Clarifying 'Information Sharing Agreements'

Written by Bob Toth

The new 403(b) regulations introduced a new term of art into the industry, the "Information Sharing Agreement."  Conversations that I have had with a number of consultants, attorneys and IRS officials reveal that this is a term which is still seeking a meaning, and which is causing a bit of confusion in the marketplace. I thought I would try to bring some clarity to the term "ISA" (or perhaps, add to the confusion). Here's what I think we've got:

1. The  Information Sharing Agreement.  Before a plan participant will be allowed to exchange one annuity contract for another within the same plan, Section 1.403b-10(b)(2)(C)(1) of the regulations requires that the parties to the exchange and the employer enter into a written information sharing agreement committing the parties to exchange certain information about, for example, the participant’s employment status, and whether any plan loans may have been made.  The exchange is required even if the vendor is no longer taking contributions under the plan. This seems to me to be the "purest form" of ISA, because it is directly discussed in the regulations.  However, because the exchange may also be between parties who presumptively have agreed to otherwise exchange data on an ongoing basis for plan administrative purposes, the agreement may be actually "rolled up" into an overall "service agreement" and may never appear as a separate agreement.

2. The Service Agreement as an ISA. Nowhere in the new regs is it required that an information sharing agreement be in place as a precondition to anything other than an intra-plan contract exchange. The lack of an information sharing agreement to cover ongoing compliance matters will not be fatal to the plan. Now, as a practical matter, employers and vendors will all want a written service agreement that outlines which party will be responsible for what compliance activity.  Even though drafters of this "service agreement ISA,” as I’ll call them, will likely use the “pure" ISA noted above as a model, this is really more of an ISA-plus kind of arrangement that will cover a lot more than the minimum required by the regs.  Because of that, you should exercise caution when looking to sign these.

3.  The Plan-to-Plan Transfer Information Exchange.  There are six specific requirements to permit a "plan-to-plan" transfer outside of a plan, and none of those are a specific requirement of an information sharing agreement.  However, as one revenue agent pointed out to me, you can't really do a plan-to-plan transfer as a practical matter without transferring data. Since termination of employment is not required for a plan-to-plan transfer, there can still be an ongoing need to check back with the original employer for things like employment status. So, according to the agent, there really can't be a valid plan-to-plan transfer without its own form of ISA.

It all may get worse before it gets better. The problem is that there is a practical and meaningful difference between each one of these different kinds of information sharing agreements, and the terms to which employers and vendors are (or are not) committing. Read them carefully, and understand just what it is you are required, and not required, to do.