Prm 403b Plan Study

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This presentation discusses how new IRS regulations will affect organizations with 403(b) plans.

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Prm 403b Plan Study

  1. 1. What to Do Before the IRS Comes Knocking  Getting Your 403(b) Retirement Plan in Shape Prepared by: Michael J. Rhim Principal
  2. 2. The IRS is Coming <ul><li>The IRS has made no secret that it will intensify its enforcement program for 403(b) plans in 2010 </li></ul><ul><li>Some institutions have already been audited by the IRS and the results have not been pretty </li></ul><ul><li>The IRS has made it clear that it is concerned about compliance in the 403(b) world </li></ul>03/04/10 403(b) Retirement Plan Study
  3. 3. Why Now? <ul><li>Final 403(b) regulations provide auditors clear guidance tools </li></ul><ul><li>403(b) plans have operated in relative obscurity </li></ul><ul><li>Employers have not provided proper oversight of 403(b) plans. (Employer comments have ranged from “my vendor will make sure we are in compliance” to “we tested our plan for discrimination two years ago”) </li></ul>03/04/10 403(b) Retirement Plan Study
  4. 4. Why Did the IRS Begin Auditing Plans? <ul><li>1993, IRS focused nonprofit audits on expense accounts, housing allowances, other fringe benefits </li></ul><ul><li>Discovered number of 403(b) audit problems in the process </li></ul><ul><li>Expanded audits to 40 hospitals, colleges and universities </li></ul><ul><li>All audited plans failed at least one aspect of the testing </li></ul>03/04/10 403(b) Retirement Plan Study
  5. 5. What are the Major Categories the IRS Will Focus On if Audited? <ul><li>Plan design and documentation </li></ul><ul><li>Contributions </li></ul><ul><li>Distribution </li></ul><ul><li>ERISA Compliance </li></ul><ul><li>Fiduciary Responsibilities </li></ul>03/04/10 403(b) Retirement Plan Study
  6. 6. What Do I need to Know? <ul><li>Here are sample questions that you need to be able to answer </li></ul><ul><ul><li>Have you tested your plan against non-discrimination rules? </li></ul></ul><ul><ul><li>Is your institution’s written document customized and up to date? </li></ul></ul><ul><ul><li>Are you implementing the universal availability rule? </li></ul></ul><ul><ul><li>Have you annually distributed summary annual reports to your employees? </li></ul></ul><ul><ul><li>Are you utilizing Information Sharing Agreements? </li></ul></ul><ul><ul><li>What have you done about any vendor complaints regarding plan services? </li></ul></ul><ul><ul><li>And much more </li></ul></ul>03/04/10 403(b) Retirement Plan Study
  7. 7. Common Written Document Problems <ul><li>Plan language does not fit actual operation </li></ul><ul><li>Plan amendments not up to date </li></ul><ul><li>Definition of compensation does not match what payroll is doing </li></ul>03/04/10 403(b) Retirement Plan Study
  8. 8. Written Plan Requirement <ul><li>The terms of the funding vehicles must be consistent with the terms of the plan </li></ul><ul><li>Conflicting provisions could result in contract failure </li></ul><ul><li>IRS has pre-approved plan documents and determination letters for guidance </li></ul>03/04/10 403(b) Retirement Plan Study
  9. 9. Written Plan Requirement <ul><li>What is your course of action? </li></ul><ul><ul><li>Create plan document </li></ul></ul><ul><ul><li>Restate plan document </li></ul></ul><ul><ul><li>Review plan provisions for consistency </li></ul></ul><ul><ul><li>Modify existing document </li></ul></ul><ul><ul><li>Talk to your attorney </li></ul></ul><ul><ul><li>Talk to your vendor or consultant </li></ul></ul>03/04/10 403(b) Retirement Plan Study
  10. 10. Salary Reduction Agreements <ul><li>Clients have not updated agreements to match current compliance provisions </li></ul><ul><li>Need to be in place and clear to understand to participants </li></ul>03/04/10 403(b) Retirement Plan Study
  11. 11. Non-Discrimination Testing <ul><li>Coverage test, ACP test, non-discrimination test </li></ul><ul><li>Employers have assumed passage of test without conducting testing and providing proof </li></ul><ul><li>Plans don’t know they fail until its too late </li></ul><ul><li>ACP test allows some leeway, but it’s important to test within 2½ months of close of plan year </li></ul><ul><li>Need to annually have the plan tested </li></ul>03/04/10 403(b) Retirement Plan Study
  12. 12. Sample Compliance Issues <ul><li>Summary Annual Reports need to be distributed to all employees on an annual basis </li></ul><ul><li>Summary Plan Descriptions should match plan document rules </li></ul><ul><li>Form 5500 filings require accountants opinion for plans with more than 100 lives at the beginning of the plan year </li></ul>03/04/10 403(b) Retirement Plan Study
  13. 13. Staying Ahead of Compliance Troubles <ul><li>Make sure safeguards are in place and limit salary based on 401(a)(17) </li></ul><ul><li>Periodically spot check highly paid and long service employees and don’t rely solely on vendor </li></ul><ul><li>Incoming participants need to understand coordination of annual limits </li></ul><ul><li>Service has noted the failure to satisfy plan loan provisions as a top issue for review </li></ul><ul><li>Excess loan defaults are a red flag </li></ul>03/04/10 403(b) Retirement Plan Study
  14. 14. Staying Ahead of Compliance Troubles (continued) <ul><li>It is your responsibility as plan sponsor to notify all participants of their obligation to report outside contributions </li></ul><ul><ul><li>Create employee notification template </li></ul></ul><ul><ul><li>Have vendor provide individual or group calculations </li></ul></ul><ul><ul><li>Perform your own audit check </li></ul></ul>03/04/10 403(b) Retirement Plan Study
  15. 15. Failures Identified by the IRS of Audited Firms <ul><li>Service has noted the improper exclusion of employees from inclusion in the retirement plan </li></ul><ul><li>Some Plan Documents are not clear in defining eligibility which is a red flag in an audit </li></ul><ul><li>Confusion surrounding the 1,000 rule which leads to potential exclusion of in-excludable employees </li></ul>03/04/10 403(b) Retirement Plan Study
  16. 16. Summary of Steps to Take Before the IRS Comes Knocking <ul><li>Review written document for restatement or enhancement </li></ul><ul><li>Make sure document terms are consistent with actual application of plan operations </li></ul><ul><li>Make a determination on your approach to non-discrimination testing </li></ul><ul><li>Review communication to employees (SRA, SPD, Enrollment, etc) </li></ul>03/04/10 403(b) Retirement Plan Study
  17. 17. Summary of Steps to Take Before the IRS Comes Knocking (Continued) <ul><li>Spot check payroll data against compliance limits </li></ul><ul><li>Make sure vendor is operating plan in accordance with plan rules </li></ul><ul><li>Take an enhanced fiduciary look at the overall plan </li></ul><ul><li>Document your process for the file </li></ul>03/04/10 403(b) Retirement Plan Study
  18. 18. Information Sharing Agreements (For Multi-Vendor Plans) <ul><li>Information Sharing Agreements were introduced in 2007 and cover the movement of information between plan sponsors available under your plan </li></ul><ul><li>Information includes employment status, hardship withdrawals, loans, severance from employment </li></ul>03/04/10 403(b) Retirement Plan Study
  19. 19. IRS Focus <ul><li>We also zero in on the issues we think are important or possible areas that could be non-compliant in that market segment. Upon the agent’s visit for the examination, if he or she finds good credibility , finds no surprises from the initial interview, and finds the internal controls to be good , then we most likely will not have a need to expand our audit beyond the items initially selected to examine .” </li></ul><ul><li>Page 3, Internal Review Guide Book </li></ul><ul><li>Your Goal, get the IRS to “ CASE CLOSED ”. </li></ul>03/04/10 403(b) Retirement Plan Study
  20. 20. What Happens if Our Plan Fails IRS Review? <ul><li>Failure to comply with the new regulations could lead to plan disqualification or taxation of plan assets </li></ul><ul><li>Adopt a goal to administer your plan in a way that will allow the IRS auditor to conclude an audit as quickly as possible </li></ul><ul><li>Good internal controls and processes, good documentation, accessibility of information, are all positively viewed by the IRS </li></ul>03/04/10 403(b) Retirement Plan Study
  21. 21. How We Can Help <ul><li>PRM has experience in working with clients to ease the stress associated with meeting all 403(b) provisions. We can assist by: </li></ul>03/04/10 403(b) Retirement Plan Study
  22. 22. Contact US <ul><li>Give us a call at 202-745-3721 or contact us at [email_address] before the IRS calls you. </li></ul>03/04/10 403(b) Retirement Plan Study

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