Richard Turner, Vice President and Deputy General Counsel, AIG Retirement, cleared up some common myths about the new 403(b) requirements for attendees at The SPARK Institute’s 403(b) Plans Issues & Answers Forum in Austin, Texas. Turner said some sponsors believe terminating their plans or freezing their plans and switching to a 401(k) or 457(b) plan will help them avoid the new regulations and have fewer responsibilities.

While the final regulations do add a new provision permitting plan terminations, sponsors should note they still must adopt the regulations before the plan can be terminated (See 403(b) Final Regulations – Distributions ). Turner also noted that plan termination requires the distribution of all assets under the plan.

As for switching to a 401(k) or 457(b) plan, Turner pointed out the alternative plan type may not be available for the sponsor. As an example, he noted that new 401(k) plans are not an option for public employer.

Switching plan type will not mean fewer responsibilities for sponsors, as the new regulations will still apply to frozen 403(b) plans. Turner also pointed out the 401(k) plans and 457(b) plans already have many of the requirements being added for 403(b) plans.

According to Turner, there is no universal answer for all sponsors. They should look at how the rules and features of each plan are different and decide if those differences are important, he added (See 403(b) Good Part II: B or K? ).

Now that the IRS requires all 403(b) plans to have a formal, written plan document, some sponsors think they have to submit their documents for approval by the IRS. Turner said this is a myth. While the IRS has issued some model plan language for public school districts (See IRS Offers Model 403(b) Plan Language for Public Schools ), those sponsors are not required to adopt the entire IRS sample document and there is no requirement to file a plan document with the IRS for approval. Turner did say however that to the extent a sponsor adopts the IRS model language, it is as if the sponsor has received an approval from the IRS.

Since the regulations will now require information sharing agreements between plan vendors, some sponsors take this to mean all investment products in the plan must have identical provisions. According to Turner, the plan sponsor has the discretion to decide what provisions are offered. Sponsors could decide, for example, to allow loans from one vendor and not from others (See Ask the Expert - Varying Features Among Vendor Contracts ).

Another common myth is that the new requirements mean non-ERISA plan sponsors will have greater fiduciary responsibilities for their plans. While employers will be responsible for ensuring plan compliance, in form and in operation, Turner noted the IRS has confirmed that the regulations do not impose fiduciary liability.

However, Turner warned that sponsors should know if they are subject to laws in their state governing fiduciaries or prudent investor laws. He suggested plan sponsors consult their legal counsel to understand their duties.