Skip navigation.
Go to the Principal Financial Group(R) home page
Secure  Account Login

Select login type:


Plans & Services
Quick Links
Tools

Model 1 - Non-Actively Sponsored 403(b)

Review Your Plan, and Take Actions as Necessary

Employers historically used the Non-Actively Sponsored 403(b) model (Model 1) because of the limited amount of employer involvement required and the resulting exemption from ERISA. Limited employer involvement is no longer an option under the final regulations, but the Department of Labor has stated that it is possible to satisfy the oversight requirements under the regulations without subjecting the plan to ERISA[1].

To comply with 403(b) regulations, the following actions should be considered now, if not already completed, for Non-Actively Sponsored 403(b) plans:

  • A plan document. A plan document should have been signed by Dec. 31, 2009. 403(b) plans with an existing document should have been reviewed to ensure the rules under the final regulations were 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.

NOTE: The IRS has issued a model plan document for use by public schools. Caution should be used by non-public school entities since this document contains provisions specific to public schools, and it contains limitations that may not agree with the terms of the various contracts.

  • 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.
  • Develop operational procedures consistent with the terms of the plan document. In particular, procedures need to be in place to monitor plan loan limits, suspension of contributions upon hardship distribution, and eligibility for distribution upon separation from service.
  • Develop operational procedures to integrate necessary information sharing among your service providers.
  • Review service providers to:
    • Determine approved providers under the plan;
    • Confirm agreements are current; and
    • Ensure information sharing agreements are in place with service providers who will not be part of the plan moving forward but who have current balances.
  • Consider adopting an actively sponsored plan moving forward with a single service provider of investment products, and administrative and recordkeeping services. Doing so could help simplify administrative duties of the employer. NOTE: This may not be an option for public schools due to restrictions in many state statutes. Alternatively, consider employing a third party administrator to assist in the coordination of transactions, administration, and recordkeeping data between multiple providers.
  • Review current and frozen investment arrangements and consider whether all individual contracts issued under the plan are part of the ongoing compliant 403(b) arrangement. Consideration will need to be given to both ERISA and tax implications. For additional information, see DOL FAB 2007-02 and Internal Revenue Procedure 2007-71.
  • Be aware of new Form 5500 requirements if considering moving to an actively sponsored plan - Beginning with 2009 plan years, all ERISA 403(b) plans must file a full Form 5500 that recognizes all assets[2] under the plan. In general, plans with 100 or more participants must also meet 5500 audit requirements.

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]
For additional information, see DOL Field Assistance Bulletin 2007-02 and 2010-01.
[2]
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.

Is this helpful?

Let us know how we're doing by answering three brief questions.

Survey about the 403(b) tool

Have a question? Call us at 1.800.986.3343

Copyright © , Principal Financial Services, Inc.
Disclosures and Terms of Use | Products and Services Disclosures | Privacy and Security
Securities offered through Princor Financial Services Corporation, member SIPC