THIS INFORMATION APPLIES ONLY TO Non-QCCOS* WHO USE THE SERVANT SOLUTIONS RETIREMENT PLAN PLUS OTHER RETIREMENT PLAN PROVIDER(S)
The issuance of final 403(b) regulations caused a shift in employers’ responsibilities for the administration and compliance of 403(b) plans. Effective January 1, 2009, the IRS treats each “employer” as responsible for maintaining the “plan” for its employees and also for managing all 403(b) providers. If the Servant Solutions Retirement Plan is just one of multiple 403(b) arrangements available to your organization’s employees, your organization will be responsible for a separately written “403(b) plan document" (which incorporates the multi-vendor relationships) and for vendor compliance coordination. The organization can designate compliance and other administrative responsibilities to a Third-Party Administrator (TPA) or one of the vendors, if agreed. Servant Solutions does not serve as a TPA for multi-vendor arrangements.
The Servant Solutions Retirement Plan that your organization provides to its employees is a valuable benefit to retain talented, energetic staff. Most of our employer relationships use this plan as their sole retirement plan provider - and compliance becomes less of a task. For employers allowing multiple 403(b) arrangements for their employees, compliance may require considerably more effort. You will want to work with your legal counsel, your other 403(b) providers, and Servant Solutions to understand and comply with the regulations so that your organization and retirement plan participants avoid adverse tax consequences. Below, you will find summarized explanations of regulations that impact your organization as you move toward compliance.
Written plan document requirement
Organizations that provide a 403(b) plan must maintain written documents that describe all material plan provisions. On or before January 1, 2009, the individual organization must adopt a written plan that incorporates all vendor arrangements. This written plan must conform to the new regulations by addressing provisions including, but not limited to:
- Identification of eligible employees
- Statutory (legal) contributions limits
- Time and form of benefits
- Distribution restrictions
- List of 403(b) service provider(s) allowed by the employer
The written plan can incorporate materials from other documents such as written policies, employee handbook descriptions and other related documents. Servant Solutions provides general plan documentation for the Servant Solutions Retirement Plan.
However, since each employer in the Servant Solutions Retirement Plan has flexibility related to certain plan provisions, your organization must develop and maintain additional written rules and procedures regarding your arrangements that address:
- Which employees are eligible to participate in the retirement plan?
- What contributions will the employer/church make on behalf of employees?
- Which 403(b) providers are allowed under the plan?
To help you with this, Servant Solutions has prepared an Eligibility and Participation Schedule to document the additional written rules and procedures, unique to your organization, that relate to your use of the Servant Solutions Retirement Plan. This Schedule is considered part of your organization’s 403(b) plan. That means that any time you change any provisions that relate to your participation in the plan, you must complete an updated Schedule. You do not have to send this Schedule to Servant Solutions, but you do need to keep an updated copy in your files at all times. And, of course, you will need to be sure that you follow the rules and procedures that you set out in the Schedule.
ADDITIONAL ACTIONS REQUIRED
There are more steps for your organization to complete if it makes contributions to more than one 403(b) retirement plan provider (or has made such contributions at any time since the beginning of 2005):
- First, you must identify and list all investment providers approved for ongoing contributions. Print, complete and retain a copy of the Authorized Providers List. It is important that as you make changes to approved investment providers that the list be kept up-to-date.
- Second, your organization will need to be sure to share information with and among the different investment providers (including those providers that are no longer eligible to receive ongoing contributions).
The purpose for sharing this information is to allow for the exchange of information that will be necessary to satisfy the regulations and other tax requirements of the Code. Such information includes, but is not limited to:
- Information concerning the participant’s employment, such as when severance from employment occurs for purposes of distribution restrictions;
- Information concerning whether a hardship withdrawal has occurred with respect to a 403(b) account and whether the hardship withdrawal rules are satisfied;
- Information regarding basis (after-tax accumulations) necessary for proper calculations of distribution of basis.
This information sharing requirement is very important because beginning January 1, 2009, employers are responsible for ensuring overall compliance with statutory and regulatory requirements. If your organization offers more than one 403(b) provider for its employees, Servant Solutions is limited in the guidance we can give. In this situation, we welcome inquiries and may assist with general information that could be helpful to the employer’s own legal counsel. But the employer is responsible for coordinating compliance among the different 403(b) providers.
Timing of in-service distributions from employer contribution accounts
This provision impacts plans that allow employees to withdraw employer-contributed dollars while still in service to that employer without the occurrence of some event, such as reaching a specified age. Since the Servant Solutions Retirement Plan does not make provision for in-service withdrawals of employer dollars until participants are 60, this regulation change is already satisfied for churches that use only the Servant Solutions Retirement Plan.
definition of severance from employment
The regulations provide some additional clarity to legal terms and phrases, one of which is “severance from employment.” For most churches and for employers that are simple single legal entities, this change will have no impact. The definition of “severance from employment” becomes important for certain plan provisions regarding distributions.
Certain 403(b) plans are subject to annual retirement plan nondiscrimination testing that demonstrates the plan does not discriminate in favor of highly compensated employees in design or practice. Plans subject to testing include 403(b) plans of employers such as nonprofit hospitals, colleges, universities and some children’s and retirement homes. Under one of these nondiscrimination rules, plans of these employers must satisfy the “universal availability” requirement. In simple terms this means that if you allow one employee to make personal tax-deferred contributions (salary reduction deferrals) to the plan, you must let all employees make personal tax-deferred contributions. Certain limited groups of employees can be excluded from making personal tax-deferred contributions to the plan, and these exclusions must be stated in the written plan document. For example, one of the groups of employees that can be excluded from the universal availability requirement is, “employees who normally work fewer than 20 hours per week.” Violation of the universal availability rule is best avoided by allowing all employees to make Participant Before-Tax Contributions (salary reduction deferrals) to the plan.
Effective opportunity required
As a part of the universal availability requirement, the IRS wants to ensure that employers take steps to make all employees aware of their right to participate in the retirement plan. Therefore, the new regulations require employers to demonstrate that employees are being provided with “an effective opportunity” to make elective deferrals (personal tax-sheltered contributions). According to the IRS, whether this standard is being met depends on specific “facts and circumstances” such as whether the employer provides ongoing notice to employees of the opportunity to make elective deferrals. In essence, the regulations are sending a message to all employers to make, and continue making, employees aware of the tax deferral opportunities available to them under their retirement plan. This is the responsibility of the employer. Servant Solutions and other 403(b) providers are not responsible for making sure that all employees are provided with this notice.
Other possible compliance concerns
There are other compliance issues that could arise if your organization allows contributions to be made to multiple 403(b) investment providers and if transfers of money are permitted between these 403(b) providers. Money can still be moved, but there are now additional requirements on any such movement of 403(b) plan assets.
For example, some 403(b) investment providers may permit employees to make “contract exchanges.” A “contract exchange” is a movement of a participant’s plan account from a 403(b) investment provider that is approved to receive ongoing contributions under the employer’s 403(b) plan (i.e., a 403(b) provider that has a “payroll slot”) to a 403(b) investment provider that is not approved to receive ongoing contributions. The Servant Solutions Retirement Plan does not permit such contract exchanges to be made with any accounts that are held by Servant Solutions, but other 403(b) investment providers may permit contract exchanges to be made with accounts that they are holding. There are several additional requirements that apply to contract exchanges and you should discuss these requirements with your organization’s legal counsel before approving any such exchanges.
Servant Solutions has been dedicated to enhancing the financial security of our plan participants for well over 60 years. Our employees stand ready to help you. Please contact us or call (800) 844-8983 for additional information.
This information should not be considered tax or legal advice. Servant Solutions stands ready to assist your organization as you work with your legal and tax advisers by providing resource information that you and your adviser may find beneficial.