News

"In an ideal world, every 403(b) plan participant would have access to at least one Green vendor. In the real world, many lack access to any of them ... This post describes a good choice available from a bad vendor ... It describes key plan features, the rationale for its Yellow rating, advantages and disadvantages, plan expenses ... [and] concludes with a summary of research about the growth of [a sample] account over time, three 'need to know' facts, and six take-away action steps."

"While the new rule applies primarily to retirement savings plans covered by [ERISA], the news is not all bad for savers in K-12 403(b) plans ... [The rule will] apply to rollovers out of K-12 403(b) plans ... Participants should ask every 'trusted' advisor in the lounge if they will adhere to the new Retirement Security Rule. And if not, why not?"

"This would appear to be yet another case where the folks bringing suit failed (at least in the opinion of the judges hearing their case) to persuade based on the facts presented that there had been an injury, and that they, therefore, had standing to sue. " [ Wilcox v. Georgetown Univ. , No. 23-7059 (D.C. Cir. Apr. 23, 2024)]

"The court reasoned that the proposed amended complaint contained 'substantively the same defects' as its predecessor. Former Montefiore employees [had] challenged the healthcare center's management of its 403(b) retirement plan, alleging that plan fiduciaries [1] selected underperforming funds charging excessive management fees; [2] failed to offer the least expensive share classes of funds; and [3] failed to control the plan's recordkeeping costs." [ Boyette v. Montefiore Med. Ctr. , No. 22-5280 (S.D.N.Y. Apr. 5, 2023)]

"Under the SECURE 2.0 Act of 2022., plan sponsors can add new features to their 403(b) plans to increase opportunities for participation and access to retirement plan funds. Separately, the [IRS] recently expanded its determination letter program to include individually designed 403(b) plans. This affords plan sponsors that do not use a service provider's pre-approved plan document a helpful new avenue to seek approval of their 403(b) plans in written form."

68 pages. "In 2020, more than four-fifths of large ERISA 403(b) plans covering more than three-quarters of large ERISA 403(b) plan participants had employer contributions.... Among large ERISA 403(b) plans with employer contributions in 2020, 35 percent had automatic employer contributions, 58 percent had simple matches, and 14 percent had both of these features.... 64 percent of large ERISA 403(b) plans had participant loans outstanding, ... Mutual funds were the most common investment vehicle ... with 66 percent of large ERISA 403(b) plan assets in 2020. Fixed annuities held 16 percent of assets, and variable annuities held 18 percent"

"For qualified retirement programs ... SECURE 2.0 enabled employers to optionally count Qualified Student Loan Payments (QSLPs) as if they were a regular elective contribution to those plans, and therefore provide an employer matching contribution.... In addition, employers were also given a temporary tool through December 31, 2025 to provide a nontaxable benefit of up to $5,250 ... for not just the usual items of tuition, fees, books, and certain other expenses but also for the repayment of qualified student loans."

"As SECURE 2.0 is drafted, both the part-time exclusion and the student-employee exclusion are subject to the LTPT rule.... IRS issued proposed regulations about the LTPT rules for 401(k) plans, but they have not provided clarification for 403(b) plans.... [We] can hope that the IRS will provide more definitive guidance on the intersection of the rules before operational compliance is due next year."

"This post is about an investment product that people purchase to make the world a better place. It will discuss what the letters ESG stand for, advantages and disadvantages of ESG investing, and the availability of ESG mutual funds in 403(b) plans. It also summarizes research about investors' ESG investing knowledge and attitudes and concludes with three 'need to know' facts and six take-away action steps."

"An average of 83.1% of eligible, active, nonprofit-organization employees maintained a balance in their plan in 2022, nearly identical to the year before -- and up from 76.7% in 2013. ... [T]he average savings rates in [403(b)] plans with Fidelity Investments as the recordkeeper reached 11.5% in the fourth quarter of 2023, up slightly from 11.1% in Q4 2018. In the same period, the total savings rates in 401(k) plans reached 13.9%, up from 13.1% in 2018[.]"

"[ Notice 2024-2 ] confirms that ['terminally ill individual distributions' (TIIDs)] are available to participants in ... defined benefit and defined contribution plans (including 401(k) plans), 403(a) annuity plans, 403(b) plans, and both traditional and Roth IRAs. The notice also indicates that all participants and beneficiaries in these plans may be eligible to receive TIIDs, not just current employees."

"403(b) plans do not need to file Form 5330 or pay the excise tax on the lost earnings ... However, in addition to your VFCP filing, if you are a large ERISA 403(b) plan that is subject to audit (more than 100 employees), note that you will also need to report the late remittance on your 2023 Form 5500 filing[.]"

"[An] issue raised in the appeal was the arguably contradictory jury results that a breach had occurred, but no damages resulted. Also questioned was the jury's assessment that a prudent fiduciary COULD have made the same decisions, whereas the plaintiffs argued that the correct standard was that a prudent fiduciary WOULD have made those decisions." [ Vellali v. Yale Univ. , No. 16-1345 (D. Conn. Jun. 28, 2023; on appeal to 2d Cir. No. 23-1082, response brief filed Mar. 8, 2024)]

"This post describes ten 403(b) plan checkup and five additional financial planning checkup activities. It also summarizes research about the frequency of performance of financial management practices as well as three 'need to know' facts and six take-away action steps."

"[The] Retirement Fairness for Charities and Educational Institutions Act  ... would allow 403(b) plans subject to [ERISA] and governmental plans to invest in CITs. SECURE 2.0 opened the door for 403(b) plans to use CITs through changes in tax-related provisions, but it was not implemented as the provisions did not include the necessary changes to the securities provisions."

"On March 7, the House of Representatives voted on an amendment to a larger bill that would allow collective investment trusts (CIT) to be included as menu options in 403(b)s.... If passed, [ The Retirement Fairness for Charities and Educational Institutions Act ] would ensure that 403(b) plan participants have the same opportunities to invest as other retirement plan participants."

8-page chart lists and describes SECURE 2.0 provisions and effective dates.

"Even if you currently allow Roth deferrals, you are not required to offer Roth Employer contributions. You can offer this option even if your plan does not offer Employee Roth deferrals. An employee must irrevocably elect Roth treatment for matching and nonelective contributions before they are allocated to their plan account."

"Illinois legislator Karina Villa ... is determined to fix a problem unique to K-12 employees: unvetted, exorbitantly priced multi-vendor 403(b) products sold by an army of sales agents with zero fiduciary duty. She has introduced legislation (co-sponsored by Robert F. Martwick) to require K-12 403(b) plan in the state be put out to bid. The bill would forbid the sale of products with loads and surrender charges.... [403bwise spoke] to Illinois legislators last week about the merits of this bill."

"Because the 12-month periods may overlap, some employees may become eligible as LTPT employees even before they have worked 'long term.' ... Upon rehire, it is important to differentiate between employees who were previously eligible for a plan due to being LTPT employees and employees who were eligible for any other reason.... If a plan sponsor mistakenly did not provide LTPT employees eligible as of Jan. 1, 2024, the opportunity to defer on that date, the plan sponsor may need to take corrective action under [EPCRS] ... Even if LTPT employees are excluded from testing, plan sponsors can still make employer contributions on their behalf."

"This post starts by discussing the process of 'ripping off the band-aid' of a high-cost vendor and getting out of a bad 403(b). It then describes the importance of continued saving through retirement age, finding money to save, dollar-cost averaging savings deposits, tax incentives to make up for lost time, and creating a retirement catch-up action plan ... It also summarizes research about 'the arithmetic of investment expenses' as well as three 'need to know' facts and six take-away action steps."

"The regulation would apply to plan years starting on or after Jan. 1, 2024 ... The proposal doesn't address Section 403(b) plans that are covered by ERISA, which must comply with SECURE 2.0's LTPT eligibility requirements starting in the 2025 plan year.... [T]his updated article includes a discussion of certain plans that could see employees satisfy the LTPT eligibility rules prior to 2024, as well as recent informal IRS guidance recommending action steps for employers."

"While safe harbor 401(k) plans are explicitly called out as requiring amendments to reflect the exclusion of LTPEs from eligibility for those contributions, as well as their exclusion from testing, non-safe harbor plans also appear to be subject to this requirement. The preamble to the proposed regulations requires a plan to contain 'enabling' language to permit the exclusion.... [A] non-safe harbor plan, out of an abundance of caution, should be amended in the same manner as a safe harbor plan regarding LTPE eligibility for employer contributions and exclusion from testing."

"It is a common misconception that employees who are not contributing should not be included in the census data provided to the third-party administrator performing the testing. Unfortunately, not including the zeroes renders the results of the test incorrect."

"The 401(k) is subject to protections under [ERISA]. The K-12 403(b), known as a governmental 403(b), is not.... Meta, better known as Facebook, is headquartered in Menlo Park. If they offered the same vendor list as the school district they would be sued. Why? Because of the dozens of red-rated vendors in the plan."