One of the most important—yet confusing—tasks a public school district has when sponsoring a 403(b) plan is understanding its administrative responsibilities and the best practices used to serve as a good steward of these plans. 
ERISA or Not?
When determining your organization’s responsibilities, it is important to understand a public school 403(b) plan cannot trigger or elect coverage under ERISA. That law requires plan sponsors to perform various administrative functions and imposes a fiduciary responsibility in administering the plan. Public school 403(b) plans are “governmental plans” that are not subject to ERISA Section 3(32) and are given the broad exemption found in 29 CFR §2510. 3-2. As such, public schools are exempt from (1) ERISA, (2) the Act’s fiduciary responsibility requirements, and (3) other reporting and filing requirements.
Generally, employer responsibility in non-ERISA governmental 403(b) plans is found in IRS regulations and applicable state laws based upon statutes that address the laws of common wills and trusts, prudent investor requirements, and in some states a version of Uniform Management of Public Employee Retirement Systems Act (UMPERSA).
Responsibilities
The IRS requires sponsors of public school 403(b) plans to establish and maintain a plan document that details the features of the plan and contains certain provisions as outlined in the IRS’ Listing of Required Modifications (LRMS), which are based on the 403(b) final regulations. This includes updating your plan document to reflect legal or regulatory amendments. Public schools must also ensure that they are following their plan document provisions when administering the plan. It is recommended to establish policies and procedures to ensure the plan features are being administered properly and pursuant to the plan document.
Information sharing agreements. The IRS also requires governmental plans to have information sharing agreements[1] with the authorized investment providers. One of the additional requirements for a 403(b) plan is the administrative appendix that outlines the responsibilities of each of the parties under the plan.
This is a great tool for the employer to see who is responsible for the various provisions. As a matter of fact, this has been such a success, that the IRS plans to add this requirement to qualified plans in the future as well.
403(b) plan sponsors. Operationally, public school 403(b) plan sponsors are responsible for various functions such as salary reduction agreement (SRA) administration, maximum allowable contribution (MAC) limit monitoring, transaction adjudication, satisfaction of universal availability, proper remittance, etc. SRA administration includes establishing and maintaining SRAs with employees who elect to contribute a portion of their salary to the plan and ensure that participants do not exceed their MAC limit set forth by the IRS each year.
Universal availability. In addition, elective deferrals must be processed properly (e.g., pre-tax or Roth contributions), and be timely remitted to the authorized investment provider selected by the employee.
K-12 403(b) plan sponsors must also satisfy the IRS’ “universal availability” requirement, which requires eligible employees to be given meaningful notice of their opportunity to participate in the plan. Generally, the IRS requires all employees to be eligible to participate in the plan with very limited exceptions.
Therefore, plan sponsors must ensure that their plan document sets forth who is eligible to participate in the plan and any exclusions are permitted by the IRS. Because excluding classes of employees can be very complex and hard to define, maximum inclusion is the safest bet to avoid eligibility problems.
Meaningful notice. Also, plan sponsors are required to provide “meaningful notice” to their eligible employees. While there is no express definition of “meaningful notice,” the notice should generally explain what a 403(b) plan is, the benefits of the 403(b), and how to participate. While this notice is required to be given to employees annually, it is recommended that this notice be given multiple times throughout the year, and in different avenues such as through emailed correspondence, websites, newsletters, posters, videos, etc.
Compliance Key
It is important to keep good records of the operations of the plan so as to prove compliance in the event of an IRS audit.
It is critical that public school 403(b) plan sponsors ensure that the above responsibilities are met to avoid non-compliance with IRS regulations.
Participant Support and Education
Of equal importance is adequate investment provider choice and participant support and education. As public schools struggle with employee retention and pension reductions, maximizing the benefits of the 403(b) plan is more important than ever.
The most effective way to maximize the benefits in the 403(b) plan is to offer multiple investment providers that offer different investment types and services to accommodate all employees and their investment strategy and goals. An important element of the multiple provider environment is access to local advisors who can educate and provide support to employees. Advisor support and education coupled with general education programs to satisfy UA are the most impactful for participation in public school district 403(b) plans.
The Bottom Line
In sum, the most successful plan stewards focus on three hallmarks: (1) plan compliance and administration; (2) participant choice; and (3) participant support and education. Assistance from a third-party administrator can be a valuable resource in accomplishing these plan administration hallmarks. By partnering with a full service TPA, a public-school plan sponsor can alleviate the administrative and liability burden associated with plan compliance and administration. In addition, the TPA can work with the investment providers to offer beneficial education combined with adequate investment choices for all employees.[2]
Footnotes
[1] Information Sharing Agreement must comply with Internal Revenue Code Section 403 and accompanying Treasury Regulations. Some 403(b) plans have this language within the Plan document using the IRS sample language.
[2] In selecting a TPA, plan sponsors should perform due diligence to ensure the TPA is experienced in 403(b) non-ERISA retirement plans of K-12 public schools.
Sarah Breiner is Managing Director and General Counsel, OMNI & TSACG Compliance Services.
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