This year, as budget makers in schools across the country decide whether the football team needs new uniforms or the gym really deserves to be repainted, they have one more item to add to their lists: How to deal with a new regulation, effective January 1, 2009, which is likely to radically change the landscape for public education institutions that offer 403(b) retirement plans.
"There are already budgets to think about because new teachers have to be hired, and then on top of it all, they're going to have to contend with new regulation. These guys need help," says Thomas Hogan, senior VP and head of MetLife Resources, a division of New York-based MetLife.
This is the first major overhaul of the rules governing 403(b) plans at public educational institutions and certain not-for-profit organizations that are not subject to the Employee Retirement Security Act (ERISA), according to Hogan. The rules are meant to institute risk management controls to bring some order to the rather unruly world of 403(b)s.
"The old 403(b) world was really the wild, wild west," Hogan explains. "In many instances, you could have 15 vendors or providers in a given school district. Now, someone in the school district who is in charge of all this is thrust into the position of being a quasi-plan sponsor, charged with managing the risk and making it finite."
For financial advisors like Joshua Gottfried, a partner at Levine, Gottfried and Somberg in Glastonbury, Connecticut, who's an IAR with Commonwealth, the new regulation is very welcome. He notes that 403(b) plans have not been subject to the same kind of compliance as their 401(k) cousins, but now schools must have a written plan in place; specify all rules to their employees; and oversee transfers and exchanges between providers.
"Schools will have to monitor IRS requirements, so this is a huge overhaul," Gottfried says. "Schools are also going to have to decide whether they're going to do all this in-house or hire consultants, but the question is who will pay?"
