DTCC Businesses Join Forces to Support New 403(b) Retirement Plan Regs
There’s nothing like standing in the path of a fast-approaching regulatory deadline with a tight development timeframe to focus industry attention on the task at hand – in this case, automation. That was the consensus at a June 3 meeting of major stakeholders in the 403(b) retirement plan market, which provides tax-advantaged retirement savings for such public institutions as universities, schools, foundations and hospitals. The meeting was organized by DTCC in cooperation with The SPARK Institute (Society of Professional Asset Managers and Record Keepers).
Attendees, who included senior representatives from insurance carriers, mutual fund companies, sponsors and third-party administrators (TPAs), endorsed a data-sharing plan that will enable this growing industry segment to meet regulatory requirements that take effect January 1, 2009.
On that date, the responsibility for monitoring accounts and providing information to the Internal Revenue Service (IRS) will move to employers and plan sponsors (generally through administrators that handle their account transactions) from employees who today are required to self-certify their compliance with IRS rules. Simply put, what has been a “hands-off” environment will become “hands on.”
The Need to Automate
Timeline of Events
November 2007:
Members of Insurance Services’ Carrier Steering Committee approach DTCC to explore options for establishing a central data-clearing facility to link all parties sharing 403(b) account data using the SPARK standard layouts.
Early 2008:
SPARK invites Wealth Management Services to join a special task force to address problems surrounding data standardization for 403(b) accounts. DTCC drafts standard layouts to support the new information-sharing requirements.
June 2008:
Representatives from major vendors, aggregators and SPARK, along with DTCC staff from Wealth Management Services, Insurance Services and Technology, establish a timeline and action plan for developing the new services.
January 2009:
Point-in-Time data service debuts, supporting compliance requirements of the IRS.
What brought the group to the table was a desire for DTCC to extend to 403(b) plans its automated, centralized data-clearing capabilities, which already connect most of the insurance carriers and mutual fund companies that are active in the 403(b) market.
“Having the right people in the room made the planning process much more efficient – a real plus when facing a fixed and fast-approaching deadline,” said Lana Macumber, director, Strategy and Business Development, DTCC Insurance Services, who chaired the June meeting. “We were able to get key stakeholders to sit down together and confirm the basic tenets of our approach.”
DTCC’s ability to handle high volumes of standardized data in a secure environment places it in a strong position to help the 403(b) market address the regulatory challenge it faces, according to Barbara Simon, DTCC vice president, Product Development, Wealth Management Services. “DTCC has a history of developing low-cost, compliance-ready solutions to meet the needs of the insurance and mutual fund industries,” she said, “and our ability to use existing capabilities will ensure a quick-to-market service for the 403(b) market.”
What Will Change
As responsibility shifts to employers and plan sponsors, they, rather than the account holder, will be required to monitor all account activity to ensure participants comply with IRS rules governing accounts. But in order to do this, they, as well as vendors, will need to share account information. Since many plan sponsors rely on TPAs to handle the regular management of accounts (and sometimes information aggregators to organize information coming from multiple vendors), data-sharing solutions among all parties will be a primary challenge of the new regulatory regime
The First New Services
Initially, DTCC will support a Point-In-Time data service to meet information-sharing requirements. Point-in-Time processing will provide a periodic “snapshot” of annuity contract and/or mutual fund information related to an individual’s 403(b) investments. Data will be sent from vendors to plan sponsors or designated representatives such as TPAs.
403(b) Market Growth
At year-end 2007, assets in 403(b) plans totaled almost $700 billion, or 17% of the $4.2 trillion market in defined contribution assets. About 80% of the 403(b) market is in variable and fixed annuities with the remaining 20% in mutual funds. With a predicted 8% compound annual growth rate, this market potentially represents millions of records that must be managed. 