For religious and non-profit organizations, as well as schools, retirement planning often involves a tax-advantaged 403(b) plan. Employees contribute pre-tax funds and those funds are then managed, invested, and grow over time to provide for retirement. There are a few key differences between 403(b) and 401(k) plans including who would be eligible for each, what type of contributions are made, and the administrative overhead involved in managing one. They are also exempt from ERISA, but still governed by IRS regulations. Because of a March 2020 deadline set by the IRS to implement a “safe harbor plan,” many companies are now taking the time to review their 403(b) plans and ensure the plan and plan documentation meets IRS requirements.

  • Review Plan Provisions: There is often discrepancy between the written provisions of the plan and how it is actually operated. These discrepancies can result in administrative hassles or major problems with the plan administrator’s fiduciary duty. Thankfully, after review, plan fiduciaries can correct these provisions by making amendments to the plan’s documentation or reviewing and changing operational practices. This review will likely result in a combination of new procedures and a restated plan document.
  • Review Custodial Agreements and Contracts: Currently, many investment plans are being targeted due to poorly negotiated agreements and high fee schedules. Take the time to review the agreements your plan currently has in place and determine if it’s time to renegotiate.
  • Pre-Approved Plan: If your business has elected to use a pre-approved plan, it may be wise to review the plan to ensure it is still meeting the needs of your organization and your employees. It may be time to migrate to a different plan or craft a custom option best fitted to your needs.
  • No Determination Letter: For organizations that choose not to adopt a pre-approved plan, the IRS has announced that they will not be issuing determination letters. This means that plan sponsors should take extra care to confirm that their plan complies with new regulations. The aim of extra legal and operational attention is to reduce concerns that an IRS audit will find the plan noncompliant.
  • Meet the March Deadline: Plan sponsors have until the end of March 2020 to either retroactively adopt a pre-approved plan or amend their plan so it follows regulations. This date is now less than a year in the future, so be pro-active about ensuring that you review your plan soon and have the time to make any changes necessary.