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Tax-exempt organizations that sponsor 403(b) plans are being advised to check their plans for possible compliance issues since the IRS recently announced that these plans are on its priorities list for 2016. Below are some questions that 403(b) plan sponsors may want to ask their plan management as part of ensuring the plan is compliant before a possible IRS review:

  • Has plan management determined (and documented appropriately) if there is a plan audit requirement?
  • If there is first-time audit requirement, has plan management gathered sufficient documentation to support account balances as of the beginning of the plan year?
  • Did the organization report a pension contribution on the Form 990? If there is no associated Form 5500 filing for the pension plan, then this may be a red flag of a possible missed audit.
  • Does the plan have a formal (e.g., written) plan document? Do the plan’s day-today activities conform to what the plan document stipulates? Simply put, the terms of the plan need to agree to what is offered by the sponsor in operation. If there are differences, consider whether consultation and corrective action may be needed.
  • Does the plan have an advisor who regularly is involved in review of the plan document, features, investments offered, etc.? Plan sponsors who lack the internal expertise can benefit from using a provider with the requisite knowledge and expertise, provided that the sponsor maintains both continued oversight over the plan and good communication with the provider.

In our opinion, compliance checks are not a “one and done” activity, but rather a recurring part of the sponsor’s annual process that demonstrates good governance practices and a strong commitment to proper fiduciary responsibility.

Update on DOL “conflict-of-interest” fiduciary rule

The omnibus spending bill passed by Congress in December 2015 was notable in that it did not contain any language to “defund” the conflict-of-interest rule. The fiduciary rule has been subject to previous legislative attempts to prohibit the use of funds to implement, administer or enforce the proposed definition of the term “Fiduciary” under the DOL’s proposed regulation. Based on this latest development, some predict it is likely that the fiduciary rule will survive and ultimately be implemented, although others suggest that it will be subject to continued challenges.

Noteworthy for ESOPs

Under IRS Revenue Procedure 2015-36, the IRS will permit employee stock ownership plans (ESOPs) that meet certain requirements to qualify for pre-approval for initial and cyclical letters of determination if the ESOP adopts a prototype plan or volume submitter plan.

Also, the DOL has indicated that it will remove a component of the revised fiduciary rule proposal that addresses whether ESOP valuation advisors are considered fiduciaries. (Stay tuned as this hotly contested issue is expected to be addressed in a separate regulatory initiative.)

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