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 www.mcafeetaft.com email@example.com 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 distribution. Grandfathered Period The final regulations provide a grandfathered period for contract exchanges which: 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 401(k) 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 employees. Increased Employer Responsibility • 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 administration • 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 investments 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 Questions?
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