In the present economic climate, the security of retirement savings is a particularly critical issue. In March, Lawrence Summers, President Obama's director of the National Economic Council, warned against "an excess of fear" saying, "What we need today is more optimism and more confidence." 
 
When trustworthy, professional investment services firms leave the market, healthy competition wanes, fees rise, investment performance suffers, and savers may lose confidence in the system.  Our project keeps retirement hope and security alive for those who serve society in the caring professions.

Since 1958, schoolteachers, nurses, doctors, librarians, clergy and other employees of educational institutions and non-profits have been saving for retirement using tax-deferred 403(b) plans.  Named after the Internal Revenue Code section that authorized them, 403(b) plans operate similarly to 401(k) plans (which came into existence in the late 1970s).  However, for most of their existence, 403(b) plans had little regulation or oversight.  Stories of astronomical fees, inappropriate investments and unreasonable restrictions were common.  The Internal Revenue Service recently announced new rules aimed at taming what some referred to as the "Wild West."   On that old frontier, school systems and other institutions had minimal responsibility for defining what plans they would and would not provide. They simply opened their doors to allow representatives from insurance companies and other financial services firms to make sales pitches.
  
New IRS regulations effective January 1, 2009, require school districts and other employers in the market to take responsibility for their 403(b) plans. Moreover, every 403(b) account must be linked to a plan.  As plan sponsors, the employers must establish plan document rules governing eligibility, contributions, withdrawals, loans, etc., that apply to all plan participants.  Breaking the rules could result in a plan losing its favorable tax treatment. In the worst-case scenario, violations of rules could lead to the whole plan losing its tax-deferred status, exposing all account holders to taxes - perhaps taxing teachers' entire life savings as ordinary income in one year.  Additional fees and penalties would fall on the employer sponsoring the plan.  In order to comply with these regulations, providers need holistic and detailed information about plans, workers and assets.  That information is hard to get because information systems are balkanized.  Changing system architectures to give a holistic view of the 403(b) data would require a heavy investment, easily several million dollars.  Manual reconciliation would take thousands of man hours.  Some of the biggest providers of 403(b) products decided that the cost would be so high, and the return so uncertain, that the right business decision would be to get out of the business.
 
se2, inc. is a wholly-owned, business process outsourcing (BPO) subsidiary of Security Benefit Corporation, (Security Benefit).  Hired to develop a solution that would enable Security Benefit to comply with the new rules and stay in the 403(b) business, se2 soon recognized that its solution could also benefit others in the industry.  The decision to make the 403(b)connect solution available to competitors was difficult and controversial.  By doing so, se2 and Security Benefit gave up an opportunity to gain market share easily as competitors who adopt 403(b)connect remain in the market as competitors. 

Security Benefit understood, however, that more choice would lead to better products and services for employees and would ensure that over time 403(b) participants will have higher-quality retirement savings programs.  "Thanks to 403(b)connect, providers, carriers, plan sponsors and TPAs (third-party administrators) that took a pass on this business due to the regulatory change can now re-enter the 403(b) market," according to Forrester Research.  That's good news for some of America's most giving workers. 

403(b)connect is a hosted solution that makes it possible for a company to do the necessary reporting without spending a fortune on new systems or on extensive manual processing.  The solution can link individuals with plans, even across many legacy platforms, identify the plan rules, and determine whether any transaction is or is not in compliance with the rules.
  
The 403(b)connect platform was designed and architected to take advantage of leading-edge technology, using a service oriented architecture (SOA) approach and a number of unique service and Web-based components.  The technology foundation utilizes the Microsoft .NET framework and SQL database and reporting services.  The unique components of the platform are: 

Planconnect: This Web-based plan management component allows investment product providers to view and update basic plan rules and other information, such as other investment providers under the plan, TPAs, information-sharing agreements, etc.  

Viewconnect:	This Web-based plan aggregation support component is used by customer service representatives to perform searches using the participants account number, I.D., social security number or name/address and see information such as assets, sources of contributions, transactions, loans and hardships.  Customer service representatives can view all accounts associated with a social security number, associate any account with a plan, and view summary account information for all accounts associated with any plan.  Viewconnect also provides the capability for a TPA to have a holistic view of the entire plan, across multiple product providers.

Rulesconnect:	This Web-based component makes it possible to determine whether a contribution or other transaction is acceptable according to IRS and plan rules.  It validates contribution information in real time, offers a Yes/No (or Pass/Fail) response, and explains the reason for failure if the transaction is disallowed.   

Reportconnect: This SQL-reporting component produces plan reports for investment product providers, plan sponsors and plan administrators.  The reports may be generated in Web page, Planwithease, Spark, PDF or MS Excel format.

Auditconnect: This SQL-reporting component provides "post-processing" validation of plan rules for product providers,.  This post-processing validation, in combination with the Rulesconnect component, gives providers two regulatory compliance checks.  The reports can be scheduled to produce either automatically or on request.

Dataconnect: This data repository component contains plans, rules, participants and other required information to support the other specific 403(b)connect components.  

Yes

Yes

The 403(b)connect solution currently protects 320,000 403(b) clients of four major investment firms.  In the marketplace, there are over three million nurses, one million physicians and three million teachers that could benefit from this solution.  These numbers do not include the millions of other individuals who are employed by qualifying organizations.
  
For the first time in the history of 403(b) plans, it is possible for these savers to get immediate and comprehensive information about all of their 403(b) accounts.  Previously, because information about various investments resided on disparate systems, a saver who called a firm for information could experience a frustrating delay trying to get an overall picture of his or her retirement savings.  Such delays erode confidence.  Now, thanks to 403(b)connect, all information comes together immediately at the fingertips of the customer service representative.  Savers can now trust their investment services firms to provide the information they need when they need it.
  
Moreover, 403(b)connect has now made it possible for teachers, nurses, and others to continue to rely on 403(b) plan providers.  Without 403(b)connect, compliance with the new IRS regulations was so difficult that major providers were going to leave the market.  Their exit would have had serious short-term repercussions for their existing account holders, who would have had to make new arrangements for their retirement savings.  Longer term, the exit of major providers would have made the market less competitive and therefore less advantageous to the people the 403(b) program was created to help. 

403(b)connect makes it easy for school districts, hospitals, and others to get the information they need to comply with the law.  It allows third-party administrators, insurance carriers, plan sponsors and others to continue to offer a valuable retirement benefit to some of society's most valuable members.  

Security Benefit was the first to engage se2 and the first to use 403(b)connect.  Kevin Watt, Vice President of Business Development at Security Benefit, says, "We were able to implement a retirement plan in the framework of the new regulations without any disruption.  Elsewhere, there was a lot of disruption. We typically competed with approximately 40 providers in the K-12 market and now there are maybe half of those left that we would consider still in the business with 10 that specialize in our core market.  That means that school boards and teachers were hearing, 'Sorry, youll have to find a new provider.'  The good news is that it's no longer the Wild, Wild West out there.  The new regulations have started reining things in.   But the last thing you want, from a social perspective, is monopoly or oligopoly.  Competition is good.  Competition brings choice.  You don't want teachers, nurses and doctors not saving for retirement because they've lost their choices.  People need to save and keeping choice in the marketplace is good overall."

The patent-pending 403(b)connect is the only solution on the market.  Some major providers of investment management services have developed some versions of in-house solutions, but the solutions are not available to others in the market.  403(b)connect is the only integrated solution that is available to every provider in the marketplace.  It is the only industry solution available to the industry as a whole.  403(b)connect is also unique in its ability to give an employer or third-party administrator a holistic view of accounts housed at several different investment providers.  No other solutions, not even the proprietary solutions of the few major providers who have developed them, allow employers and administrators this breadth of view.

This is the first and only hosted solution to a new problem that was driving companies out of the 403(b) business.  It provides benefits not only to investment providers but to employers and administrators.  Of course, the ultimate benefit is to the teachers, doctors and others who depend on the continued safety and servicing of 403(b) plans.

The IRS announced in 2004 that it was considering new regulations.  However, it was not clear what the regulations would be.  Between 2004 and 2009, when the new regulations became effective, there were numerous changes in file formats and required information.  For a time, the industry believed that it would not be necessary to include what the industry calls "orphaned" accounts - 403(b) accounts that might have involved products discontinued years ago, and to which participants are no longer contributing.

The development of the 403(b)connect solution would have been challenging for most organizations using a typical "Waterfall" methodology to create, mainly because of the constantly changing regulatory interpretations.  The "Agile" methodology used by se2 is specifically designed to support this type of situation.  This methodology combines Extreme Programming and SCRUM and allowed for rapid development in short iterations, for example, every two weeks.  By constantly maintaining focus on priorities and deliverables, the platform was requested for use in production by the providers long before the system requirements were fully completed.  

Like other product providers in the market, Security Benefit had 403(b) accounts on three separate systems - a mutual fund system, an annuity system, and a record-keeping system.  The information on these systems had to be tied to individual account holders, to employers, and to plan rules.  The legacy systems were not designed to provide a holistic picture.  Yet changing the legacy systems was unrealistic and uneconomical.  The solution had to be truly independent of the different administration systems, but yet integrate the information on those platforms with the new regulatory changes.  

The resistance to 403(b)connect was around the question of whether se2, a wholly-owned subsidiary of Security Benefit, should make it possible for Security Benefit's competitors to stay in the market by offering them an easy and economical solution to the problem that was driving them out.   This was a difficult issue that pitted the short term against the long term and self-interest of part of the organization against other parts and the greater good of 403(b) participants.  The short-term self-interest of se2 was to market its solution as widely as possible.  The short-term self-interest of 403(b) marketers at Security Benefit was to make easy market share gains as competitors unable to cope with the new regulations dropped out of the market.  Discussions went on for months between Security Benefit and se2.  Kevin Watt, Vice President of Business Development for Security Benefit, says, "We talked at length about that and at the end of the day we stepped back and asked, 'Can we achieve both?.'"  Security Benefit's industry-leading retirement plan product offering in combination with se2's 403(b)connect solution provided Security Benefit with the opportunity to capture market share by being first to market with a complete solution.  "We believe that competition is good and that everyone benefits when consumer confidence is high.  Only those who are focused on this new business model will survive - those committed to bringing the best programs to the teachers.  We believe se2 has the best technology in the marketplace.  If the industry as a whole can benefit from using that technology, everyone wins - especially those people saving for retirement using 403(b) plans."

Exceeded

The new IRS regulations require school districts and other employers to adopt plans with clear rules governing contributions, withdrawals, loans, eligible investments, and the like.  Every 403(b) account must be linked to a plan.  The tax status of the plans depends on compliance with the rules.  For example, a teacher who borrows from an account when the plan does not allow loans may expose his or her entire retirement savings to tax as ordinary income.  This kind of mistake is easy to make, especially if the plan administrators do not have the information necessary to prevent him or her from borrowing. 
 
Most school districts, hospitals and nonprofits with 403(b) plans rely on third-party administrators who work with a number of employers (only the very biggest employers handle plan administration in-house).  When an employee attempts to contribute, withdraw, borrow or make any other account decision, 403(b)connect immediately lets the third-party providers see the plan to which the employee belongs, what the rules are, and whether the transaction is allowable.  With straight-through processing of contributions, 403(b)connect validates the contribution limits across the entire plan and halts the transaction if a contribution would breach the limits.

Two major investment providers adopted the 403(b) solution at launch.  Another adopted it within five months - only two days after seeing it.  A fourth adopted it within the next 90 days.  Providers are spreading news of the solution by word of mouth. 
 
"We're not surprised by the visionary thinking at se2 and the success of the product they brought to the marketplace" says Keith Johnson, a senior executive in Financial Services at Accenture.  "We have enjoyed a very long-term relationship with se2 and consider them experts in this marketplace."