What do regulators expect of plan sponsors?

Sometimes the number of entities with requirements for plan sponsors seems overwhelming.  In addition to keeping participants well served and satisfied, government regulatory agencies, such as the IRS, the DOL, ERISA—and now the SEC—have regulations and requirements that must be adhered to.

For a long time, there were major differences between the requirements relating to 401(k) and 403(b) plans. In 2007, the IRS issued new regulations for 403(b) retirement plans. These regulations require more oversight and documentation from sponsors of 403(b) plans and brought them more in line with the historical requirements for 401(k) plans.

For the purposes of this article, we are offering a general overview of some of the common requirements relating to both 401(k) and 403(b) retirement plans.

Plan Documents

Perhaps the most important requirement of any plan is that it be in writing. There must be a plan document that specifies all of the plan’s terms and conditions for eligibility, benefits, limitations, available investments, and distributions. In the case of a plan with multiple investment providers, the IRS expects there to be a single plan document to coordinate administration among the investment providers. The plan document must be amended periodically to comply with current law. The IRS provides resources to help keep plans up-to-date.

Contract Exchanges

Contract exchanges among custodial accounts and annuity contracts under a plan are permitted subject to certain conditions.

Deposit of Employee Contributions

All contributions to a plan account must be deposited within a period that is not longer than is reasonable for the proper administration of the plan. ERISA may subject the plan to even more restrictive requirements.

Contribution Limits

The Internal Revenue Code (IRC) limits the amount an employer and employee can contribute on a tax-deferred basis. The 15-year rule continues to permit long-term employees at qualifying institutions to make special catch-up contributions.


Plan loans may be made available to plan participants, using their retirement account as collateral for the loan, as long as they are permitted by the terms of the retirement plan and certain legal requirements imposed under the IRC.


Account balances attributable to employee elective deferrals cannot be paid to a participant until the participant has a “distributable event,” such as a disability, severance from employment, or reaching age 59. These withdrawals are subject to income tax and, in some cases, penalties. A distributable event is required for distributions of amounts attributable to employer contributions in annuity contracts issued after 2008.

Minimum Distribution Requirements

Federal law normally requires participants in tax-favored plans to begin receiving income or taking required distributions by a specific date. With some exceptions this required beginning date (RBD) is April 1 following the year the participant reaches age 70 or terminates employment, if later.

Nondiscrimination Requirements

Plans must apply the statutory nondiscrimination requirements, including controlled group rules that apply to tax-exempt organizations (other than governmental and certain church plans). There are some differences for 403(b) plans. Elective deferrals to 403(b) plans are exempt from the actual deferral percentage (ADP) test. In lieu of the ADP test, 403(b) plans continue to be subject to the “universal availability” requirement for elective deferrals. Employees must be given an opportunity to make or change salary deferral elections.

Form 5500

Barring some exceptions for 403(b) plans, a form 5500 generally must be filed by the last day of the seventh month following the end of the plan year.

SPDs and SMMs

When an employee becomes a participant in an ERISA-covered retirement plan, or a beneficiary begins receiving benefits under such a plan, they are automatically entitled to receive a summary of the plan called the Summary Plan Description (SPD). If a provision of the plan required to be in the SPD is modified, participants must be informed either through a revised SPD or in a separate document called a Summary of Material Modifications (SMM).

Fiduciary Standard

ERISA provides a definition of who is a fiduciary, along with the requirements fiduciaries are expected to meet.  The ERISA fiduciary standard is based on five criteria, all of which are required for an adviser to be deemed a fiduciary. Under the ERISA standard an individual or entity is deemed a fiduciary if (i) it rendered advice or made recommendations as to the value of securities or other property, (ii) on a regular basis, (iii) pursuant to a mutual agreement between the person or entity and the plan, (iv) the advice served as the primary basis for investment decisions with respect to plan assets, and (v) the advice was individualized.  The ERISA definition is especially important in light of the recent demise of the DOL’s conflict of interest final rule on fiduciary investment advice, AKA the Rule. While plan sponsors should become familiar with the SEC’s proposed alternate rule, the Regulation Best Interest rule—considered a “gentler” alternative to the DOL Rule—they may be best served following the most restrictive interpretation of fiduciary that keeps their participants’ best interests at the forefront of their actions.

The above is a general summary of some of the most common rules included in the regulatory scheme. The full details of the regulations for retirement plans can be quite daunting.  As always, whenever there is a question as to what the rules are, a plan sponsor should seek the guidance of a qualified plan attorney.