OUR THOUGHTS ON:

Attention 403(b) Plan Sponsors! Relief May Be On The Way!

ERISA|Not-for-Profit|Tax

By Jenna Zelenski

The Internal Revenue Service (IRS) Advisory Committee on Tax Exempt and Government Entities (ACT) recently released its 2015 Report of Recommendations.  Since the final 403(b) regulations were issued in 2007, plan sponsors have faced difficulties in trying to stay compliant with the requirements within the Internal Revenue Code.  As a result, the Employee Plans (EP) Subcommittee of the ACT worked on identifying the primary issues facing 403(b) plan sponsors through a survey distributed to 403(b) plan sponsors and vendors.  Based upon the results of the survey, the EP Subcommittee then came up with recommendations covering the specific areas that appeared to require further guidance from the IRS, keeping in mind that the IRS has limited resources as it is.

IRS Recommendations for 403(b) Plan Sponsors:

  • Universal availability educational/outreach needs – The IRS should consider undertaking a project to provide more detailed explanations of its views on issues including treatment of adjunct faculty at universities, treatment of part-time, seasonal and temporary employees, and how the less-than-20-hours-per-week standard is meant to apply, to name a few.
  • Guidance on “orphan” 403(b) contracts – The IRS should consider issuing guidance to clarify the impact of operational violations under an individual’s orphan contract on any other contracts that the individual may have with the same employer and how pre-2009 frozen contracts issued to current employees before 2005 should be handled for compliance purposes.
  • Minimizing contract leakage – The IRS should consider issuing guidance to clarify that the vendor can act as the decision-maker for rollover and other withdrawal/distribution purposes under contracts where the employer either no longer exists or is no longer legally involved.In addition, the IRS should consider issuing guidance requiring issuers to provide reasonable advance notice to contract holders on the minimum required distribution requirements and, if the issuer does not have current contact information, make reasonable efforts to locate the contract holder.
  • 403(b) plan terminations – The IRS should explore with Chief Counsel whether the IRS has legal authority to create good-faith or de minimis rules or provide other solutions to address the practical problems of terminating a 403(b) plan.
  • Employee Plans Compliance Resolution System (EPCRS) improvements – EPCRS need to be updated to encourage use of the program and compliance with the Internal Revenue Code.Potential improvements include allowing certain participant loan failures to be corrected through the Self-Correction Program, expanding the use of the Department of Labor earnings calculator for correction purposes through the Voluntary Correction Program (VCP), developing schedules for the VCP filing to allow for correction of the most common 403(b) operational failures, developing a separate Appendix C, Schedule 1 and Schedule 2 for 403(b) plans, and discounted fees for 403(b) plan adopters.

Contact us with questions or for more information regarding the Report of Recommendations and visit our ERISA Industry Group page to learn about the services that Schneider Downs can provide for your organization.

Source:  Advisory Committee on Tax Exempt and Government Entities 2015 Report of Recommendations

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