403(b) plans learn the language of recordkeeping
Recordkeeping—potentially, the most commonly used word in the retirement industry—is something new to non-ERISA 403(b) plans. The preregulation world of non-ERISA 403(b)s, left participants to their own devices to navigate the multiple vendors providing independent investment contracts to participants, meaning 403(b) plan sponsors now have the challenging transition of finding compliant recordkeeping solutions.
A 403(b) plan sponsor with employees in multiple locations has to send deferral data for each participant in each location to the vendors who provide the participants’ investments. Many participants also have investments with multiple vendors, and each vendor can have multiple contracts with a participant, with different rules for submission, explains Natalie Wyatt, sales consultant for wealth management at SunGard. Soon, a plan sponsor ends up with a data split that branches out like a multigenerational family tree.
Compounding the data issue, the transmission-scenario for non-ERISA 403(b)s for decades has been paper-driven. Many of the legacy insurance companies have not had technology in place to receive the data, Wyatt adds. However, now—post-regulations—sponsors must monitor for compliance with contribution, loan and withdrawal limits; doing things manually is no longer an option.
The solution: common remitter services, available to both non-ERISA and ERISA plans with multiple providers. A common remitter service can take data from the plan sponsor or a third-party administrator (TPA), in aggregate, to monitor compliance with contribution, loan and withdrawal limits, and split it out by participant, vendor and contract.
In an effort to make data transmission more efficient, the SPARK Institute designed data formats for use by vendors and plan sponsors to eliminate the transmitting of data in many different formats. Although SunGard is set up to accept the SPARK format, it can also customize its system to “build a bridge” to accept files in other formats, Wyatt says.
Tom Granger, assistant vice president and director of Qualified Retirement Plans at Security Benefit, says common remitter solutions are not new—they were designed by TPAs and have been used for years. However, before the 403(b) regulations, the solutions lacked compliance capabilities, so now a common remitter solution is a critical component of the 403(b) space.
Security Benefit provides common remitter solutions through a strategic partnership with Texas-based Baybridge Administrators, and the GWN Securities-owned TPA Employer Administrative Services (EAS). According to Granger, it is important to have a competent TPA to provide common remitter and compliance services. Security Benefit also has a sister company, se2, which offers data-aggregator technology to aid in monitoring limits for contributions, loans and hardship withdrawals.
SunGard offers a common remitter solution through its Relius system. National Benefits Services (NBS) is an independent TPA that uses the Relius system from SunGard to provide common remitter services to 403(b) plans. According to Scott Betts, senior vice president at NBS, the TPA has about 700 open-vendor, non-ERISA clients and 1,000 ERISA 403(b) clients, some with multiple vendors. Statutory limits can be set in the Relius system and monitored throughout the year, Betts says. An additional benefit of that functionality is that, if the 403(b) plan sponsor also sponsors a 457 nonqualified plan, NBS can inform the sponsor when a highly-compensated participant reaches the deferral limit within the year and should begin contributing to the 457 plan.