Decisions Required for Model 3 - Explanation B

All 403(b) contract balances, no matter where they are located, are considered plan assets covered by your current plan, and action is required.

• New Form 5500 requirements will require all plan assets^[1] be included beginning in plan year 2009. All plan assets generally are subject to the 5500 audit requirements for plans with 100 or more participants.*
• Although there is IRS guidance allowing grandfathering of certain contracts outside of the plan for 403(b) tax code purposes, actively sponsored plans (except governmental and non-electing church plans) are covered by ERISA. This protects the status of these assets as plan assets so they cannot simply be grandfathered outside of the plan.
• Consider moving all plan assets under the umbrella of one provider. There may be complications because of prior providers' contractual provisions.
• If it is impossible to move all plan assets under the umbrella of one service provider, recognize that leaving multiple providers in place is still your fiduciary decision. Also, procedures need to be developed to ensure operations are consistent across all investment options and with the terms of the plan. The services of a third party administrator may be necessary.
• Review Your Plan Document - The plan document must be reviewed to ensure the rules under the final regulations are appropriately addressed. In particular, all 403(b) documents must include:
  • Eligibility requirements in light of the universal availability rules;
  • Provisions regarding distributions, loans, and transfers. Particular attention must be given to the regulations as they apply to all investment options allowed under the plan document; and
  • Identification of the party or parties responsible for compliance of the various components of the 403(b) arrangement.
• Review of Operations - Plan sponsors must ensure their administrative procedures align with what is stated in their plan and contract documents (if applicable), and have appropriate oversight of plan operations in place.
• Review Current Investment Arrangements - Review the current plan document, operational procedures and investment arrangements to ensure that there are no contradicting provisions. For example, ensure plan events such as distributions, loans, or fiduciary direction provisions between the plan document, operational procedures, and terms of the investment arrangements are in agreement.

*Does not apply to governmental and non-electing church plans

NOTE: Many plans have more than one explanation for being an Actively Sponsored Hybrid 403(b). Please be sure to review the links on the previous page for each explanation that pertains to your plan.

The Principal Financial Group^® can help plan sponsors and their advisors with their 403(b) plan needs. Our experience in the not-for-profit marketplace since 1963 positions us as a leader in providing thought capital and solutions to 403(b) plans. For more information, contact your financial professional or local representative of The Principal^®.

^[1]

Certain assets of a plan may be disregarded for Form 5500 and audit purposes as detailed in DOL Field Assistance Bulletin 2009-02 and 2010-01.

While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

Insurance products and plan administrative services are provided by Principal Life Insurance Company, a member of the Principal Financial Group^® (The Principal^®), Des Moines, IA 50392.