More On Legal & Compliancefrom The Advisor's Professional Library
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Providers of 403(b) plans that are subject to ERISA will face regulatory challenges this year–namely complying with the Department of Labor’s fee disclosure rule as well as the expanded Form 5500 reporting requirements.
Those in the 403(b) arena can also expect the Internal Revenue Service’s employee plans unit to release shortly several guides on 403(b) plans.
Like 401(k) providers, 403(b) plans must also comply with the DOL’s Employee Benefit Security Administration’s fee disclosure rule, which the EBSA says is slated to take effect on April 1.
Craig Hoffman, general counsel and director of regulatory affairs for the American Society of Pension Professionals and Actuaries, says that even if the DOL’s fee disclosure regulation comes out at the end of January, that’s only 60 days before the April 1 compliance date. “I don’t think that this is workable, “ he says, “and I believe that DOL will understand that as well.”
403(b) plans that are subject to ERISA are also facing “ongoing difficulties” with the expanded Form 5500 reporting requirements, and in particular the independent audit mandate that typically applies to large 403(b) plans, Hoffman says. The 2009 plan year was the first year these new rules applied, he explains, “and there have been difficulties in transitioning into this new regime.”
However, Hoffman says that he’s anticipating the ERISA Advisory Council will release shortly a report that will provide recommendations on how to deal with trouble spots in 403(b) plans, such as getting up to speed with Form 5500 reporting
The IRS is also coming out soon with guidance on 403(b) plans. Andrew Zuckerman, director of Rulings and Agreements in the IRS Employee Plans unit said at the 2011 NTSAA 403(b) Compliance Resolution Summit in December that one set of guidance will be on how the “pre‐approved 403(b) plan program” will work.
This guidance is anxiously awaited, he said, because “the ‘remedial amendment period’ to fix recently adopted 403(b) plan documents is tied to the roll–out of this new program.” Zuckerman indicated that a new version of the IRS correction program for plan defects known as Employee Plans Compliance Resolution System would also be out soon. “This latest iteration is expected to have new correction options specific to 403(b) plans including the correction of failure to timely adopt and conform to a written plan.”
Another initiative being spearheaded by the IRS Employee Plans Compliance Unit is a “compliance contact letter” that is being sent to approximately 330 randomly picked public and private higher education 403(b) plan sponsors, Zuckerman said. “The letter asks 21 detailed questions about the 403(b) plan’s eligibility and deferral procedures. Responses to the contact letter will be evaluated and a determination made as to whether the plan appears to be meeting the requirements.” Compliant plans will get a closing letter and the IRS will follow up where there appears to be a problem.