Overview of Final 403(b) Regulations and Restructuring by 2144jEUf


									Oklahoma City Community College
        403(b) Update

                         J. Dudley Hyde
                McAfee & Taft A Professional Corporation
          211 N. Robinson, Two Leadership Square, 10th Floor
                        Oklahoma City, OK 73102
        Direct dial (405) 552-2229 • Direct fax (405) 228-7429
        Discussion Topics
• Overview of the relevant changes imposed
  by the 403(b) Final Regulations
• Explanation of the Proposed Restructuring
  of the Oklahoma City Community College
  Employees’ Retirement Plan
Final 403(b) Regulations
      Effective Date

The final regulations are generally
applicable for taxable years
beginning after December 31, 2008.
    General Purpose

To diminish the extent to which
403(b) plans differ from other
salary reduction arrangements
such as 401(k) and 457(b) plans.
  Plan Document Requirement
All 403(b) programs must be maintained pursuant
to a written plan document that:
  – Satisfies, in form and operation, the regulatory
    requirements of the 403(b) rules; and
  – Contains all material terms and conditions for
    eligibility, benefits, applicable limitations, the contracts
    available under the plan, and the time and form under
    which benefit distributions will be made.
         Contract Exchanges
A 403(b) contract may be exchanged for another
section 403(b) contract under the same 403(b)
plan if:
  1.   The plan provides for the exchange,
  2.   The accumulated benefit immediately after the exchange is at
       least equal to such benefit immediately before the exchange,
  3.   The other contract’s distribution restrictions are not less
       stringent than the contract being exchanged, and
  4.   The employer enters into an “information sharing agreement”
       with the issuer of the other contract .
  Information Sharing Agreement
Under this agreement the employer and the issuer
will from time to time provide each other with
information necessary for the resulting contract to
satisfy section 403(b) and other tax requirements,
such as information regarding:
  –   The participant’s employment.
  –   Whether a severance from employment has occurred.
  –   Whether hardship withdrawal rules are satisfied.
  –   Whether a plan loan constitutes a deemed
     Grandfathered Period
The final regulations provide a
grandfathered period for contract exchanges
  1. Satisfied the Rev. Rul. 90-24 rules at the
     time it was exchanged, and
  2. Occurred on or before September 24, 2007.
  Permissive Service Credit
A 403(b) plan may transfer assets to a
qualified defined benefit plan that is a
governmental plan if it is either:
  1. For the purchase of permissive service
     credit under the receiving defined benefit
     plan; or
  2. A repayment to which section 415 does not
     apply by reason of section 415(k)(3).
      403(b) and 401(k)

The final regulations do not fundamentally
change the current distribution rules, but
they try to conform the 403(b) distribution
events to those applicable under section
   Failure to Satisfy 403(b)
• If a contract purchased by an employer for an
  employee fails to satisfy 403(b) requirements,
  that contract and any other contract purchased
  for that employee is not a 403(b) contract.
• However, operational failures within one
  contract will not adversely affect any other
  contracts purchased by that employer for other
         Increased Employer
• Requirement that written plan comply in both
  form and operation increases administrative and
  compliance oversight responsibilities associated
  with maintaining a 403(b) plan
• Additionally, the IRS is expected to increase its
  scrutiny and auditing of 403(b) plans as part of
  the release of the regulations
Oklahoma City Community College
   Employee’s Retirement Plan
   The Current 403(b) Plan
• To the extent an employee contributes 1.5% of
  compensation, the College contributes 4.5% into
  an account.
• The 403(b) Plan allows participants to direct
  their accounts into separate 403(b) annuities or
  custodian accounts.
• There are currently about 46 separate vendors
• Approximately 89% of all College employees
  currently participate in 403(b) Plan
         Proposed Changes
• Reduce the number of vendors from 46 to no
  more than 12 to facilitate control and ease of
• Current accounts in that plan will remain in the
  403(b) plan or can be transferred directly to
  403(b) annuities and custodial accounts offered
  by the 12 remaining vendors
       Purpose of Changes
• Better pricing with regard to investment options
  and additional services, e.g.
  educational/investment advice
• Improved ability to monitor the investment
  performance of the options in the 403(b) plan.
• Simplified communications regarding
 Additional Recommendations
• Hire an independent investment consultant to
  assist in implementing the RFP process and
  evaluating responses
• Establish a retirement/investment committee to
  provide fiduciary oversight of the plans
• Adopt an investment policy statement to govern
  the types of investments offered under the plans
     Why use a Consultant?
• Plan fiduciaries may not have the expertise to
  adequately analyze investment options
• Have qualifications to be an “expert”
• Independent of providers of investment options
  to the plan
• May relieve plan fiduciaries of some
  responsibility/liability in selecting and monitoring
  investment options

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