Solutions for Public Healthcare/Government/Church

Public hospitals and health care facilities, government entities and many churches have special circumstances to consider when it comes to 403(b) plans.

The following should help you determine your organization's plan status. Any decision regarding your plan should only be made after consulting with your legal counsel. While this overview is designed to be helpful, there are many other details to consider.

The key Employee Retirement Income Security Act (ERISA) consideration for governmental and church plans is that ERISA Title I either doesn't apply (in the case of a governmental plan) or will not apply unless elected (in the case of a church plan).

Options for non-ERISA government or church 403(b) plans

403(b) plan sponsors may choose to maintain the plan under the new guidelines, freeze the plan (i.e. cease all contributions to the plan but continue to update the Plan in compliance with the regulations) or terminate the plan and distribute assets in accordance with the requirements of the new regulations.

Maintaining an active or frozen plan

Any plan in existence on or after January 1, 2009, must maintain a written document even if it is frozen. This can be a single document or a collection of documents which when taken together, satisfy the plan requirement. The plan must continue to comply with all applicable laws as long as there are plan assets. Such laws include -- but are not limited to -- the withdrawal restrictions. Information sharing agreements will be needed if exchanges will be allowed to providers outside the plan. Participant communication is important for plan compliance. For example, an active plan must meet the universal availability requirements. Also, freezing a plan may entail communication about new retirement planning opportunities in another plan.

Compliance with the laws under 403(b) and Title I of ERISA, if applicable, is essential and generally administration may be accomplished utilizing centralized or decentralized administration, or a combination of these methods.

Terminating a 403(b) Plan

The final regulations introduced rules enabling a plan sponsor to terminate a 403(b) plan and distribute the plan's assets, subject to some very important limitations. One is that all plan assets must be distributed within a reasonable period. As a result, before beginning such a termination, it will be important to check with your vendors and your legal counsel to understand which products may be forced out of the plan to participants and which will require participant consent to ensure all assets may be distributed in accordance with requirements of the regulations. One key consideration is that contributions to all 403(b) plans of the employer -- not just the terminating plan -- must be stopped for a period starting on the termination date and ending 12 months following the date of last distribution. Until all assets are distributed, remember that compliance with all laws must continue and participant communication is needed.

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Securities and investment advisory services are offered by VALIC Financial Advisors, Inc., member FINRA, SIPC and an SEC-registered investment advisor.

VALIC represents The Variable Annuity Life Insurance Company and its subsidiaries, VALIC Financial Advisors, Inc. and VALIC Retirement Services Company.

This information is general in nature and may be subject to change. Neither VALIC nor its financial advisors or other representatives give legal or tax advice. Applicable laws and regulations are complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. For legal or tax advice concerning your situation, consult your attorney or professional tax advisor.