Data Mining

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.

K-12 Challenges 

One market segment in which common remitter service providers encounter challenges, Betts says, is the K-12 market, where schools are still mostly using their own systems. “It’s how they’ve been doing it. It’s all they know,” he says.

School systems are sending participant data already split out by provider and vendor, but, Betts says, NBS encourages them to let NBS do the data split, which is more efficient and will save school systems time. In addition, the service has a participant portal showing participants which vendors are approved for their plans and what steps to take to enroll. There is also a plan sponsor portal, allowing sponsors to add or change participant elections.

Betts says a common remitter service is a great solution for 403(b) administration: It helps sponsors maintain compliance with Internal Revenue Service (IRS) limits, and it is efficient for vendors and helps get participant funds where they need to be, quickly. Although some systems are still not set up perfectly to receive the SPARK data, Betts thinks adopting the SPARK format ultimately streamlines the process for vendors and lowers sponsors’ costs.

So where does an adviser fit into the picture? Speakers at the National Tax Sheltered Accounts Association’s (NTSAA) 403(b) Advisor Summit in February addressed this issue. Joseph E. Rollins of TSA Consulting Group noted that TPAs tend to forego communications, because it takes time away from processing. However, an adviser can take charge of communication and be responsible for keeping everyone in the loop. In addition, an adviser can take on the job of sending data to the TPA or common remitter.

The stronger the relationship an adviser has with an employer, the stronger the coordination the TPA has with the employer, said Suzanne Baldino-Jones, of ADMIN Partners LLC. Advisers provide education to employees about the new rules of monitoring contribution, loan and withdrawal limits, she said. Advisers can also help coordinate information from TPAs and plan sponsors, if audited by the IRS, added Susan D. Diehl of PenServ Plan Services Inc.

Advisers with a good understanding of the IRS and Department of Labor (DOL) rules help the TPAs that monitor 403(b) participant transactions to communicate with plan sponsors, according to Walter McBay of GWN Securities. An adviser can sit down with the TPA and lay out the plan sponsor’s expectations, and in turn, gain a grasp of the TPA’s process for communicating with the sponsor, said Kent Schutte, Educators Financial Services.

The bottom line is, 403(b) “recordkeeping and compliance is getting better,” concludes Granger. “And that’s what the regulations were all about.”

SIDEBAR: Are non-ERISA 403(b)s Fiduciaries? 

Do sponsors of 403(b) plans not governed by the Employee Retirement Income Security Act (ERISA) have fiduciary responsibilities to the plan and participants? Attendees received some solid answers at the National Tax Sheltered Accounts Association’s (NTSAA) 403(b) Advisor Summit, held in Las Vegas in February.

David W. Powell, Esq., The Groom Law Group, pointed to the Uniform Management of Public Employee Retirement System Act (UMPERSA), which imposes a prudent standard for the main employee retirement system used by the states. It excludes 403(b)s, but, Powell noted, as states adopt 403(b)s, such language enters into use in state law. Other state common law that can apply to 403(b)s includes contract theories and agent theories, Powell said.

Under agency law, a school district can be seen as an acting agent for employees, said Robert J. Toth Jr., from the Law Office of Robert J. Toth Jr.

Federal securities laws related to the purchase of contracts and deposit of premiums can also apply. Toth said 403(b) sponsors need to be especially careful of misrepresentation, state security violations, employment law violations, various insurance law claims and consumer protection violations.

According to consultant Ellie A. Lowder, of TSA Consulting and Training, an adviser can help non-ERISA 403(b) clients manage their fiduciary responsibilities by helping with the administration of the plan. Advisers should know what provisions are in an employer’s plan. Many providers have databases for advisers to keep track of plan information, she said.

Advisers can also help by finding providers who will comply with information-sharing agreements and money-handling issues.

Sponsors need to decide whether to appoint an investment committee and whether to consolidate to a single provider to make compliance easier, Lowder said.

Whatever decisions are made, sponsors must document them and be prepared to defend the reasoning behind them, Powell said.