Although the new regulations governing 403(b) defined contribution retirement plans are already in effect, many retirement plan sponsors admit to not fully understanding compliance requirements, according to a survey from the TIAA-CREF Institute.

Most of the new regulations for 403(b) plans, issued in July 2007 by the IRS, took effect on January 1, 2009. The Department of Labor (DOL) has issued additional guidance on Form 5500 reporting for plans subject to ERISA (Employee Retirement Income Security Act of 1974). These new regulations require changes in both plan design and administration for 403(b) plan sponsors.

Key findings of the study include:

- Nearly three-quarters (74%) of respondents believe they are fully compliant with the new regulations.

- Nearly half (45%) acknowledge, however, that they have difficulty simply understanding those regulations.

- The lack of confidence in understanding the new regulations is most pronounced around two issues:

1. The new standards of compliance and evolving fiduciary responsibilities, and,

2. Plan sponsors’ readiness for annual plan audits, as part of the expanded Form 5500 annual reporting requirement to the federal government. Only about half (54%) indicated they were familiar with this reporting requirement.

- Coordinating plan loans and hardships from multiple plan vendors also is an issue. Only 15% indicated they could monitor such activity through a consolidated report.

Penalties for plans not in compliance range in severity both for individuals and institutions, depending on the compliance or fiduciary issue. They may range from fines to full plan disqualification — which could make all plan assets subject to taxation.

“The survey suggests that the true compliance, reporting and administrative impacts are just beginning to be felt,” said David Richardson, a Principal Research Fellow with the TIAA-CREF Institute and a co-author of the report. “Plan sponsors need to be cognizant of the risks their plans — and their plan participants — face if they are not compliant.”

In commenting on their “challenges” in understanding the new regulations, plan administers told interviewers, “It’s just complex, long, difficult to understand,” and “It was not written on the layman’s level. It was written for those with law degrees.”

“Those who are confused shouldn’t delay in getting the help they need,” said Paul J. Gallagher, Managing Director, Product Management for TIAA-CREF and the other co-author of the report. “We urge plan administrators to take advantage of existing programs and services to ensure they fully understand their obligations under the new regulations and to help ensure their plans are in compliance.”