The 403(b) plan marketplace had been sent into a tailspin. The year was 2007, and the Internal Revenue Service (IRS) had passed a series of regulations that would upend how 403(b) plan sponsors ran their retirement plans.
Whereas many of these sponsors managed their plans loosely or took a laissez-faire role, the
new rules demanded involvement. The IRS now required documentation showing that each participant’s total loans, hardship withdrawals and contributions did not exceed limitations across his
account balance among all providers. The regulations for the first time also required, for all but
certain religious organizations, a written plan document to be in place to guide plan administration
Before this, the marketplace had been mostly unregulated. Some sponsors had multiple plans,
many had multiple providers, and a number had hundreds of investment options due to the predominance of individual annuities—which typically had higher costs than other mutual fund investment options. No plan document had been needed if a plan was non-ERISA (Employee Retirement
Income Security Act)—those plans required little or no employer involvement.
Kevin Kidwell, vice president of national tax exempt sales at OneAmerica in Indianapolis,
compares the time following the passage of the new regulations to the stages of grief. “We went
through denial, anger, bargaining, paralysis—instead of depression—then acceptance. We had to
work through all of that,” he says.
Some recordkeepers and providers left the 403(b) market—for example, those with small client
bases or without the systems necessary to support administration, says Aaron Friedman, national
nonprofit practice leader at Principal Financial Group in Des Moines, Iowa.
2017 PLANSPONSOR 403(b)/457 Buyer’s Guide
403(b) plan providers and sponsors move forward