While most employers have adopted 403(b) plan documents, many have not shared those documents with the product providers, the financial representatives servicing the plan participants, the plan participants and in some cases, the plan administrator.
This creates problems because transactions often require information to be shared between authorized product providers as in loans or exchanges, or are based on plan features, such as catch-up provisions or financial hardship distributions. In the absence of information on plan provisions, some employers are overwhelmed with requests for information or authorization requests for transactions related to their plans. Many product providers, unable to provide services that were previously provided based solely on participant information, have to contact employers and/or plan administrators for information to complete transactions. For various reasons, some employers fail to respond or provide incorrect information because they do not understand the purpose of the questions or they do not have the information sought. Having executed a plan document, many employers fail to communicate the terms of that document to the plan participants and to the employer’s compliance partners.
It is important that the features of the employer’s written plan document be provided to the product providers. It would be useful if this, the first and most important element in resolving compliance issues, could be done in a standardized format acceptable to the industry. This should obviate the requests by providers for employers to complete each provider’s “plan feature” form or summary sheet.
A sample Plan Features Grid is included in the Support Materials section of Best Practices Guide for 403(b) and 457(b) Plans. It is recommended that employers complete this form or have their TPA complete and distribute it to all product providers authorized under the plan document. Of course, it will be essential to keep the form updated for changes made. Revised forms should be dated and distributed to all providers.
Use of the Plan Feature Grid will describe plan features on a consistent basis for all providers. It should also significantly reduce provider requests for complete plan documents1 and/or plan adoption agreements. Consistency within the marketplace would accelerate processing as each provider would be “working” from the same Plan Feature Grid, the terminology would be consistent and each provider would not “interpret” the employer’s plan.2
Employers should require that the approved providers under the plan communicate the plan features to their financial advisors representing the provider(s) under the plan. This would also minimize improper transaction requests. For example, if loans are not included as a feature in the plan document, properly informed financial advisors would not advise participants to seek loans.
When adopting the plan or amending the plan, plan language should be designed to limit features available under the plan to those that are available under the annuity contract(s) or custodial account(s) in which each participant’s interest under the plan is held in order to prevent a de facto conflict between plan and contract or account terms. For example (and only as a sample provision), a plan could provide: “Unless required to satisfy the requirements of Internal Revenue Code Section 403(b) and regulations issued thereunder, no provision or feature under this Plan shall be made available to a Participant unless the terms of the annuity contract(s) or custodial account(s) to which a Participant’s account is subject permit and can accommodate such provision or feature.” It should be understood that not all providers offer all options under their contracts or accounts, and plan sponsors should work with their providers to be certain which options are available, and for that to be consistent with the plan document, and communicate any relevant limitations to plan participants. Use of the Plan Feature Grid may help with that.
1 Many product providers at the 2019 30th Anniversary NTSA Summit indicated that they would accept the information provided on the Plan Feature Grid as an adequate source of information on an employer’s plan. However, some providers indicated that their legal counsel may still require a complete copy of the plan for review if the employer is asking for indemnification or other legally binding acceptance of responsibility by the provider.
2 Some plan administrators have prepared a database of their employer clients’ plan features, which the providers may access to obtain the information. However, these databases vary throughout the marketplace.
Bill Fisher is a member of the NTSA Leadership Council, serves as Chair of the NTSA Professional Education Committee and is Director of Business Development for PenServ Plan Services, Inc.
More information on communicating a 403(b) plan to employees, as well as a host of other topics relevant to running and building your practice, can be found in the Best Practices Guide for 403(b) and 457(b) Plans. Information about the Best Practices Guide for 403(b) and 457(b) Plans is available here.
For a complete guide to 403(b) and 457 plans, contact NTSA for information on The Source, a reference manual for internal staff, advisory firms, TPAs, broker-dealers and employers.