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Proposed 403(b) regulations: a new chapter in retirement planning
There is once again growing anticipation regarding when final 403(b) regulations will be published.
We expect that to occur within the first half of 2007. However, even before those regulations are
finalized, there are still steps you could take to prepare your retirement plan for the anticipated
changes. This update will provide you with the best information we have to date about the release of
the final 403(b) regulations and the proposed areas of change. Let’s take a closer look at some of these issues.
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When should we expect the regulations to be issued in final form?
As announced by the IRS, we know that the effective date will not be earlier than
January 1, 2008. At this time we have no reason to believe that the regulations
will not go into effect on that date. A January 1, 2008 effective date does not
necessarily mean that all of the requirements under the final 403(b) regulations
will have to be satisfied on that date. For example, it is possible that plan
documents will not need to be in place before December 31, 2008, or another date.
In addition, certain employers, including governmental employers, and certain plans,
including collectively bargained plans, may have later effective dates.
Regardless of the effective date of the final regulations, many provisions of those regulations will address provisions in the Internal Revenue Code which are already in effect, such as:
- employer eligibility
- employee eligibility
- elective deferral limits and catch-up limits
- distribution restrictions
- required distributions
What are some of the key requirements to look for in the final regulations?
While there are many provisions in the proposed regulations, there are a limited number of key issues that will differ from current rules. The following reflects what we expect to be included in final regulations, subject of course to the release of new information from the government:
Plan document: We expect final regulations to include a requirement for a written plan. We also expect the regulations to recognize that this requirement can be met by either maintaining a single comprehensive document or by a collection of documents that could include the underlying annuity contracts and/or custodial accounts. The IRS would likely look to any central plan document, and associated agreements and documents (such as annuity contracts, custodial agreements, hold harmless agreements and salary reduction agreements) to determine whether important structural requirements were satisfied. In association with the plan, the employer would need to identify the eligible investment providers and products under the plan. Below are some additional notes:
- The written plan requirement may pose particular challenges for plans of private tax-exempt employers consisting solely of employee deferrals. It remains unclear whether, and to what extent, compliance with the new IRS written plan requirement could cause such programs to fall outside of an existing Department of Labor exemption from the requirements of several ERISA rules. Of course, this question would not apply to plans of public schools or public colleges, universities or hospitals.
- A new IRS program for approving prototype 403(b) plans is possible, but is not likely to be released until after the final regulations are published.
- We believe the IRS might publish sample plan documents for governmental employers, with a focus on voluntary-only documents, shortly after release of final 403(b) regulations.
What should I be doing now, while we wait for the final regulations?
At a minimum, employers will want to monitor activity on the regulations to determine when new requirements will become effective and what action you will need to take to satisfy the new requirements. Some employers may choose to begin adopting a written plan and preparing for the eventual implementation of the regulations. However, private tax-exempt employers in particular will want to exercise caution in light of the uncertainties surrounding the written plan requirement and its potential impact on the plan's exemption from Title I of ERISA.
These aren’t the only areas of your 403(b) plan that could require changes, pending the issuance of the final 403(b) regulations, but this is an overview to help you get started. AIG VALIC has studied the 403(b) regulations thoroughly and is prepared for the changes. When it comes to 403(b) regulations, we
are the answer. For questions, contact your source on 403(b) regulations development at 1-877-403b-REG (2734) or 403bREG@aigvalic.com.
AIG VALIC acquires retirement planning tools developer
Acumen Financial Group
AIG VALIC, through The Variable Annuity Life Insurance Company (VALIC), a national leading provider of retirement plan services to for-profit and not-for-profit education, healthcare and government organizations, has acquired from KPMG LLP the resources of its Acumen Financial Group (Acumen), a major provider of financial and retirement planning tools for employee benefits, compensation and financial-planning communications, administration and education.
Founded in 1983 as Acumen Financial, Inc. and subsequently integrated into the operations of KPMG LLP, Acumen Financial Group creates technology solutions that allow large organizations to communicate highly customized information to employees and other constituents in print, electronic or dynamically interactive, Web-based formats. Acumen, which will be integrated into AIG VALIC, but is expected to do business under the marketing name AIG Acumen, has served as the financial planning software provider to VALIC’s national sales organization through VALIC’s registered investment advisor VALIC Financial Advisors, Inc.
In commenting on the transaction, Bruce R. Abrams, President and CEO of VALIC and the VALIC Retirement Services Company said, “The acquisition of Acumen Financial Group further demonstrates AIG VALIC’s commitment to providing our clients with the most comprehensive educational tools and retirement planning solutions available in our industry today. The group’s extensive financial services industry experience and substantial quantitative skills base will help us further strengthen our leadership position in the growing retirement savings marketplace. We welcome Acumen’s experienced professional team and look forward to their continuing contributions in developing innovative planning tools and retirement distribution strategies for our more than 2 million clients nationwide.”
Historically, Acumen’s two largest customer bases have been financial services firms and large employers. For the former, Acumen has created financial planning platforms, consolidated customer reporting statements, relationship management tools, and Web-based financial information portals. For the latter, it has developed integrated tools to communicate with employees about benefits, compensation, and retirement savings programs, to deliver retirement planning education, to generate retirement plan statements and to execute retirement plan investment decisions.
“With Acumen’s dual strengths in technology and communications, we are well-positioned to capitalize on the growing demand for Web-based employee benefit platforms that can seamlessly integrate information, administer changes and execute employee-directed decisions, all in an environment of superior support and education,” said Jeffrey M. Hughes, Director, Financial Planning, VALIC. "Now after implementation, we find it is even a stronger asset than anticipated. Bringing Acumen to VALIC has allowed us to build a tremendous amount of flexibility into our financial planning and education tools. They allow us to respond very quickly to employer requests or demands in the marketplace. Their HR communication tools have been a big benefit to our employer clients. We are able to provide HR communication tools and targeted communication campaigns, saving them up to the $50,000 they were spending with others for the same services."
Acumen Financial Group is a recognized leader in providing computer-assisted communications and Internet-based administrative tools to financial service firms and to large employers. Acumen’s management team has extensive experience in building, operating and consulting on technology solutions for major clients. The group is also experienced in foreign languages, foreign tax codes and foreign currencies. Acumen professionals are based in Boston, Dallas, Seattle, Houston and Short Hills, New Jersey.
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