|To:||Legislative Leadership, Judicial Branch Administrators, Elected Officials, Secretariats, and Department Heads, Chief Fiscal Officers, and General Counsels|
|From:||Martin J. Benison, Comptroller|
Aundrea E. Kelley, Commissioner, Department of Higher Education
|Date:||September 26, 2008|
|Subject:||Changes to the Commonwealth's Tax Shelter Annuities (TSA) 403(b) Program|
|Comptroller Memo FY#2009-09|
This memo is written to advise you of upcoming changes to the Commonwealth's 403(b) Tax Sheltered Annuity Program effective January 1, 2009. The 403(b) Program is a voluntary, supplemental saving plan that is available to all Higher Education employees and certain other employees in the education field. The Internal Revenue Service (IRS) has amended the 403(b) regulations directing that compliance of this program rests with the Employer/Plan Sponsor. Oversight responsibility now requires that only contracted 403(b) vendors have the ability to receive payroll deductions from the Commonwealth.
For the first time in over 30 years, the IRS completely revised the regulations governing 403(b) wage deferral programs with a dramatic change in perspective. The Commonwealth and the University are in the process of developing 403(b) plan documents to meet the January 1, 2009 deadline. The responsibility for design, operation and compliance of 403(b) plan documents is broadly placed on the employer/plan sponsor, much like the State Employees Retirement System, the Optional Retirement Plan, the State's 457 Plan and the Section 125 Plan.
The 403(b) Program is a voluntary, supplemental saving plan that is available primarily to those with an educational component to their mission; Department of Elementary and Secondary Education and all Higher Education employees.
With the revised regulations, the IRS is attempting to narrow the differences between 403(b), 457 and 401(k) plans, by creating more formalized 403(b) retirement plans. In addition, the IRS has indicated that it intends to increase its scrutiny of such plans in the future.
To enable the Commonwealth and the University to improve our oversight role, staffs from the Executive Department, including Higher Education departments joined with the University in conducting a joint RFP in late 2006 to service Commonwealth and University employees paid through the Commonwealth payroll systems, HR/CMS and e*mpac.
Since July 1, 2007, employees paid through HR/CMS have been able to establish 403(b) deductions with the following contracted 403(b) providers:
- AIG Retirement, AXA-Equitable, Fidelity, ING, Lincoln Financial Group, MetLife Resources, and TIAA-CREF
- Employees paid through e*mpac have been notified through a separate communication related to the contracted 403(b) providers for the University.
Under the new 403(b) contracts, providers are required to manage 403(b) contributions in conformance with federal laws and regulations. Further, the RFP identified that compliance required a reduction in vendors once the program was fully implemented. Having a limited number of contracted providers was necessary to meet the oversight requirements under the regulations.
At the present time, there are deductions taken for non-contracted providers that had pre-existing relationships with participants. These deductions were permitted to continue as the new provider contracts were being rolled out, and prior to the announcement of the new regulations in late July of 2007.
The Commonwealth will discontinue contributions to non-contract providers before the end of tax year 2008. The University of Massachusetts has similarly notified e*mpac employees by letter dated September 11, 2008.
We are notifying HR/CMS participants that the final pay period in which these contributions will be made to non-contracted providers will be the pay period ending November 22. Employees are encouraged to select one of the 7 listed contractors to continue 403(b) contributions after that pay period. Additional instructions about transferring investments to one of the contractors will be provided to affected employees.
While we understand that there may be some short-term disruption or inconvenience with this change for participants, we believe that this action is an unavoidable consequence of the Commonwealth's efforts to both comply with the Internal Revenue Service's new regulations governing 403(b) plans and to improve our collective management of the plans in the best interests of all employees. Each contract provider is aware of this decision, and is prepared to work with the affected participants to assist them during this period of transition. Please contact Katherine Piraino, DHE, at (617)994-6956 if you have any questions.