State University 403(b) Plan

[davef]

Hopefully this is an easy question. Are there any circumstances where a state university 403(b) plan WOULD be subject to ERISA Title 1? The plan has employer contributions, but I'm assuming this is irrelevant because the plan would be considered a governmental plan under ERISA.

[jpod]

davef: I am afraid to answer the question other than by answering it with more questions: 1. What causes you to doubt that it may be a plan "established or maintained for its employees by [an agancy or instrumentality of the government of a State]"? 2. Is it a "no brainer," e.g., Ohio State, Penn State, or is it merely a State-supported university? 3. Is it a plan that also covers employees of other entities that would not meet the "instrumentality" standard?

[QDROphile]

Would the university be so stupid or ignorant, by itself or with an incompetent advisor, that it would adopt a document that is designed for an ERISA plan and the document states that the plan will comply with ERISA or has a significant number of ERISA provisions in it? Don't bet me that it has not happened.

[jpod]

QDRO: Absolutely that happens. But even if that is davef's situation he may be wondering, for example, whether a 5500 is required (and under the new regime that's a big deal), or whether there is ERISA preemption, etc.

[davef]

The university is a state university (University of (State) 403(b) Plan). As far as I know, only university employees are eligible -- but it's probably worth verifying this. The issue came up in regards to a financial advisor (registered rep) who is working with a provider to help participants with their investment choices under the plan. The advisor would be getting a share of the compensation received from the provider. I was getting third-hand information that this was an ERISA-covered plan, which got me concerned about possible fiduciary and prohibited transaction issues. I'm trying to make the point that this plan probably isn't covered by ERISA, and therefore the ERISA fiduciary/prohibited transaction rules don't come into play.

[QDROphile]

State law contracting restrictions can be worse.

[GBurns]

How do you propose that the advisor get paid for services?

It might be a typo by davef, but I do not recall ever hearing of any rep gettting paid a "share of the compensation received from the provider".

[davef]

The provider would be managing the investment allocation model selected by the advisor for the participant and would be paid through a sub-advisory agreement with the advisor's B/D. Under that agreement, a fee would be charged to the participant, of which a portion is paid to the provider and the rest is paid to the B/D (and ultimately to the advisor).

So, assuming only university employees are covered, and assuming that their plan document (hopefully one exists) does not commit them to ERISA rules, I'm sensing from the responses above that the plan would not be covered by ERISA. Correct?

[mbozek]

Would the university be so stupid or ignorant, by itself or with an incompetent advisor, that it would adopt a document that is designed for an ERISA plan and the document states that the plan will comply with ERISA or has a significant number of ERISA provisions in it? Don't bet me that it has not happened.

Since the exemption from ERISA for government employers is statutory it is not possible for a government employer to adopt a prototype plan or agree to be subject to ERISA under which ERISA provisions would apply. There is a case in LA (state) fed courts on this issue.

[jpod]

mbozek: Clearly a gov'tal plan cannot elect ERISA status, and cannot "elect" to be subject to 5500 filing obligations and the like. But don't you agree that by its terms - incorporating provisions of ERISA - it can be bound by contract to ERISA rules (e.g., spousal consent, service-crediting methodologies, claims procedures)? Also, I don't know what you mean when you say a gov'tal plan cannot adopt a prototype. It most certainly can use a prototype to evidence its plan and its contractual commitment to participants; it just can't get reliance under the prototype rules. In any event, we're talking about a 403b.

[mbozek]

mbozek: Clearly a gov'tal plan cannot elect ERISA status, and cannot "elect" to be subject to 5500 filing obligations and the like. But don't you agree that by its terms - incorporating provisions of ERISA - it can be bound by contract to ERISA rules (e.g., spousal consent, service-crediting methodologies, claims procedures)? Also, I don't know what you mean when you say a gov'tal plan cannot adopt a prototype. It most certainly can use a prototype to evidence its plan and its contractual commitment to participants; it just can't get reliance under the prototype rules. In any event, we're talking about a 403b.

My response was directed to the question of whether a government employer WOULD be subject to ERISA I which is not possible because of the statutory lack of jursidiction of the federal courts to hear cases involving public employers. The reason I referenced prototype plans was because in the LA case a government entity had adopted a prototype plan which like all Ptype plans required that the plan conform to the applicable provisions of ERISA that govern qualified plans. The federal court dismissed the complaint on the grounds that it had no jurisdiction over a claim against a public employer who had adopted a plan which included ERISA provisions even though the plan had voluntarily agreed to be subject to ERISA. I am not aware of any case brought in a state court based on ERISA rights against a public employer who adopted a retirement plan intended for employers subject to ERISA, although it may be possible.

There are ERISA provisions that apply to public plans, for example, in those states that have enacted a law that requires public retirement plans to follow the fiduciary provisions of ERISA. I think NY state has enacted legislation to pay benefits in the J & S form in some of its teacher retirement plans. In the absence of state law a public plan could adopt ERISA provisions that would apply to benefits but it would need to make sure that the provisions adopted did not violate state laws for public retirement plans, e.g., the plan could not prohibit alienation of benefits by employees convicted of a crime if forfeiture is mandated under state law or have a shorter period of vesting service.