New interest in IRS audits: Are you providing meaningful opportunity?

(Source: Ellie Lowder, TGPC, Consultant, National Tax Sheltered Account Association-NTSAA)

Recent reports of 403(b) plan audits in progress in April and May 2013 may shed some light on how the IRS views whether “meaningful opportunity” is being provided by employers to employees. The final 403(b) regulations speak to the universal availability requirement that there be an effective opportunity given for purposes of new enrollments or changes for current participants in the 403(b) plan. Whether an effective opportunity has been provided is “determined based on all the relevant facts and circumstances, including notice of the availability of the election (Universal Availability Notice), the period of time during which an election may be made, and any other conditions on elections.”

Discussions with senior staff from the IRS audit area as well as reports from employers shine additional light on what the IRS has in mind in requiring that eligible employees receive effective and meaningful opportunity to enroll or make changes in the 403(b) plan. During current plan audits, the IRS Field Examiners are first looking at low participation rates (in the 18%-20% range in reported audits); then they are asking the employer to provide information on their education plan for eligible employees. In discussions with IRS staff it was discovered there is immediate concern that the employer has not actually fulfilled the requirements for an effective or meaningful opportunity if there is no educational program in place in plans where participation rates are low.

Elements of a 403(b) education program for employees

Most employers have a diverse employee population, with some employees needing more help to get started than other employees, so it makes sense to have an education program that is also diverse. Some items to consider are:

  1. Online tools for the computer oriented population of employees.
  2. Periodic employee workshops/seminars to include information about the primary pension plan, Social Security benefits, and the need to fill the gap with voluntary savings.
  3. Periodic face-to-face and/or telephone consultations with financial representatives. Personal service to encourage enrollment and appropriate follow-up reviews to encourage increased contributions and portfolio reassessments.
  4. Involvement from key personnel of the employer, such as the superintendent, business manager, human resources staff, or benefits coordinator. For example, written communications should emphasize the importance to employees of saving voluntarily in the retirement plans available, while workshops/seminars should include a few introductory remarks by key personnel to make it clear that you have made a plan or plans available to permit employees to enjoy a comfortable and timely retirement.

Benefits of employer supported education program

  1. Encourages a timely retirement versus employees who would work long after normal retirement ages—real budget savings.
  2. Demonstrates the employer cares about employees by sponsoring voluntary savings plans and providing much needed education to employees.
  3. Satisfies IRS questions about whether effective and meaningful opportunity has been given.

We can help

You can look to WEA Trust Member Benefits to assist you in developing an education program for your 403(b) plan. We provide a variety of online tools including, but not limited to: financial calculators and budget worksheets, investment information, forms and brochures, and relevant retirement and financial planning articles of interest. Employees can register for live and on-demand seminars and workshops on our Web site, and our Worksite Benefit Consultants can work with you to bring our seminars and workshops to your district. We also have a financial planner on staff who provides several different fee-based advisory services without product sales or commissions attached. This allows for an unbiased analysis of an employee’s individual situation.

For more information, call us at 1-800-279-4030.

The 403(b) retirement program is offered by the WEA TSA Trust. TSA program registered representatives are licensed through WEA Investment Services, Inc., member FINRA. Seminars are free to attend; however, if you choose to invest in the WEA Tax Sheltered Annuity or WEAC IRA program, fees will apply. Consider all expenses before investing. All investment advisory services are offered through WEA Financial Advisors, Inc.

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