Sen. Baucus Marks Out Turf on Health Care Reform

Written by: Nick Curabba

Wasting little time to begin the debate over health care reform, Sen. Max Baucus (D-MT), chair of the Senate Finance Committee wrote to President-Elect Barack Obama just two days after the November 4 election to announce a forthcoming plan to "move forward on health care reform in the early days" of the next Congress. Sen. Baucus revealed little in the way of details about his plan in his letter to the  President-Elect, but did outline five key principles that are, in his words, "essential to successful reform."

Those key principles are:

(1) achievement of universal coverage utilizing a mix of public and private solutions;

(2) use of pooling arrangements that will supplement (replace?) the employer-based system and the individual market, neither of which does Sen. Baucus believe can provide "affordable, portable, quality coverage";

(3) realization of cost controls by manipulating the tax code and searching for efficiencies elsewhere in the health care market;

(4) emphasis on illness prevention as a way to avoid "needless suffering and the high costs of treating" a preventable sickness; and

(5) ensuring that individuals, employers, and government all play a part in "creating and funding" a new system of delivering health care.

The full details of the plan are expected to be released this week, and action on legislation will likely begin as soon as the 111th Congress convenes in January 2009.

403(b) Talk on YouTube

Written by: Nick Curabba

Kudos to the National Association of Government Defined Contribution Administrators (NAGDCA) for bringing Bob Architect to the YouTube generation. Following the link here will bring you to a series of informal, yet very informative, discussions with the IRS guru for 403(b) plans. As the time fast approaches for school districts, tax-exempts, and other 403(b) plan sponsors to become compliant with new regulations, Mr. Architect provides some general guidance on topics such as:

• the written plan document requirement
• effective dates for compliance
• elective deferral ordering; and
• plan termination, among others.

Granted, it's not the standard YouTube fare. But riveting stuff for true 403(b) wonks.

Change Election Produces Little So Far on the Hill

Written By: Nick Curabba

Despite the undeniable impact the "change" element had in the Presidential election, as BNA reported this morning, the leadership of the key Congressional committees with jurisdiction over employee benefit matters in both the House and Senate will likely remain the same next year.  At least in terms of benefits-related issues, then, it would appear that we can pretty much know what to expect.

We know, for instance, that Charlie Rangel (D-NY) will return to chair the tax-writing House Ways and Means Committee. Despite reports that Rep. Rangel was "embattled" over revelations of incomplete income tax filings, he was easily reelected to his 20th term by an overwhelming margin of 88% - 9%.  George Miller (D-CA) will return to the House Education and Labor Committee for his 18th term, defeating his opponent with 73% of the vote. 

In the Senate, Sen. Ted Kennedy, who was not up for reelection this year, will apparently retain control of the Health, Education, Labor, and Pensions Committee.  There had been some early talk that Sen. Chris Dodd (D-CT), who is the second-ranking Democrat on the HELP Committee, might make a move for the gavel, but reports are now that Sen. Dodd will retain his chairmanship of the Senate Banking Committee instead.  On the Finance Committee, Sen. Max Baucus (D-MT), who won his own reelection with a convincing  73% of the vote, will continue to control the gavel for the Senate Finance Committee.

The leadership and composition of these committees is the best way to get an early forecast on the benefits legislation that may crop up next year.  For instance, with Rep. Miller continuing to head the Education and Labor Committee in the House, we are sure to see a reintroduction of fee disclosure legislation.  We are also expecting more sweeping benefits legislation addressing the impact the financial crisis is having on retirement plans.

It is still much too early to tell how the election will impact the regulatory agenda of the Department of Labor and the Internal Revenue Service.  At this time, we basically know two things for sure: 1) the politically appointed heads at DOL and Treasury/IRS will likely not continue in their current roles, and 2) on-going regulatory initiatives will likely continue for the time being. 

For instance, although we will probably see a new head of the Employee Benefits Security Administration, there is little likelihood that the three-prong fee disclosure initiative the Department is currently engaged in will cease or be terminated.  Indeed, to the extent the service-provider disclosure (sec. 408(b)(2)) regulations and the participant disclosure (sec. 404) regulations are not finalized by the end of this year, it may be possible to see even more aggressive rules under the new agency leadership.

Continue to watch this space for updates on legislative and regulatory developments as they unfold in the "new Washington."

RMDs Make the Big Time

Written by: Nick Curabba

While the world's finance chiefs convened over the week to staunch the global market collapse, U.S. Presidential candidates John McCain and Barrack Obama were proposing one "fix" in particular that grabbed our attention: modifying the section 401(a)(9) rules on required minimum distributions.  We're not sure if it's a sign of policy enlightenment or something more ominous, but we are quite certain that it is the first time in American history that both major party candidates have discussed the RMDs in any context during a Presidential campaign.

During his October 10 stump speech in LaCrosse, WI, Senator McCain suggested one way to protect American investors from the global financial market melt-down would be to suspend the rules that "mandate that investors must begin to sell off their IRAs and 401Ks when they reach age 70 and one half." 

Not to be out done, the Obama campaign later the same day issued a statement supporting the concept, according to an article in Plan Sponsor magazine.  As described in the article, Senator Obama's proposal would rely on immediate action by the Treasury Department to suspend the RMD rules, while it seems Senator McCain may have been talking about a legislative fix to section 401(a)(9) of the Code.

It seems an oddly narrow response to the current situation, and perhaps unnecessary since in-kind distributions are permitted to satisfy the RMD rules (as was pointed out by the left-leaning political blog Talking Points Memo). What we can fairly promise is that this will not be the last proposed rule change affecting retirement plans as a result of the Crash of '08. 

LaRue and the Participant Disclosure Regulations

Written by: Bob Toth

We have commented in the past on how the REAL impact of the DOL’s “three pronged” disclosure effort lies not in each discrete set of rules, but in how they interact with each other.  Our friend and fellow blogger Jerry Kalish, at National Benefit Services has wryfully dubbed this effect as “The Three Amigos.” This will be tough enough, but their impact gets even more complicated when you take a look at the interplay of the Supreme Court’s decision in LaRue v. DeWolff, Boberg & Associates with the Three Amigos.

Let’s look at the proposed participant disclosure regulations as an example.  The regs are striking because they were made a part of ERISA’s fiduciary rules, not part of its reporting and disclosure rules. This means that a fiduciary would be engaging in a fiduciary breach by failing to provide participants with the information required by the regulation within the time proscribed by that reg.

The LaRue impact?  That case clarified that a plan participant can sue a fiduciary for money damages even if the only harm suffered as a result of the alleged fiduciary breach was felt by one individual account.  Let’s say that a plan failed to provide to plan participants the required quarterly disclosure outlining the amount of plan administrative fees charged against individual accounts in a quarter.  Would not, under LaRue, plan participants be entitled to bring a fiduciary lawsuit against the “responsible plan fiduciary” for failure to properly disclose?  The impact could be significant.  

Let’s even take this a step further and look at section 408(b)(2). Assume that the plan level charge that is required to be disclosed quarterly doesn’t make sense when compared to the data disclosed under the 408(b) (2) regs. It seems that LaRue grants participants the right to pursue fiduciary claims related to these instances as well, as engaging in a non-exempt prohibited transaction is also a fiduciary breach.

We may be seeing the opening of the proverbial Pandora’s box.

Retirement Plans and the Troubled Asset Relief Program

Written by Both Toth and Nick Curabba

Set against the dramatic House vote and ensuing market plunge yesterday, it might be easy to overlook the possible direct implications the Emergency Economic Stabilization Act might have had (and still may have) on qualified plans. 

The centerpiece of the Administration's proposal to rescue the financial services industry was to be the creation of a Troubled Assets Relief Program, or TARP.  Under TARP, the Secretary of Treasury was to be given broad discretion to purchase troubled assets from banks and other entities that hold what has come to be known as "toxic paper."  As defined in the legislation, the Treasury Secretary was authorized to buy from financial institutions any "residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability."  Other types of instruments could later be defined as "troubled" by the Treasury Secretary after consultation with the Fed Chairman.

Ok, first question: Why should plan sponsors and service providers care about legislation targeting financial institutions?  The term "financial institution" is defined in the bill to include banks, insurance companies, savings associations, and broker/dealers that hold troubled assets.  The list of financial institutions is non-exhaustive, however, and the House drafters were careful to say other similar types of entities could fall into the definition.  At first blush, though, even with a broad definition of "financial institution" it seems like a stretch to put qualified retirement plans in the same category as a bank or insurance company.  But another section of the bill would have directed the Treasury Secretary to do just that.

When considering which troubled assets should be purchased, the Treasury Secretary would have been required to consider, among other things, purchasing troubled assets held by or on behalf of qualified pension plans, section 457 plans, and section 403(b) plans.  So, if this bill had been adopted, any plan out there holding a troubled asset would have had to consider participating in TARP.  Not surprisingly, the bill contains no guidance or relief to plan fiduciaries on that decision, perhaps inviting by silence stronger regulatory oversight from the Treasury or Department of Labor on how pension plans will participate in the program.

Second question: Why should we care about a bill that is defeated?  Clearly the final rules are not yet fleshed out, and we do not know what the new proposals will look like or even if there will be a final package. But the original effort gave us some clues as to what some in the Administration and Congress are thinking.  There is no indication that the authority to buy troubled assets from retirement plans was a particularly controversial component of TARP. If Congressional negotiators pick up the fallen bill and work around the edges to attract an additional dozen or so votes needed for passage, the authority to purchase plan assets may survive. 

In anticipation of that possibility, we've started to think about just how it would work. It will be interesting to see what sort of product issues arise involving insurance company separate accounts and general accounts, as well as collective trusts. How will mutual funds be affected? What prohibited transaction rules will be involved, if any?  What kinds of disclosures to participants will be required, and how will it impact the new proposed Department of Labor regulations?  Will a fiduciary be able to rely on the Treasury Secretary's valuation of the troubled asset without being exposed to fiduciary liability for selling a plan asset for too little?  And something odd … it seems that those self-directed brokerage accounts in 401(k) plans will be covered as well.

As always seems to be the case with complex legislation, an initial review leads us to believe that there is more complexity here than meets the eye.

One of the most nagging issues related to distributing annuities from defined contribution plans is how and when to apply the spousal consent and qualified joint and survivor annuity ("QJSA") rules to distributions.  We can list the "basic" rules (although as with most tax-related benefit rules, "basic" is really a misnomer):

RULE 1: Electing annuity payments directly from a DC plan triggers the standard spousal consent and QJSA rules.  That generally means any type of annuity distribution that differs from a standard, statutorily defined QJSA first requires a notarized waiver from the participant's spouse.

RULE 2: Rule 1 applies to annuity payments, UNLESS the starting date of the annuity is deferred.  This is treated as an "in-kind" lump sum distribution, to which the same rules apply as would to a lump sum distribution (which is another way of saying that no spousal consent will be required).  

RULE 3: Even "withdrawals" from that "distributed annuity" contract will only be subject to the lump sum distribution rules, and not be considered annuity payments in the application of the spousal consent and QJSA rules. This generally means that systematic withdrawals or periodic partial lump sum distributions from the distributed annuity would generally not be subject to the spousal consent/QJSA rules.

RULE 4: The point at which payments from that deferred contract become "annuitized" is when spousal consent rules/QJSA rules apply.  This means different things for different contracts.  Lets try a couple of examples:

·                  Example 1.  The distributed annuity contract allows the former participant to elect to start guaranteed monthly payments at any time before his or her 65^th birthday.  The spousal consent and QJSA rules will apply at the point of the election to start taking lifetime payments.

·                  Example 2.  The distributed annuity contract has an account balance and guarantees that an amount equal to 5% of the original account balance will be paid out over the former participant's lifetime, even after the account balance runs out.  As long as there is an account balance, the payments are merely lump sum withdrawals. Once the account balance runs dry, and the payments are being made from the insurance company's assets, annuitization has occurred.  This means that the spousal consent and the QJSA rules will apply at that point.

The practical effect? If the guaranteed lifetime payout (here, the 5%) does not equal what a QJSA would be (and payable as a survivor annuity to the spouse), spousal consent may be required. If the spousal consent is not obtained, then the guaranteed amount may need to be adjusted to meet the QJSA standards.

In any event, it appears that naming a beneficiary other than the spouse-without the proper consent-on the distributed annuity which has not yet been "annuitized" may also be a problem which could cause "disqualification" of the distributed annuity.

403(b) Rollovers vs. 403(b) Exchanges

Written by: Bob Toth

Written by Bob Toth

"Were there any nonexempt transactions with any party in interest?"

Plan administrators have been answering that question (or versions of it) on Form 5500 for years, as part of either Schedule H (for large plans) or Schedule I (for small plans).  In the past, answering the question has largely been a simple matter of looking for the "usual suspects" of delinquent deposits, excessive participant loans or other obvious financial transactions of the plan.  That world, however, is about to change.

We have said from time to time (for example, see our posts on 408(b)(2)) that one of the most challenging aspects of the DOL's "three pronged effort" at forcing greater transparency isn't complying with any of the three sets of rules in isolation.  Since they individually are sensitive in many ways to the administrative concerns of employer and service providers,  the biggest challenge is what happens when you put all three sets of rules together. 

The proposed service provider regs are a classic example.  The failure of a service provider to properly update in a timely manner its disclosure to the "responsible plan fiduciary" makes the receipt of direct or indirect compensation (including, by the way, things like 12(b)-1 fees) by that "untimely" provider a prohibited transaction.  If a fiduciary doesn't report this failure to the DOL, that fiduciary may be jointly liable for the prohibited transaction penalties related to the receipt of those funds by that service provider.

This may or may not be a significant penalty, depending upon the size of the compensation.  Where the fiduciary may really get hurt, however, is in the answer to Line 4(d) on either Schedule H or I on the Form 5500, which asks for an affirmation that there has been no non-exempt prohibited transaction.  If the plan administrator doesn't list the payment of that comp to the "untimely" provider, or if the administrator incorrectly answers "no" to that question, the DOL can then consider that 5500 incomplete and assess penalties. Now THIS can get hugely expensive, with potential penalties which may far exceed those assessed for the prohibited transaction itself.  And don't think this is a problem just for the larger plans which need to file audited financial statements. This also applies to the small plans, under Schedule I.

Let the fireworks begin.

'Two' Works for 403(b) Plans

Written by: Bob Toth

At long last, a DOL official has spoken publicly about what constitutes a "reasonable choice" under its 403(b) "safe harbor," 2510.3-2(f)(3)(vii). 

At stake here is the answer to the question of when and whether any particular 403(b) plan is subject to ERISA, a topic upon which we have recently blogged.  One of the requirements of the regs' safe harbor is that the employer must make a reasonable choice of vendors available to its employees in order to avoid the 501(c)(3)organization's 403(b) plan from being considered subject to ERISA.  This is an important question, given the substantial new disclosure rules and Form 5500 rules to which these plans will become subject.

Most private company 403(b) plans limit the number of vendors available under their plans.  The ERISA question is how far can the employer limit vendors on a non-ERISA plan without triggering ERISA coverage?  Susan Rees, a pension law specialist at the EBSA, recently stated at an ALI-ABA conference that at least two vendors must be offered, though if the employer is small enough, only one vendor may need to be offered.  Conventional wisdom over the years has pegged the number at three, but just having a DOL staffer publicly comment on what an appropriate number can be is just the sort of "informal" guidance for which we have been looking for a number of years.

Rees's comment provides a two-edged sword.  It puts in the bag advice that practitioners have been giving to 403(b) clients over time: if the employer has any significant number of employees, limiting their choice to a single vendor will likely trigger ERISA coverage.  What the comment does NOT address is the position of some employers and vendors that a single vendor does not trigger ERISA coverage as long as a sufficient number of investment accounts managed by different investment companies are offered under the annuity contract.  The comment doesn't seem to support this position, as there are some very real differences between vendor contracts that go well beyond mere investment choices.

Thank you Ms. Rees. This helps much.

The New 403(b) Plan Documents and ERISA

Written by: Bob Toth

As we sit down and attempt to craft our new 403(b) plan documents to meet the January 1 deadline, that dreaded  question of whether or not any particular 403(b) plan is subject to ERISA’s Title I reach really comes home to roost.

It is a big stakes issue. A Title I 403(b) program is not only required to file a full Form 5500 in 2009 (complete with expensive audited financials, for the larger plans), but it will also be subject to that whole range of recently promulgated ERISA rules which apply to 401(k) plans: investment advice, the participant fee disclosures rules and the service provider rules, as well as the old standards including ERISA’s prohibited transaction and fiduciary rules. Toss in the plan asset “deposit rules” and the PPA statement rules, along with other ERISA minutia and you begin to get a flavor of what it means to be covered by Title I.

It has never really been an easy issue to deal with. For 501(c)(3) organizations (that is, most “private” tax-exempt organizations) and for those few church organizations which could be covered by ERISA, the DOL issued a “safe harbor” at 29 CFR 2510.3-2(f) which gave us some guidance. The key has always been to avoid enough employer involvement so that the 403(b) plan could not be seen as being “sponsored” by the employer. As long as it could be seen as an employee controlled, private arrangement, ERISA would not apply. We had gotten use to the balancing act.

These new 403(b) plan requirements, however, change that "balance." The regs are all about holding the employer accountable for a proper 403(b) plan. For example, where 403(b) vendors used to be able to rely upon employee representations for compliance, they no longer can do so. The employer must now be involved in the compliance process. Does this now mean that the IRS regs will cause plans to be covered by ERISA?

The IRS was concerned enough about the issue to seek guidance from the DOL. The DOL then issued Field Assistance Bulletin 2007-02,which provided some comfort, but causes pause to plan document drafters.  The DOL said in that FAB merely that conducting administrative reviews of the program structure and operation for tax compliance defects, including conducting discrimination testing,  limiting contributions, developing improvements to the plan's administrative processes that will obviate the recurrence of tax defects and obtaining the cooperation of independent entities involved in the program needed to correct tax defects, will not trigger ERISA coverage.

The DOL also said, though, that the it would be “inconsistent” with the safe harbor for the employer to “have responsibility for, or make, discretionary determinations in administering the program. Examples of such discretionary determinations are authorizing plan-to-plan transfers, processing distributions, satisfying applicable qualified joint and survivor annuity requirements, and making determinations regarding hardship distributions, qualified domestic relations orders (QDROs), and eligibility for or enforcement of loans.”

So a word of caution to plan drafters, employers and service providers: inadvertently putting “standard” 401(a) language (which assumes a plan administrator’s control over a plan) into a 403(b) document or a service provider agreement can be an expensive proposition. Doing it improperly can cause ERISA liability.

But it really raises the question as to whether or not a 501(c)(3) organization can now ever avoid ERISA status for its 403(b) plan, because of the new regs.

By Nick Curabba

Readers of this blog have no doubt noticed the Department of Labor's latest pieces of regulatory guidance on investment advice (proposed regulations and a proposed class exemption).  The guidance was issued pursuant to a provision in the Pension Protection Act of 2006 (PPA), and bears a resemblance to (although is not as comprehensive as) legislation for which the financial services industry had advocated for at least six years that permits plan services providers to also provide investment advice directly to participants without running afoul of ERISA's prohibited transaction rules.

So far the DOL is winning praise from most parties for both the process used in developing the new guidance, and the substance of the proposed rules.  On process: the Department went out of its way to solicit public comment prior to even issuing proposed rules. Some of that was no doubt due to the statutory requirements to gather information about the feasibility of computer investment models, but the Department expanded that directive to other aspects of the regulations as well.  This kind of collaborative and open process should be a model for future regulatory initiatives, we believe. On substance: with the exception of an overly aggressive (and wholly unrealistic) proposed effective date, because of the open process, there is little in the proposed guidance that came as a great surprise.

That is not to say the guidance is fully without unexpected twists.  One interesting side note is in DOL's report to Congress (also required by the Pension Protection Act) which contains the Department's conclusion on the feasibility of using a computer model advice arrangement to provide advice to owners of individual retirement accounts (IRAs). Had the DOL found that no such model was feasible (because, for example, no model existed that could take account of the entire universe of investment options available to IRA investors), the Department was directed to issue a class exemption permitting investment advice arrangements for IRAs under alternative circumstances.

During the legislative run-up to the PPA, many of us lobbying for this provision believed that the DOL would find no such computer model existed, and therefore we anticipated a class exemption.  The Department departed from the expected route here. They appear to have side-stepped the need to issue a class exemption for IRAs by interpreting the PPA provision narrowly.  Rather than reading the PPA's direction as requiring the DOL to determine if a computer model could take account of all available investment options, the Department saw its role as merely determining if there exists a computer model that can take account of all the assets classes that would make up a prudently diversified portfolio.  It's an interesting (if not overly crimped) analysis and results in a somewhat expeditious availability of prohibited transaction relief to IRA issuers. 

DOL's New Thinking on Schedule C

Written by: Nick Curabba

Kudos to fellow blogger (and lawyer) Andrew Oringer who, writing for BNA's Pension and Benefits Blog on the new Department of Labor FAQs on Schedule C of the 5500, we think correctly highlighted one of the more important clarifications contained in the DOL's guidance.  Q&A7 of the FAQs, which the DOL issued on June 14 after nearly six months of plan provider and sponsor questions, creates a huge exception to the new reporting rules for operating companies and puts to rest the concern of many that venture company operating companies and real estate operating companies would need to be included in the list of service providers on  Form 5500 of benefit plan investors. 

In Q&A7, the DOL clarified (helpfully, no doubt, to some) that the Schedule C reporting rules will not require reporting of indirect compensation received indirectly by a VCOC or a REOC for managing the operating company into which plans have invested.  And while one may agree with the result (especially if you are, or represent, VCOCs or REOCs), it is difficult to discern an underlying policy driving the DOL's position.  Indeed, Mr. Orlinger points out, correctly we think, that Q&A7 requires a kind of "intuitive analysis" under which "all that matters here is whether there is an operating company present effectively to block" the application of reporting rules.  This would not only be the case in situations in which the operating company is not a VCOC or REOC (both of which are deemed to hold no "plan assets" under the DOL regulations), but even where the operating company was 100 percent owned by a plan (and therefore deemed to have "plan assets" for its underlying assets).

Likewise, with Q&A5, which creates a special rule for open brokerage windows. Again, there is much to like about a rule that does not require Schedule C reporting of compensation and plan relationships with the issuers of the individual stocks purchased through the brokerage window, but the Department offers no explanation or rationale for creating this exception.  While we may agree that the administrative burden to apply the full measure of the rules to open brokerage windows might have caused sponsors to take away that investment option, the same could have been (and usually is) argued on behalf of every sector of the financial services/investment provider industry that must now engage in more extensive reporting. 

In Q&A4, the Department grants another exception to reporting "ordinary operating expenses" charged against the plan's investment in an investment fund.  Although "ordinary operating expenses" is not defined, the DOL notes, by way of example, that they include "attorney's fees, accountants' fees, (and) printers' fees" as among those expenses not reportable as indirect compensation on Schedule C.  Again, it is not at all clear to us the boundaries of this "operating expenses" exception.  If, as the DOL earlier notes in Q&A4, "fees related to the administration of the employee benefit plan such as recordkeeping services, Form 5500 filing and other compliance services" are reportable as indirect compensation, why are "ordinary operating expenses" excluded?.  Is there a meaningful distinction between "fees related to the administration" of a plan and the "ordinary operating expenses" of the investment fund providing services to a plan? Moreover, to the extent many plans use attorneys and accountants to file Form 5500s and  other compliance services, how can attorneys fees and accountants fees be excluded from reporting? Also, if printers' fees need not be reported, why would the Department create a special reporting code (as we blogged about already) for plans to track and report "copying and duplicating" fees?

We suspect there are many other questions raised by the FAQs, and other questions about the Form 5500 yet to be asked to the DOL.  The 2009 reporting year is shaping up to be an interesting and active year.

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.