Pension Protection Act Blog

The Dept. of Labor issued Field Assistance Bulletin No. 2007-02 (FAB 2007-02) on how the Final 403(b) Regulations affect the status of 403(b) tax-sheltered annuity programs.

FAB 2007-02 provides a glimpse of the DOL’s expectations for the new plan document requirement contained in Final 403(b) Regs. It addresses how an employer can comply with the plan document requirement contained in the Final 403(b) Regulations and also comply with the safe harbor contained in Labor Reg. 2510.3-2(f). Labor Reg. 2510.3-2(f) provides that an employer’s 403(b) arrangement will not be subject to Title I of ERISA if the employer limits their involvement to certain optional specified activities which faciliate the operation of their 403(b) program.

In providing guidance on the new Final 403(b) Regulations, the DOL states that the safe harbor permits employers to:

• conduct administrative reviews, including discrimination testing and compliance with the maximum contribution limitations under the Treasury regulations;
• fashion and propose corrections;
• develop improvements to the plan’s administrative processes;
• obtain the cooperation of independent entities involved in the program needed to correct tax defects;/li>
• keep records of its activities.
• limit funding media or products available to employees;
• limit the number of annuity providers who may approach the employee; or
• limit the number of providers to which it will forward salary reduction contributions as long as employees may transfer all or part of their funds to any provider whose annuity contract complies with the Code and who complies with the plan’s division of tax compliance responsibilities among the employer, provider and participant.

The employer is not permitted to have responsibility for, or make, discretionary determinations in administering the program and remain in the safe harbor. To remain in the safe harbor, the employer is not permitted to have responsibility for, or make, discretionary determinations which:

• authorize plan-to-plan transfers;
• process distributions;
• satisfy qualified joint and survivor annuity requirements;
• make determinations about hardship distributions and qualified domestic relations orders (QDROs); and
• decide eligibility for or enforcement of loans.

FAB 2007-02 is clear that an employer does not automatically establish a Title I plan by adopting a written plan.

The DOL says their expectation is that written plan document for a TSA program which complies with the safe harbor will consist largely of separate contracts and related documents supplied by the annuity providers, account trustees or custodians. A single plan document which coordinates administration among different issuers and which addresses tax matters, such as the universal ability requirement, does not remove the plan from compliance with the safe harbor. The plan document should identify the parties responsible for administrative functions, including tax compliance. Additionally, the plan document should correctly describe the employer’s limited role and allocate discretionary determinations to the annuity provider or participant or other third party selected by the provider or participants.

The IRS also released the 3-column version of the Final 403(b) regulations today as the Final 403(b) Regulations will appear in the Federal Register. They are 34 pages long, which is much shorter than the single column version, and easier to print. (Hat tip to BenefitsLink.com)

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