Legacy assets are headaches for 403(b) plan sponsors

Retirement assets left with former service providers can pose major administrative and compliance problems for 403(b) plan sponsors — one that could eventually lead to action from Federal regulators.

These so-called legacy assets pose problems because the employer is still required to manage those assets, even though it has moved the entire 403(b) plan to a different provider. That means filling out Form 5500 and handling small payments, qualified domestic relations orders, beneficiary designations and death claims.

According to The Principal, these issues are in addition to the well-known complexities surrounding loans and hardship distributions.

“Plan sponsors often try to solve the legacy asset dilemma by encouraging participants to transfer assets from the prior service provider to the current service provider. But frequently, all assets are not transferred,” said Aaron Friedman, tax-exempt national practice leader at The Principal. “These plan sponsors need a strategy to help ensure they can fulfill their entire plan administrative and compliance responsibilities.”

The Principal has partnered with National Benefit Services, a third party administrator, to help financial professionals and their large 403(b) clients manage the legacy asset dilemma.

 “The Department of Labor and Internal Revenue Service have focused on educating 403(b) plans about the rules and have not yet embarked on rigorous enforcement. However, we believe the agencies will begin actively enforcing the regulations in the near future,” said Friedman. “Financial professionals can take the concern off the table for 403(b) sponsors by helping them with the complexities surrounding legacy assets.”

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