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VSA Retirement Committee

VSA Retirement Committee. January 14, 2008 Meeting. Pension Reform Act of 2006. Upsides Align 403(b) rules w/ 457(b) and 401(k) plans Strategic opportunities for employers to help plan participants Improve performance and reduce fees for employees Downsides Heightened employer role (shift)

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VSA Retirement Committee

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  1. VSA Retirement Committee January 14, 2008 Meeting

  2. Pension Reform Act of 2006 • Upsides • Align 403(b) rules w/ 457(b) and 401(k) plans • Strategic opportunities for employers to help plan participants • Improve performance and reduce fees for employees • Downsides • Heightened employer role (shift) • Fiduciary due diligence • More active management = more employer costs • Heightened responsibilities for all plans • Increased oversight, plan compliance, and regular investment reviews

  3. Pension Reform Act of 2006 (cont’d) • Effective date: 01/01/09 • New/Continued Employer Responsibilities: • Plan Document (coordination!) • Review and description of investment opportunities • Investment options • Clarity eligibility • Benefits • Contribution limits • Loans • Hardship withdrawals • Rollovers • Who is responsible for IRS compliance across all providers and investment options

  4. Pension Reform Act of 2006 (cont’d) • Stricter Transfer Rules • Transfers/exchanges within the same 403(b) plan, among sponsor-approved investments, as spelled out in the plan document • Transfers to another 403(b) plan, but only under certain circumstances • Bright Line Test for Universal Availability Rule • Offer to all employees, with limited exception • Test = 1,000 hours of service • Employers must designate approved investment providers and products • No new incidental life insurance is allowed

  5. Q’s and A’s • Q: Do pre-existing investment options have to change? • A: No. However, plan document to rule. (No incidental stand alone life insurance is permitted.) • Q: Are Roth contributions permitted? • A: Yes, on optional basis (if noted in plan). • Q: Distributions? • A: Restrictions retained as in past.

  6. Q’s and A’s (cont’d) • Q: May 403(b) plans be terminated by employer? • A: Yes, if held by the employer. Assets would be distributed to employees. • Q: Notification of plan availability required? • A: Yes. Annually, with opportunity to make, revoke, modify decision.

  7. IRS and Audit Requirements [abbreviated checklist] • Organization must qualify as public education institution • Employees working 20 hours a week or more must be given opportunity to make a salary deferral • Elective deferrals, including any designated Roth contributions, must be limited to amounts specified per calendar year • Total employer and employee contributions must not exceed limits • If 15 years of service catch up provision used, then employee must have the required 15 years of full time service w/ same employer

  8. IRS and Audit Requirements [abbreviated checklist (cont’d)] • Of age 50+ catch up contributions permitted, each employee >50 must be notified of rights • Annuity contract or custodial contract must contain non-transferability provisos • If plan offers a five year post-severance provision, amounts must be contributed through a non-elective method • Must enforce participant loan repayments and limits • Demonstrated documentation of hardship required

  9. Legislative Bill Tracking System • Keyword: Retirement • http://www.leg.state.vt.us/database/search/search.cfm?Session=2008

  10. Status Points • Vermont identified as an early adopter (VALIC: 01.11.08) • IRS final (final!) regs. issued in Nov., 2007 • New wrinkle: “coordination”, post-dated 01.01.05! • AASA 403(b) “Toolkit” • Delayed until late Jan. • (first copies being sent +/- Jan. 25) • Effort underwritten by vendors • Treasurer’s Bill: • Not yet entered into legislature • Districts beginning to become besieged with vendor and employee mailings, calls, etc.

  11. Suggested Directions • Interim memorandum from committee to field • Conversation w/Treasurer • Await “Toolkit” from AASA for announced planning steps • Assess “turnkey” opportunities being promoted • Consider a macro-contract w/tax attorney to serve VSA’s interests • Track ongoing state legislation

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