructions in the Form 5500 instructions.... But there is no statutory requirement that you report it other than on the Form 5500 or mandatorily pay a penalty.... [T]he non-ERISA 403(b) plan is never subject to either the ERISA prohibited transaction rules or the 4975 tax. HOWEVER, timely deposit is a condition of 403(b) status ... Identifying those 'late' deposits can be a challenge." (Business of Benefits)
Text of New Jersey Proposed Legislation to Require Teacher Retirement Plan Fee Disclosure
"This bill requires persons who administer certain supplemental annuity retirement plans for teachers, offered by a local school board, to disclose to each plan participant the [1] fee ratio and return, net of fees, for each investment under the plan and [2] fees paid to any person who, for compensation, provides investment advice to participants directly or through publications or writings. The plan administrator must make the disclosures upon a participant's enrollment and annually thereafter." (218th Legislature, State of New Jersey)
Buying Power for Higher Education Institutions: When You Have It and When You Don't
"According to each of the recent higher education lawsuits, the plaintiffs assert that the institutions have a responsibility to use their 'size and bargaining power to demand low cost investments' and to create 'economies of scale' in the services being provided. So how exactly does an institution do this? What if there are multiple historical record keepers and a large portion of the assets might remain in 'individual contracts' under participant authority?" (Fiduciary Plan Governance, LLC)
[Official Guidance] List of IRS-Approved Nonbank Trustees as of April 1, 2018 (PDF)
An entity that is not a bank (or an insurance company in the case of Archer Medical Savings Accounts and health savings accounts) can request to be a nonbank trustee/custodian by applying in writing and demonstrating that certain requirements will be met in order to handle any of the following fiduciary accounts: [1] Archer Medical Savings Account (MSA); [2] Health Savings Account; [3] Qualified Retirement Plan Custodial Account; [4] 403(b)(7) Custodial Account; [5] Individual Retirement Arrangement (IRA); [6] Roth IRA; [7] Deferred Compensation Plan of State & Local Government and Tax Exempt Organizations; [8] Custodial Accounts Coverdell Education Savings Account. [More information is on an IRS web page.] (Internal Revenue Service [IRS])
14 Virginia Independent Colleges Form 403(b) Multiple Employer Plan
"Forming the MEP will allow the schools to provide employee education and advice, and monitoring investment options and fees, while reducing each college's administrative burden, fiduciary liability and management costs." (Pensions & Investments)
Tax Cut and Jobs Act Loosens Certain Restrictions on Hardship Distributions from 401(k) and 403(b) Plans (PDF)
"The Act directs the Department of the Treasury to modify the existing regulations to remove the 6-month prohibition on employee contributions within one year of the enactment of the Act. The revised regulations will apply to plan years beginning after December 31, 2018 and will apply to both 401(k) and 403(b) plans." (Boutwell Fay LLP)
[Guidance Overview] The IRS's Gradual Shift on Applying 415 Limits to 403(b) Plans
"With the demise of the [403(b) Maximum Exclusion Allowance], and with the growing focus of the IRS on employer accountability, we saw a shift over the years to treating the 415 limit as an employer-based limit, not an individual limit.... Publication 571 seems to have solved this for us. It appears that the transition is now complete. There is no 415 aggregation of contributions to 403(b) contracts from unrelated employers[.]" (Business of Benefits)
The IRS Has a 403(b) MEP Problem
"[T]here are a lot of moving pieces in a 403(b) MEP that you don't have to deal with in a 401(a) MEP.... What makes it all the more challenging is that you are dealing with the DOL's regulatory processes which are geared to MEPs, while also dealing (on the same arrangement) with IRS regulatory processes which deal with each participating employer in a MEP as a single employer plan.... The Form 5500 epitomizes the problem." (Business of Benefits)
Litigation Against 403(b) Plan Fiduciaries (PDF)
"The purpose of this article is to provide a brief overview of 403(b) plans, discuss when such plans are subject to ERISA, review the key allegations raised in ERISA breach of fiduciary duty lawsuits, and discuss the status of these cases." (Groom Law Group, via The Investment Lawyer)
[Official Guidance] Text of IRS EP Examination Memo TE/GE-04-0218-0011: Missing Participants and Beneficiaries and Required Minimum Distributions -- 403(b) Plans (PDF)
"For purposes of IRC Section 403(b)(10), EP examiners shall not challenge a 403(b) contract for violation of the RMD standards for the failure to commence or make a distribution to a participant or beneficiary to whom a payment is due, if the plan has taken the following steps: [1] searched plan and related plan, sponsor, and publicly-available records or directories for alternative contact information; [2] used any of [three listed] search methods ... and [3] attempted contact via [USPS] certified mail to the last known mailing address and through appropriate means for any address or contact information (including email addresses and telephone numbers)." (Internal Revenue Service [IRS])
[Guidance Overview] IRS Expands Missing Participant Guidance for 403(b) Plans (PDF)
"IRS ... examiners will not challenge a qualified plan, including a 403(b) plan, for a violation of the minimum distribution requirements if the plan sponsor has taken the following steps: [1] Searched plan and related plan, sponsor, and publicly available records or directories for alternative contact information. [2] Used any of [three specified] search methods ... [3] Attempted contact via U.S. Postal Service certified mail to the last known mailing address and through appropriate means for any address or contact information." (Schulte Roth & Zabel LLP, via Bloomberg Tax Daily Tax Report)
[Guidance Overview] IRS Extends RMD Audit Guidelines for Missing Participants to 403(b) Programs
"In the last year or two, it has been increasingly common for both the IRS and the DOL on audit to demand 'scorch the earth' search methods for missing participants that frequently seem to lack a realistic cost/benefit balance or due sensitivity to privacy considerations.... The guidelines do not address how plans should handle situations in which a participant address has been identified but the participant is unresponsive or will not request distribution, nor do the guidelines address circumstances in which participants fail to cash checks." (Eversheds Sutherland)
Georgetown Sued for Allegedly Violating Fiduciary Duties in Its 403(b) Plans
"Participants in two Georgetown University defined contribution plans ... who are seeking class-action status, complained that the two 403(b) plans should have reduced the number of record keepers to one from three, 'failed adequately to evaluate and monitor expenses,' and paid 'unreasonable and excessive fees' for investments and plan administration, according to the lawsuit." (Pensions & Investments)
Funds, Fees, and Annuities: A Guide to 403(b) Investment Options (PDF)
11 pages. "[W]hile annuity contracts were once the only option -- and still constitute a majority of the total assets nationwide -- there is a strong trend toward offering mutual funds as an alternative to annuities. In 2015 ... while 87.1% of 403(b) plans offered mutual funds as an investment option, only 58.6% offered annuities.... [A]dditional investment options are not likely to be permitted anytime soon." (Greensfelder)
[Guidance Overview] Bipartisan Budget Act of 2018 Brings Changes for Retirement Plans
"The Act ... expands the sources from which employees may take hardship distributions.... [It] is not clear that these ... changes will apply to 403(b) plans without a change to the 403(b) regulations ... since the 403(b) regulations specifically prohibit distributions from earnings.... Plans sponsors who would like to allow the repayment of amounts wrongfully levied upon by the IRS to their plans should consider amending their plan language to expressly permit these contributions." (Ice Miller LLP)
403(b) Vendor Selection Tips
"Higher education and other 403(b) plans were typically established with a different goal than 401(k) plans. Therefore, 403(b) plan sponsors may want to step back and reevaluate why they're offering a retirement plan, what are the goals for the plan, what are the different recordkeeping structures available, and how this all aligns with their institution's goals. A traditional vendor vetting process would then follow with a special emphasis on the features and services that can most make a difference in their specific situation." (Westminster Consulting)
[Guidance Overview] Disability Claims and Appeals: How the New Regs Affect Retirement Plans
"403(b) plans generally ... rely on the determination made by other sources, such as the Social Security administration or the employer's LTD carrier. So, 403(b) plans will be spared from the most significant components of the revised regulations.... 403(b) plans should update internal procedures for handling an appeal from a denial of disability benefits to comply with the new regulations." (PlanPILOT)
403(b) Plan Compliance Calendar, 2018
"The 2018 Retirement Plan Compliance Calendar highlights critical compliance deadlines ... [T]here may be additional deadlines for specific plans that are not covered here. Plans with non-calendar plan years may be subject to different deadlines." (Cammack Retirement Group)
IRS Publication 571: Tax-Sheltered Annuity Plans (403(b) Plans) for Employees of Public Schools and Certain Tax-Exempt Organizations (PDF)
22 pages; rev. Jan. 2018. "What's New for 2018: [1] Retirement savings contributions credit.... [2] Limit on elective deferrals.... [3] Limit on annual additions.... [4] Self certification available for missed rollover deadline." (Internal Revenue Service [IRS])
[Guidance Overview] Text of IRS Publication 4530: Designated Roth Accounts Under 401(k), 403(b) or Governmental 457(b) Plans (PDF)
Rev. Dec. 2017. "An advantage of a designated Roth account is that you pay tax on your contributions now, but later, when you receive a qualified distribution from the account, it is tax-free. Less tax on your plan distributions could mean more money in your pocket during your retirement." (Internal Revenue Service [IRS])
Mitigating Factors in Calculating a 403(b) Plan's Maximum Payment Amount Under CAP
"There are formally 10 different factors under EPCRS which the IRS takes into account when proposing the sanction amount. One of those elements ... is the 'Maximum Payment Amount' (the MPA).... This number in the 401(a) world can be a very large number -- even for a small plan -- especially when taken over a number of years. But it's interesting to see the effect on a 403(b) plan going through this process:" (National Tax-Deferred Savings Association [NTSA])
Fee Structure and Evaluation in 403(b) Plans
13 pages. "One-third of respondents are unsure if their plan uses revenue sharing to pay expenses, including 50 percent of small plans. One-fourth of plans reallocate revenue sharing among all participants while one-fourth of respondents are unsure.... About one-fourth of respondents are not aware of formal fee policy statements. Half of respondents are unfamiliar with fee levelization." (Plan Sponsor Council of America [PSCA])
Your 403(b) Fiduciary Responsibilities and 403(b) Plan Litigation (PDF)
26 presentation slides. Topics: [1] Overview of Relevant ERISA Provisions; [2] Co-Investments with Endowment; [3] Environmental, Social and Governance (ESG) Investing; [4] Monitoring 3rd Parties; and [5] 403(b) Plan Litigation. (McDermott Will & Emery)
403(b) Sponsors Need More Information on Plan Design, Including How Plan Expenses Are Paid
"Nearly one-third (30.9 percent) of 403(b) plan sponsors are unsure as to whether they use revenue sharing to pay plan expenses ... The PSCA annual survey also found low use of a formal fee policy statement to monitor the reasonableness of plan fees and services, with less than one-third (31.9 percent) of respondents indicating their use. One-fifth (21 percent) are not aware of what a fee policy statement is, according to the survey." (Plan Sponsor Council of America [PSCA])
Can 403(b) Plan Compensation Definition Include Housing Allowance?
"The [IRS] has taken the position for a number of years that amounts nontaxable as housing allowance are not compensation for purposes of the 415 definition of compensation. Thus, they cannot be counted as compensation for purposes of the 100% of compensation limit.... However, for purposes of making employer contributions, a different definition of compensation could be used that includes nontaxable housing allowance." (PLANSPONSOR)
[Guidance Overview] Spousal Consent/J&S Issues Under 403(b) Plans May Trigger Document Conflicts
"[T]he only way the spousal rights rules apply to 403(b)plans is through ERISA Section 205. This means that if you have a non-ERISA 403(b) plan, the spousal rights rules DO NOT apply. Be careful to avoid inadvertently applying them in the restatement.... HOWEVER, many non-ERISA 403(b) annuity contracts impose the spousal rights rules as a matter of contract language ... It is typical for a 403(b) plan to provide a set percentage of pay as the employer benefit under the plan, much like a money purchase plan. There is a very real and unresolved issue as whether or not this set formula makes the plan a 'money purchase plan' which is subject to the J&S rules[.]" (Business of Benefits)
Courts Weigh in on Challenges to University Retirement Plans
"These rulings, most of which allowed claims to proceed past the motion to dismiss stage, highlight the variation in standards courts apply when weighing ERISA fiduciary suits. Moreover, they underline the need for plan fiduciaries to review the performance and fees of their plans' service and investment providers on a regular basis to determine whether the providers' fees are reasonable and their continued retention is appropriate." (Steptoe & Johnson LLP, via Lexology)
Tax Reform: Comparison of House and Senate Tax Cuts and Jobs Act Versions (PDF)
7-page chart provides side-by-side comparison summary of current law and the provisions of each bill that pertain to retirement and individual savings arrangements. (Ascensus)
401(k) and 403(b) Education: How to Set Up Employees for Success
"When ... employees [were asked] why they had not joined the retirement plan, only a minority blamed stretched finances for their decision. About 40% said they were 'too busy' and 19% said signing up was 'too much hassle.' That means there's room for better, participant-focused 401(k) education efforts to move the needle." (ForUsAll)
Delinquent 401(k) and 403(b) Deposits: Same Prohibited Transaction, But Only One Is Subject to Penalties
"While late deferrals to an ERISA 403(b) plan do need to be reported on the Form 5500's Schedule H or Schedule I, Form 5330 cannot be filed because Section 4975 does NOT apply to ERISA 403(b) plans, and thus no penalty tax is due." (Belfint Lyons Shuman)
401(k) vs. 403(b) for Nonprofit Organizations
"401(k) plans are permitted to have eligibility rules and 403(b) plans, in general, are not. The 'Universal Availability' laws which permit 403(b) plans to avoid testing deferrals also requires all employees (with limited exceptions) to be eligible to make deferrals in a 403(b) plan. A Nonprofit with 150 employees, 60 of which routinely turn over within the first 12 months of employment, should consider a 401(k) plan." (QBI)
Are Proprietary Funds the New 'Lightning Rod' for 403(b) Plans?
"Recent litigation, as well as a number of articles in the press, have been highly cynical of recordkeepers' proprietary fund offerings ... [U]nlike variable annuities, where the criticism was a slam dunk, the assessment of proprietary funds in 403(b) plans is more like a half-court heave -- once you get past the obvious conflict of interest of a recordkeeper offering funds on the platform it also manages. Here's why." (Cammack Retirement Group)
Tax Reform Legislation's Potential Impact on Public Sector Retirement Plans
"Aggregation of 457(b) elective deferrals with 401(k) and 403(b) deferrals.... Inclusion of 457(b) contributions in defined contribution plan 415(c) limits.... Elimination of special 457(b) catch-up contributions.... Lower age for access to section 457(b) plan in-service distributions.... Hardship distributions: expansion of available assets.... Hardship distributions: elimination of loan requirement.... Hardship distributions: elimination of six-month waiting period to re-start contributions.... Extension of time for terminated employees to repay offset loans." (ICMA-RC)
Tax Reform and Accumulated Leave ('Special Pay') Plans
"The proposed Senate tax reform bill ... eliminates the ability of 403(b) plans to accept contributions for former employees for up to five years following termination of employment.... The result will be greater employment taxation on the employer and former employee, and more immediate income taxation on the employee." (Carlton Fields)
401(k) and 403(b) Contributions Still on the Chopping Block
"Here's what is now under consideration: [1] The maximum catch up contribution would be increased to $9000, but catch up contributions would have to be made on a ROTH basis.... [2] No catch up contributions would be permitted for employees earning more than $500,000. [3] Catch up contributions for pre-retirees and long service employees under 403(b) and 457 plans would be eliminated. [4] Special post-termination employer contributions for 403(b) plan participants would be eliminated. [5] The rules permitting contributions to a 457(b) plan in addition to maximum 401(k) and 403(b) contributions would be eliminated." (Cohen & Buckmann, P.C.)
Prohibition on Loans from 403(b) Plan Participant's Account to Church-Related Employer Applies to Indirect Loans
"[IRS Chief Counsel Advice Memorandum 201742022] presented two situations ... In the first, one of the plan's investment options was an investment in limited liability company (LLC) shares where the LLC's primary function was to offer loans to the employer. The investment return to the participant was the interest on the loan paid by the employer. The LLC was not controlled directly or indirectly by the church. In the second, one of the plan's investment options was an investment in an LLC controlled either directly or indirectly by the employer, but offering loans to the employer was not the LLC's primary function." (Wolters Kluwer Law & Business)
Mitigating Factors in Calculating a 403(b) Plan's Maximum Payment Amount Under EPCRS Closing Agreement
"[For a 403(b) plan]: [1] There is no tax exempt trust ... [2] The employer is a tax-exempt entity.... [3] The individual will suffer taxation, the amount of which should be included in the [minimum payment amount (MPA) calculated by the IRS agent]. But ... [b]ecause most 403(b) annuity contracts will qualify as annuities for 'inside buildup' purposes -- even if they fail 403(b) treatment -- the earnings should be excluded from the MPA.... [and] the MPA should only include the tax on portion of the excess in the account of the affected individual." (Business of Benefits)
[Official Guidance] Text of IRS Announcement 2017-15: Relief for Victims of Hurricane Maria and the California Wildfires (PDF)
"This announcement provides relief to taxpayers who have been adversely affected by Hurricane Maria and recent wildfires in California ('California Wildfires') and who have retirement assets in qualified employer plans that they would like to use to alleviate hardships caused by these disasters. In addition, this announcement provides relief from certain verification procedures that may be required under retirement plans with respect to loans and hardship distributions. The relief provided under this announcement is in addition to the relief already provided by the Service pursuant to News Releases CA-2017-06, VI-2017-02 and PR-2017-02 ... The relief in this announcement is separate and in addition to the relief provided to victims of Hurricane Maria by the Disaster Tax Relief and Airport and Airway Extension Act of 2017 ...

"As described [in this announcement], a qualified employer plan will not be treated as failing to satisfy any requirement under the Code or regulations merely because the plan makes a loan, or a hardship distribution for a need arising from Hurricane Maria or the California Wildfires, to an employee or former employee whose principal residence on September 16, 2017, in the case of the U.S. Virgin Islands; September 17, 2017, in the case of Puerto Rico; or October 8, 2017, in the case of California was located in one of the areas identified for individual assistance by [FEMA] because of the devastation caused by these disasters or whose place of employment was located in one of these areas on that date or whose lineal ascendant or descendant, dependent, or spouse had a principal residence or place of employment in one of these areas on that date....

"[A] profit-sharing or stock bonus plan that currently does not provide for hardship or other in-service distributions may nevertheless make hardship distributions related to these disasters pursuant to this announcement, except from QNEC or QMAC accounts or from earnings on elective contributions (see below for plan amendment requirements)....

"[T]he relief provided by this announcement applies to any hardship of the employee, not just the types enumerated in the regulations, and no post-distribution contribution restrictions are required." (Internal Revenue Service [IRS])

University 403(b) Plan Fees and Investments Under Scrutiny
"Rulings tend to favor plaintiffs on allegations relating to ... [1] Recordkeeping fees ... [2] Offering high-fee actively-managed funds; [3] Maintaining poor performing investments. Rulings tend to favor plans/plan fiduciaries on allegations covering ... [1] Offering a large number of investment options ... [2] Selecting and maintaining investment options with unnecessary/excessive fee layers; [3] Entering into 'lock-in' arrangements; [4] Breach of the duty of loyalty. Rulings are notably split with regard to allegations that plan fiduciaries imprudently offered higher cost retail class mutual fund shares when an allegedly identical and cheaper institutional class mutual fund shares are available." (Hodgson Russ LLP)
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