Final regulations for 403(b) plans are expected to be issued by the IRS before the end of June, and the proposed changes are causing many non-profit organizations to look toward 457(b) plans. Although it isn’t certain the proposed regulations will become final, now is a good time to strengthen relationships with your 403(b) employers by suggesting the idea of a 457(b) plan as a complement to their current offerings.
For more than 40 years, 403(b) plans have remained largely untouched. The proposed changes, however, will restyle them to work more like 401(k) plans. If the new regulations are enacted, 403(b) plan sponsors will be required to maintain written plan documents, and advisers will be responsible for answering employers’ questions and addressing compliance issues.
Public school districts, in particular, are already facing challenges as a result of the proposed regulations.
“The possibility of maintaining plan documents for each 403(b) provider offering or even a single plan document that encompasses all provider offerings, is a large and daunting task,” says Joanne Henderson, TSA Key Relationship Manager for Symetra Life Insurance Company. “It’s very likely that the proposed regulations will prompt school districts to choose a much smaller number of vendors to work with, rather than 50 or 60 they have today.”
This narrower focus, coupled with additional regulatory hurdles, could make it difficult to forge new business in the 403(b) market. Your clients may begin looking for supplementary retirement offerings, which presents a viable opportunity for 457(b) cross-sales.
Complementing your clients’ existing retirement program with a 457(b) can offer several benefits to plan participants, such as no premature distribution penalty tax and the opportunity for double deferrals. Here’s what this means:
Double Deferrals
In 2007, employees can contribute (under the basic limits) as much as $15,500 into each plan for a total of $31,000 in tax deferred retirement savings and even more if they are age 50 or greater and/or have 15 years of service with their current employer.
No Premature Distribution Penalty
The IRS 10 percent penalty on withdrawals made prior to age 59 ½ does not apply to the 457(b). This means that anyone, at any age, separating from service can withdraw from their 457(b) account without incurring the early withdrawal penalty.
Symetra is prepared to provide you and your clients with the resources and support you need to ensure a smooth transition should the new rules take effect. We will provide a fully compliant, model written plan at no cost. We already manage many of the compliance issues that employers will be responsible for, e.g., notification when a loan or hardship withdrawal is taken, monitoring contribution limits and Required Minimum Distribution (RMD) benefits.
To learn more about how we can help you tap into these emerging business opportunities as a complement to your 403(b) business, contact our Sales Center at invest@symetra.com or 1-800-706-0700.
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