In this article, we will outline the implications of retirement plan administration under the new IRS regulations, highlight fiduciary responsibility, review the core elements of all retirement plans, and provide an action plan for Plan Sponsors. (Download a printable PDF version of the article  161 KB).

Plan Administration Under the New IRS Regulations

The new IRS 403(b) regulations have been touted as the most significant piece of legislation in the last 40 years for 501(c)(3) organizations. They have radically changed how employers must interact with the retirement plan they offer to their employees. When the new IRS 403(b) regulations were announced in 2007, the objective of the regulations was to reduce the extent to which 403(b) plans differ from other salary reduction arrangements, such as 401(k) plans. The themes of the new regulations can be summarized as follows:

• Accountability
• Report-ability
• Oversight
• Availability; and
• Communication

Accountability

To summarize, each 501(c)(3) ministry is accountable for its retirement plan. In this context, we understand it to mean answerable, responsible and liable. The issue being addressed here is that the organization is deemed to be the responsible party in establishing and overseeing all aspects of the retirement plan. So, the first words to Plan Sponsors are these: Take responsibility!

The new regulations went into effect on January 1, 2010. To help you know whether you are in compliance with the new regulations, answer the following questions:

1. If your organization has a retirement plan, do you have Plan Documents?
2. Assuming you have Plan Documents, have you updated them in the last year?
3. How long has it been since you fully reviewed your retirement plan?
4. Have you made any significant changes to your plan in the past year?

Report-ability

Under the new regulations, Plan Sponsors must be able to provide reports and information about the status of their retirement plan. A short list of what a Plan Sponsor must be able to do includes:

1. Provide the Plan Document, Summary Plan Description and Board Resolution establishing the plan
2. Report the total assets in the plan and where they are invested
3. Report how many loans are outstanding and their status
4. Provide data on all hardship distributions over the past five years
5. Provide a list of all participants and those with active accounts
6. Demonstrate that they have been communicating the availability of the retirement plan to all eligible participants

Plan Oversight

A Plan Sponsor must know what is happening in their retirement plan. They must be able to demonstrate that they provide supervision, control and administration. Do you know what is happening with your plan? Are there adequate controls in place to assure that your plan is being administered within the framework of your plan and the law? For example, are there any participants contributing more to the plan annually than what the law allows?

The new regulations require that Plan Sponsors (employers) Be Involved in their retirement plan as follows:

1. Plan Document
   Plan Sponsors need to have a Plan Document outlining the details of their retirement plan. The Plan Document provides all the legal information about your plan – it is the official plan document. (A Summary Plan Description provides all the details of the plan in plain English for plan participants.)

"I thought churches were exempt from needing a Plan Document."
While there is an exemption to this requirement for Church Plans, be very careful here. Would you rather determine the parameters of your plan or have them open to interpretation by the IRS? The exemption from being required to have a written Plan Document does not mean that you are operating without a de-facto plan document – and the possible exemption to the need for a plan document has nothing to do with the requirement to be in compliance with the new regulations. Since IRS audits of 501(c)(3) organizations is on the increase, Plan Sponsors are more likely to be audited by the IRS than in the past. This means that when the IRS reviews your organization, if you do not have a plan document, they will – based on your activities – determine your plan document and also determine whether that plan is in compliance with the new regulations. Envoy Financial recommends that all 501(c)(3) organizations have a Plan Document outlining their retirement plan.

2. Vendor Selection
   As the Plan Sponsor, you must be involved in the process of selecting which vendors will serve your employees as it pertains to the retirement plan. You may no longer simply act as a pass-through for contributions to a variety of vendors. This requirement will particularly impact larger organizations such as schools that have, in the past, had potentially hundreds of investment vendor payroll slots for their employees. Clearly, a Plan Sponsor cannot provide any practical oversight to the plan with so many vendors. Plan sponsors will now need to be actively involved in selecting and overseeing the investment advisors providing counsel to their employees for the retirement plan.

Availability

The new regulations require that all Plan Sponsors provide Universal Availability to the retirement plan. This means that all employees are eligible to participate in the retirement plan on a voluntary basis, upon hire. This does not mean that all employees are eligible to receive employer basic or matching contributions. It does mean that every employee can contribute their own money into the plan upon hire. Employer or ministry contributions and matching contributions are governed by your plan design and detailed in your Plan Documents and Summary Plan Description.

Communication

Not only do Plan Sponsors need to make the retirement plan available to all employees on a voluntary basis, but they must be able to prove that they have communicated the availability of the plan to those employees. Plan Sponsors must be able to shoe that they have announced, stated, and connected with employees about what is available to their staff in a transparent manner, demonstrating that there are regular and consistent communications to employees.

Stated Otherwise: What You Cannot Do

The new regulations require Plan Sponsors to be accountable for their retirement plans, provide active oversight and be able to report on the status of the plan, and communicate the availability of the plan to eligible plan participants. Stated otherwise, here is what a Plan Sponsor cannot do under the new regulations:

1. Be a passive, pass-through facilitator. Plan Sponsors cannot simply sending employee contributions to various vendors without any involvement with those vendors or where they have no reporting or oversight
2. Allow loans through vendors without oversight and approval
3. Allow hardship distributions without oversight and approval

Fiduciary Responsibility

Who are the fiduciaries of the retirement plan and what are their responsibilities?

A fiduciary is anyone who possesses or exercises discretionary authority over the plan administration or control over assets. This includes Board Members, the key executive leadership of an organization, Chief Financial Officers and Accountants, and payroll processors. It may include others.

Responsibilities of A Fiduciary:
A fiduciary is responsible to be Loyal to the interests of participants over the "organization." A fiduciary is to avoid conflicts of interest and their exclusive purpose is for the interests of the retirement plan. Their conduct is measured under "prudent person" standard, which means they are to "observe and act in a way that reflects how people of prudence, discretion and intelligence manage their own affairs." This standard does not mandate an individual to possess exceptional or uncanny investment skill or experience. It does require that a fiduciary exercise discretion and average intelligence in making decisions that would be generally acceptable as sound.

Core Elements of Retirement Plans

Every retirement plan has six core elements that serve unique functions and work together to create the total plan. The new regulations and other changes coming in the financial services industry are combining to further delineate the functions and how those services are being delivered to Plan Sponsors and Plan Participants. The Six Core Elements of a plan can be divided as follows:

The Third Party Administrator (TPA) provides plan advice and counsel, plan design, Plan Documents, plan amendments, and the investment policy statement. The TPA also gives oversight to compliance, loans and distributions, reporting and disclosures.

The Recordkeeper maintains plan records and participant records. The Recordkeeper also provides quarterly plan statements and quarterly participant statements and processes contributions, transfers, exchanges, loans, and distributions.

The Investment Platform provides plan investment choices, investment trading, tax withholding, tax reporting, custodial services, and trustee services.

Information provided includes eligibility requirements, contribution limits, investment choices, investment terms, risk understanding, calculators, and a computer model to guide personal portfolio decisions.

Account Services includes plan information, loans, distributions, beneficiaries, address changes, transfers, exchanges, allocation changes, and answering questions.

Education & Advice includes ongoing education and advice to plan participants such as goal-setting, risk assessment, retirement planning, risk management options, risk strategies, investment choices, investment selection, investment communication, annual review, and asset classes and asset allocation.

As we review these core elements, it is important to note what is changing on the retirement plan administration landscape, primarily the importance of the TPA Function including Plan Documents, plan design, plan testing, and filing forms with the Government. There are also expectations of the coming separation of the Advice function within plans and a new importance on the documented providing of Education to plan participants.

Action Steps

As Plan Sponsors, your task is to determine what is relevant to your organization and your retirement plan. The process for you to follow can be summarized as follows:

1. Gather and analyze information
2. Keep good records
3. Periodically re-examine your decisions
4. Determine if you want to do it all yourself or work with a partner organization

It will become obvious to many Plan Sponsors that trying to do all the work to remain compliant with the new regulations will be overwhelming and tax existing resources.

Envoy Financial can help ease that burden. Our recommendation is that you Gather your leadership team, determine what applies to your organization, make a reasoned, informed decision, get help from experts where needed, and get started! Envoy can help by providing services, help with administration, help enroll your employees, provide financial advice, support your employees and human resources department, and most importantly, stay with you. At Envoy Financial, our ministry is to serve your ministry!

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Envoy Financial provides Trusted Advice Along The Way to the leadership and staff of churches, ministries, mission-sending organizations, camps, and other Christian organizations. We advise on plan design, help implement biblically-based retirement and group benefit plans, and provide on-going financial counsel to ministry staff. Envoy Financial is a non-profit ministry exclusively serving over 800 Christian ministries and over 8,000 individuals in 48 states and 60 foreign countries. For more information on how Envoy Financial can serve your ministry, contact Jeff Gater at (888) 879-1376, ext. 209 or by email at jgater@envoyfinancial.org. Seize the Day!