4 Best Practices for 403(b)Advisers

If you have customers with a 403(b) retirement plan, you're probably aware that they have a lot of changes to implement by Jan. 1, 2009. Last July, the Internal Revenue Service issued final 403(b) regulations, the first comprehensive guidance on administering these plans in 43 years.

These new regulations bring increased scrutiny to the operation, fee structure and practices prevalent in the retirement plans available to teachers, health care workers and employees of charitable and nonprofit organizations. They also present an opportunity for your clients in these industries to create a better retirement plan for their employees. It’s also an opportunity for you to offer your clients valuable guidance on how to handle the changes.

Some highlights of the new regulations include:

• Written plan documents must be adopted and maintained by the employer
• New requirements for transferring 403(b) money
• Revised testing and notification requirements for universal availability
• Increased employer responsibilities regarding loans, hardships, catch-up contributions and required minimum distributions
• Increased fiduciary role for the selection and monitoring of available investment options

An Action Plan for Your Customers

While no two customers' situations are identical, there are four basic steps that you can take to help your customers get ready for the changes that will take effect next January.

1. Recommend that your customers form a 403(b) advisory board
The board should include five to seven members that the employer chooses, with you as an outside adviser.

2. Review existing providers
You should be prepared to review the existing providers' investment performance, investment options, fees, expenses and service standards with the advisory board.

3. Seek proposals from qualified defined contribution retirement plan providers
Emphasize to your customers the importance of looking beyond their existing providers. You know the marketplace and can assist the board in sending out RFPs to a broad range of providers. You can also analyze the RFP responses and make recommendations to the board.

4. Create standards for ongoing monitoring of the plan
Work with the board and the provider or providers they select to establish procedures for periodically checking on the plan's performance.

If you work in retirement plans, you have an opportunity to step up and show your customers that you are a trusted adviser who can add value to their business. Take this opportunity to educate your customers and help them make the transition to complying with the new 403(b) rules.

(Click image to enlarge)

$652 billion were invested in 403(b) plans as of Dec. 31, 2006. The chart above shows which industries had invested the most.