National Insurance Services

JILL SNYDER, MCRS
Sales Representative jsnyder@nis-sif.com
direct toll free fax	262.780.1250 800.627.3660 262.814.1250

1. When are the new rules effective?

New regulations go into effect January 1, 2009. However, we recommend that you complete your work before the effective date (preferably no later than the third quarter 2008) as a flood of last minute activity is expected that could delay your implementation. Vendor selections and plan provisions should be made three months prior to your expected effective date.

2. If I do not have a written plan by January 1, 2009, can I apply for an extension?

No. The IRS deadline is firm.

3. What items must be included in your district’s final plan document?

Your written plan must include all materials, terms and conditions for:

Eligibility
Contribution limits
Benefits
Distributions
“Contracts” under the plan (through a separate administrative list; i.e. insurance companies and mutual funds)
Optional features such as loans or hardship withdrawals, plan-to-plan transfers or exchanges, employer contributions, rollovers and a Roth 403(b) option.

4. What should I be doing now?

Freeze all transfers or exchanges until your plan is in place.
Begin reviewing your list of current providers, their products and services, fees and surrender charges.
Begin making your decision about whom you are going to work with.

5. What is the difference between a 403(b) transfer, exchange and a rollover?

A transfer is the tax-free movement of a 403(b) from a former employer to a 403(b) account in a new employer’s plan.
An exchange is the tax-free movement of one 403(b) account to another within the employer’s plan.
There are no changes to rollovers for employees eligible for a distribution.

All transfers and exchanges on or after September 24, 2007 must be limited only to providers that will, by January 1, 2009, enter into an information sharing agreement (ISA) with the employer. In addition, the employer’s plan MUST permit transfers and exchanges. The risk of transfers and exchanges to “non-authorized” vendors lies with the employees. An un-authorized transfer will be treated as a distribution and subject to income taxes and potential penalty taxes.

6. Should I sign the information sharing agreements (ISA) with my current providers?

Be cautious about the ISAs for now. Once you sign, you are responsible for keeping records on that provider. That responsibility does not expire. Wait until you have fully investigated your full range of options before you sign.

7. Will NIS provide sample plan documents, forms and/or contracts?

Yes. NIS is here to help you navigate your way through the new regulations.

8. How do I reduce my provider list?

First, ask each provider if they will be willing to enter into an Information Sharing Agreement (ISA). If they are not willing, then you have already narrowed your list. Next, establish a formalized process to evaluate your current and future provider list. For instance, one way to narrow the list is to set up guidelines about the number of employees who are currently contributing to a particular provider - those with five or less contributing employees, for example, could be eliminated. The next guideline is to eliminate those with high fees, and so on. This formalized process will provide you with the paper trail necessary to justify making changes to your current provider list should you elect to do so.

9. What are the benefits of reducing my provider list?

By reducing your provider list, you will increase your purchasing power and force providers to provide competitive products without giving up investment choice. You will have peace of mind knowing that you are putting your employees needs first and creating a “win-win” scenario.

10. What things do I need to be aware of when selecting new 403(b) providers?

Types of investments offered
The communication the provider will provide to your employees
Wrap fees and Investment fees
Enrollment procedures
Transparency of fees (no “hidden” fees)

11. What about employee education and “meaningful notice”?

Historically, teachers and other school employees received their retirement planning advice from commission-based agents of 403(b) providers. Ideally, you will want to provide employee education from an independent, non-biased source. Under the new regulations, the district is required to provide a “meaningful notice” to all eligible employees at least once per year advising them of the 403(b) plan and salary reduction election. A reasonable attempt to communicate this right is needed, either through a new employee package, an email, video, newsletter, etc.

12. What are the district benefits of educating my employees about saving for retirement?

Employee education fulfills the IRS requirements of “universal availability” and “meaningful notice”. Universal availability, part of the new regulations, means that if you offer the opportunity to make salary deferrals to one employee, you must offer that opportunity to all employees. Some exceptions apply. “Meaningful notice” is discussed above.
Teaching employees about the importance of saving for retirement will likely increase participation, thereby enriching your benefit package. Historically, 403(b)s have lower participation rates than 401(k)s. One way to increase participation is through employee communication.

13. Do employees need to transfer their existing 403(b) assets to the new provider if the district eliminates their current provider?

No. Employees are not required to transfer assets that have already accrued with an existing provider. However, they have the option to transfer assets if they choose.

14. What are the benefits of forming consortiums or co-ops?

For many small or rural school districts, forming a consortium may be the most effective way to leverage buying power and pool resources to acquire a quality 403(b) product. Employees may be more receptive to giving up favored providers when districts have united together to meet the new requirements.

15. What are the advantages of offering a 457 plan?

A 457 plan can enrich your benefit package to help with recruiting and retaining quality employees in times when teacher shortages are prevalent. The 457 plan is a particularly attractive recruiting tool for high-salary positions like administrators who need more tax-reduction savings options, as well as younger employees who may be reluctant to save money in a 403(b) due to the early-withdrawal penalty.

There are several benefits of adding a 457 plan:

Unlike 403(b) programs, 457 plans are exempt from the 10% premature distribution penalty.
Employees can contribute the maximum to one or both 403(b) and 457 plans.
457 plans have broad catch-up provisions and can be used in combination with the 403(b) catch-up provision.

16. Do the new 403(b) regulations apply to 457 plans as well?

No. The final regulations are specific to 403(b) plans.