This is the fifth post in our 403(b) Crunch Time Series, the purpose of which is to help 403(b) plans get ready for the January 1, 2009 compliance deadline for the new Internal Revenue Service regulations. I’ve been joined by Bob Toth as a guest blogger. Bob, a Partner in the Baker & Daniels law firm, has over 25 years experience advising 403(b) plans and service providers.

On Wednesday before the Thanksgiving Holiday, I discussed The Change in 403(b) Universal Availability. Now it’s Bob’s turn, and here’s his post on 403(b) Service Agreements: “Harmonizing” the 403(b) Plan.

We are now rushing toward year’s end, and all the challenges that it brings in getting some sort of minimal compliance structure in place which will enable 403(b) plan sponsors to meet the demands of the new regulations. The biggest of these challenges seems to be coming from the mundane (though some wags may call it the "inane"!). The regs have created so many new moving pieces that we find ourselves spending an inordinate amount of time organizing the detailed work which is necessary to make it all work.

What is becoming clear is that the most critical operational document (besides, of course, the plan document) is something we have rarely seen in the past: the 403(b) service agreement. It seems to me that it is only through this sort agreement that you can really hope to develop and manage some sort of sane compliance scheme. It is the way to "harmonize", if you will, the often disparate parts and sometimes contradictory parts of your new 403(b) system.

The key to this service agreement is for it to specifically identify which party will be specifically responsible for which specific task (get the sense that specificity is the key?). My approach to plan documents has been the polar opposite, as I attempt to draft with very broad strokes. But with service agreements, the only way to hold anyone accountable for the variety of tasks involved is to make sure all parties involved fully understand the task for which they will be held responsible.

Be careful with these agreements-do not make the mistake of using a standard 401(k) service agreement and merely "change numbers". The compliance work that needs to be done is often spread between a number of different parties, and financial services may often be handled separately.

Be careful also about compliance with security laws, as that is not the responsibility of the employer.

And finally be careful with Information Sharing Agreements (ISA)-often times they are actually service agreements, containing much more than merely information sharing rules. Combining ISAs with service agreements can actually be a very good idea, but vendors will need to make sure they are consistent with other agreements they sign with any employer, and employers need to make sure they understand the nature of the agreement being signed.

That’s it for now. On Wednesday, I’ll be back with Timing of Depositing Employee Contributions.