With new 403(b) regulations looming, plan providers, consultants and plan sponsors are changing how they market, advise and manage the plans.
The regulations, effective Jan. 1, require plan executives to provide a written plan document, account for excess contributions and monitor the transfer of assets among multiple plan service providers.
There's a lot of money at stake: $692 billion in 403(b)s as of March 31, according to Spectrem Group, Chicago.
“The biggest change is that now, for the first time, we know that these participant-driven plans are really employer-driven. For the first time, the IRS made it universal; they made it so you have to act as a plan sponsor and be responsible. To use the Harry Truman quote, "The buck stops here,' with the plan sponsor,” said Linda Blinn Segal, vice president of technical services at ING Retirement Services, Hartford, Conn.
Lisa Arko, a consultant for Watson Wyatt Worldwide Inc., Washington, said the Internal Revenue Service aimed to make 403(b) plans as similar to 401(k)s as possible, and with that comes a lot of confusion among plan executives.
Because of all the changes resulting from the regs, Ms. Arko said, “we have had to be more hands-on than before. Plan sponsors have a lot of questions and are in need of a lot of help. We've had to commit more time and staff to address the need of plan sponsors.”
Some of the questions plan executives have include whether they should reduce the number of vendors they work with, if they could add automatic enrollment, how they should educate plan participants about upcoming plan changes and how they should prepare for an audit, said Ms. Arko.
“You have to remember than many of these sponsors were more focused on other benefits, like payroll issues and health care. For many, they are becoming a plan sponsor for the first time,” said Ms. Arko.
The 403(b) market has changed from a system where school districts and hospitals simply offered access to multiple 403(b) vendors to one where plan executives are held accountable by the federal government for the products and services offered, the flow of assets among employee accounts, loans taken and other benefit responsibilities.
“What was once viewed as an employee convenience is now something they are responsible for. The impact is huge,” Ms. Arko said. “It's almost like a different market.”
Ms. Segal said executives at ING are fielding new sets of questions from plan clients, ranging from payroll to investment concerns.
“In the preamble of 403(b) regs, it said when possible, we want them to be as similar to 401(k)s as they can,” Ms. Segal said. “But plan sponsors know they are still different from 401(k) plans. They have a lot of questions.”