September 13, 2018
Most schools offer a 403(b) plan for the benefit of their employees. While establishing a plan for your employees is an important benefit, it is also important for management to ensure they are maintaining the plan’s compliance with IRS and ERISA requirements. Plan sponsors have a fiduciary responsibility to protect employee retirement funds and there are penalties for noncompliance imposed by ERISA.
Some tips to ensure your plan is in compliance:
- Make sure your plan documents are up to date with IRS and DOL requirements. You should be able to work with your plan service provider to keep informed of any changes that would require a plan amendment.
- Review your plan periodically to ensure you are following your plan provisions.
- Ensure the components of compensation used for deferrals in the payroll system are consistent with the plan’s definition of eligible compensation.
- Confirm that you are remitting employee contributions and loan repayments each pay period on the pay date or within a day or two of the pay date.
- Ensure you are giving all eligible employees, as defined in the plan document, the opportunity to enroll in the plan.
- Check that you are calculating the participant count correctly. The number of participants is reported on the plan’s Form 5500 and should include all eligible employees (regardless of whether they participate in the plan) and any participant that has left the school but still has an account in the plan.
a. If your participant count is over 100 participants, then the plan is typically considered a large plan and subject to an annual audit. However, a plan typically does not need to have its initial audit until its participant count exceeds 120. After that point, a plan is required to have an audit each year until the participant count drops below 100.
- If your plan has the provision to distribute amounts to participants who have terminated and have an account balance below $5,000, ensure you are following this requirement. This may also help you stay below the audit requirement.
- While you cannot force employees out of your plan (except as noted above), you can be proactive and provide terminated employees with information on how to roll their account into an IRA or another qualified employee benefit plan.
- Confirm that you are obtaining annual fee disclosure notices from your service providers.
- Ensure you are providing annual notices to plan participants.
- Check that you have a committee to review the plan’s investment offering and monitor the performance and fees for these investments on a regular basis. All meetings and decisions should be documented in writing and maintained.
By engaging knowledgeable service providers who have experience with 403(b) plans (such as asset custodians, third-party administrators, investment advisors, auditors and ERISA counsel), you can help your plan stay in compliance.