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Everything You Never Knew about 403(b) Plans

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Welcome to my blog! I look forward to posting (and interacting) regularly with you about issues affecting pension plans in the tax exempt sector.

To kick off my first post, I thought it would be timely to address some industry buzz.

Rumor has it that the DOL (Department of Labor) recently hired a lot of new field auditors, which could only mean one thing – more audits. I think it’s safe to say that more 403(b) plans will be put on the firing line as well. Just what we need, right? Well, a little work now and some knowledge may help, so keep reading.

Get inside the auditor’s head

One area that might raise an auditor’s red flag? Something called “legacy plan assets.” In a nutshell—these are the retirement funds left behind when you change service providers. Unfortunately, lots of plan participants don’t sign off on moving the money, so it gets left behind with the previous provider. Fiduciaries’ hands are tied because they legally can’t touch the money.

As you can imagine, these retirement funds tend to make it difficult to handle loan administration and other day-to-day tasks. But they also create major headaches around annual reporting, regular CPA audits, participant disclosure…and as I mentioned…regulatory audits.

While the DOL has offered some relief which eases some of these requirements, that relief is narrow, so you still need to be cautious in this area.

Role of the financial professional

While legacy plan assets are one potential area of focus for an auditor, there will no doubt be a long list of other items on tap as well. Financial professionals typically provide the expertise in guiding plan sponsors through compliance requirements.

Financial professionals can also help plan sponsors steer clear of service providers who claim to “do it all.” This article by Jeffrey Bauer from Angell Pensions is a good one (full article available on He points out that most providers can’t do it all because they’re at the mercy of other providers. If coordination among several providers it critical for the plan, it might be smart to also pull in an independent TPA (Third Party Administrator).

Remember, now is a great time to get a handle on plan compliance…before those DOL audits start.

So, are you ready for an audit? Are you currently dealing with legacy plan assets? I’d love to hear what thoughts you have on this topic…

Insurance products and plan administrative services are provided by Principal Life Insurance Company.  Securities are offered through Princor Financial Services Corporation, 1-800-547-7754, member SIPC and/or independent broker dealers.  Securities sold by a Princor® Registered Representative are offered through Princor.  Princor and Principal Life are members of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.

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2 Comments Post a comment
  1. Bob Lockery #

    Great read. Agreed-a partnership with the advisor, TPA and provider is needed.
    Question for you: A sponsor operates an ERISA 403b plan. Prior to adopting this plan individual annuities were used for employee savings and employer match. The employer is still filing a 5500- for only 3 terminated employees that have money in the plan. Active employees do not have money in this old plan. What else can we do other than that? Are they responsible for anything else?

    November 12, 2012
    • Aaron Friedman, National Practice Leader - Tax-Exempt, the Principal Financial Group, Princor Registered Representative #

      Hi Bob, thanks for the compliment! There are some details that aren’t clear to me in your question. If there are truly two different plans, one is frozen, and all participants under one are terminated and have individual annuities, it may be possible to terminate the plan, and deem the annuities fully paid and distributed. It may also be possible to merge the plans so that only one 5500 need be completed. There is not enough detail here to determine the best course of action. I recommend you work with your sales rep at The Principal® to review the details of the contracts and terms of the plans. Your sales rep can help navigate a solution.

      November 13, 2012

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