July 13, 2012
--- The Internal Revenue Service (IRS) has made it clear
that it will look for information sharing between 403(b) plan sponsors and
vendors with 2009 plan audits. ---
And, the agency will confront
directly vendors that have not agreed to information sharing, warned Linda
Segal Blinn, vice president of technical services at ING, in a webcast
sponsored by the National Institute of Pension
Administrators.
Segal Blinn explained that the IRS
was very concerned about 403(b) participants not exceeding loan and
distribution limits, so in the regulations passed in 2007, it required that
vendors share information with plan sponsors. For example, when an employee
requests a loan from a vendor, that vendor must check with the plan sponsor
whether the employee has loans outstanding with other vendors that may cause
him or her to exceed the IRS loan limit.
Information sharing rules, in
addition to loans, applies to hardship withdrawals and when a participant
severs employment. Segal Blinn says particularly in the educational arena,
employees that retire are subsequently rehired. So, with distributions, plan
sponsors and vendors want to make sure they are not distributing money to
someone who no longer has a distributable event due to severance from
employment.
With regard to current vendors,
Segal Blinn noted, the IRS has provided draft model language for information
sharing agreements in Revenue Procedure 2007-71; plan sponsors must put terms
of information sharing in the plan document. If the vendor is no longer an
approved vendor for the plan, plan sponsors must still request information
sharing and have a formal information sharing agreement document in
place.
The IRS also addresses orphan
contracts - vendors who were deselected from 2005 to 2008. Plan sponsors must
make a good faith effort to have information sharing (see "Ask the Experts - Information Sharing Agreements").
Segal Blinn says the best practice is to have a formal information sharing
agreement in place, but sponsors must at least reach out to these vendors to
make sure limits are not exceeded.
She urges plan sponsor to document
their efforts, because they will need documentation if their plan is audited.
Rebecca Moore