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Details + Patience = The State of the Marketplace

The watchword of the day is patience. And detailed preparation. Speaking to a packed room at a June 23 general session of the NTSA 403(b) Summit in Washington, D.C., Kristi Cook, head of an eponymous law firm, and Ellie Lowder, of TSA Consulting, outlined the challenges facing the 403(b) industry. 

The common thread is that the IRS has provided conflicting guidance and enforcement in many areas, leaving those who administer and provide 403(b)s confused and uncertain as to how they should provide their services and remain in compliance. Not only that, in at least one case — the definition of a fiduciary — there is the prospect of still more unrequited anticipation that the matter will at last be put to rest. 

For instance, the IRS sets a demanding standard regarding what “meaningful opportunity” means. An IRS senior staff specialist in an August 2013 NTSA webcast said they require year-round activity. But Lowder warns that if an employer reports low participation rates in a 403(b), say 18 to 20 percent, then IRS field examiners many ask the employer what it is doing to educate employees about the plan. And failure to do that could lead to an audit. 

One of the areas Cook and Lowder cited as fraught with uncertainty is severance from employment. In a listing of required modifications, the IRS has treated employees of a school district as employees of the state, so if an employee leaves a job in a school district but takes a job in another one in the same state, it does not consider the payments from the end of the first job to be severance payments. But the IRS’ own regulations treat them as severance pay. Cook and Lowder said they are hoping the IRS will provide clarity soon, but warn that it may not. 

And the definition of fiduciary? Delayed until January 2015 due to extensive comments and concern from the industry and Congress. Cook and Lowder expressed concern for more than just those whose work is affected by the definition and the Department of Labor’s recalcitrance — an expansion of the definition, they said, could limit access to fiduciary services for low-income participants. 

John Iekel is Senior Writer and Editor for the NTSA Net portal.