1.
Determine if all annuity contracts and custodial account agreements
incorporate required provisions on (a) vesting, (b) nontransferability, (c)
limits on elective deferrals (currently $15,500), (d) minimum required
distributions (Code Section 401(a)(9)), (e) direct rollover options for
participants, and (f) limits on any permissible annuity contract death
benefits. Also make sure current annuity contracts do not include life
insurance or endowment contracts (pre-September 24, 2007 arrangements are
grandfathered).
2.
Determine if service providers will assist in the preparation of compliant
plan document(s) to assure implementation by December 31, 2008. No
retroactive plan amendments are permitted under the final Section 403(b)
regulations, so the revised plan documents must be formally adopted by the
compliance deadline, typically December 31, 2008.
3.
Determine if service providers will make written disclosures in accordance
with Department of Labor fee disclosure regulations proposed on December 12,
2007 in advance of entering into any service agreement. These
disclosures will assist plan fiduciaries who are charged with determining that
the plan pays only fees which are "reasonable" in amount. Such
disclosures include:
(a)
All services provided and, with respect to each service, the compensation
and manner of payment (will compensation be billed to the plan or deducted,
either directly or indirectly, from plan investments, through "revenue-sharing" with mutual funds or otherwise);
(b)
The identity of any affiliates, subcontractors and any other parties that
receive any compensation charged against plan investments or charged on a
transactional basis (such as finder’s fees, brokerage commissions and "soft dollar" expenditures) and the amount of such compensation;
(c)
Whether or not the provider (or an affiliate) has a financial, referral or
other relationship with a money manager, broker, other client of the
provider, other service provider to the plan or any other party that may
create a conflict of interest in performing services for the plan;
(d)
A description of any incentive, performance based, float or other contingent
compensation that the provider may be able to earn; and
(e)
A disclosure of the provider’s policies or procedures to address conflicts
of interest and to prevent those conflicts from being a factor in performing
services for the plan.
4.
Determine if service providers will warrant compliance with fee disclosure
regulations and the reasonableness of fees in any service agreement, and
indemnify employer and other plan fiduciaries with respect to any
noncompliance.
5.
Determine if any service provider will assist with the selection and
monitoring of plan investment options as the plan’s designated "investment
manager." Consider engaging a financial institution to serve in this
capacity in order to diminish the fiduciary responsibilities of the employer
or plan administrator who are otherwise charged with selecting and monitoring
plan investment options.
6.
Determine if any service provider is rendering investment advice to
participants and, if so, will provider agree to formally act as a fiduciary
advisor pursuant to an "eligible investment advice arrangement" including
a requirement that the provider render "objective" investment advice not
tied to incentive compensation.
7.
Section 403(b) plans subject to ERISA that have 100 or more participants must
have an annual financial audit beginning with the 2009 plan year. This
audit will be a component of the plan’s annual report on IRS Form 5500.
Private auditors need to begin compiling comparable data before the end of the
2008 plan year. Determine if any internal procedures need to be changed
to facilitate the compilation of data for purposes of the annual audit.