Multiple 403b plans

[Guest Benny Guy]

Can an employer have 2 403b plans? They want one plan to be ERISA and receive employer money, and one to be non-ERISA and only have employee contributions. This is all because the executive director wants to keep her TIAA-CREF account. So basically, she wants two 403b's, one just for her to contribute her money into, and one for everyone else that will be ERISA and have matching employer contributions.

I think she should just eliminate the TIAA-CREF 403b or roll that out so they can have one 403b for the organization, but she wants her TIAA-CREFF. Is this doable? Any compliance issues you can think of?

[QDROphile]

I don't believe you can have a non-ERISA 403(b) plan. What you can have is an ERISA 403(b) plan that the Department of Labor will not go after as an ERISA plan because the Departent of Labor is so caught up in its prevarications that it cannot take a real enforcement postion.

Before the 2007 IRS regulations and the related DOL prevarications, you would have been told that if the employer matches 403(b) elective deferrals, the 403(b) plan is an ERISA plan, even if the match goes to a 401(a) plan. I don't think any developments have changed that conclusion.

[Guest Benny Guy]

I don't believe you can have a non-ERISA 403(b) plan. What you can have is an ERISA 403(b) plan that the Department of Labor will not go after as an ERISA plan because the Departent of Labor is so caught up in its prevarications that it cannot take a real enforcement postion.

Before the 2007 IRS regulations and the related DOL prevarications, you would have been told that if the employer matches 403(b) elective deferrals, the 403(b) plan is an ERISA plan, even if the match goes to a 401(a) plan. I don't think any developments have changed that conclusion.

Right, their previous arrangement was only employee money and a non-ERISA.

Anyway, can they have two 403b plans?

[QDROphile]

Not if the proposed implication is that one is an ERISA plan because of a match and one is not an ERISA Plan.

If you are not trying to divide along the ERISA lines, then it really does not matter if there are one or two plans. Either way the terms of the plan(s) will have to say which provider can receive contributions and how to coordinate transfers, loans, hardship withdrals and conttibution limits among the multiple providers. Trying to manage and navigate multiple plans just adds a layer of formal complexity that seems to benefit no one. I am not touching the subject of having more than one plan to avoid audit requirements.

[Guest Benny Guy]

Not if the proposed implication is that one is an ERISA plan because of a match and one is not an ERISA Plan.

If you are not trying to divide along the ERISA lines, then it really does not matter if there are one or two plans. Either way the terms of the plan(s) will have to say which provider can receive contributions and how to coordinate transfers, loans, hardship withdrals and conttibution limits among the multiple providers. Trying to manage and navigate multiple plans just adds a layer of formal complexity that seems to benefit no one. I am not touching the subject of having more than one plan to avoid audit requirements.

I agree it benefits no one except the exec. director. And why she wants it that way is a mystery to me. So lets assume both plans will be ERISA plans. Can they have 2 plans?

[rcline46]

In the executive director's plan, how do you satisfy the universal eligibility rule?

[Guest Benny Guy]

In the executive director's plan, how do you satisfy the universal eligibility rule?

All employees would be allowed to participate in either plan. Non of the employees make more than 70k per year.

[rcline46]

Then it makes no sense to have two plans, two documents, two fees. Just have TIAA as an investment provider in one plan.

[PensionPro]

In the executive director's plan, how do you satisfy the universal eligibility rule?

Is that not a permitted exclusion if employees are eligible to defer under another 403(b) plan of the employer?

[Benefits 101]

TIAA CREF won't do ERISA plans. The employer wants to contribute monies, which makes it an ERISA plan. The ED wants her money in TIAA CREF. So the choice is, either the ED just keeps her plan and non of the other employees get to have the employer 403b monies (the employer wants to contribute 6k per year per employee, no vesting, etc... generous contribution), or the ED has to lose her beloved TIAA CREF 403b and roll it out into an IRA or whatever. Or have 2 plans, one that will stay with TIAA CREF and be non-ERISA because it only accepts employee funds (at least TIAA CREF is claiming their 403b is non ERISA), and one that will be ERISA and accept employee & employer monies. This is JUST because the ED wants her beloved TIAA CREF account. It serves no other purpose.

PensionPro, I don't know if that is a permitted exclusion, is it? You'll probably know better than me.

P.S. Hiring a TPA and including both vendors under one 403b work?

[Benefits 101]

Not if the proposed implication is that one is an ERISA plan because of a match and one is not an ERISA Plan.

If you are not trying to divide along the ERISA lines, then it really does not matter if there are one or two plans. Either way the terms of the plan(s) will have to say which provider can receive contributions and how to coordinate transfers, loans, hardship withdrals and conttibution limits among the multiple providers. Trying to manage and navigate multiple plans just adds a layer of formal complexity that seems to benefit no one. I am not touching the subject of having more than one plan to avoid audit requirements.

Why do you say "Not if the proposed implication is that one is an ERISA plan because of a match and one is not an ERISA Plan"?

[QDROphile]

An employer can have two or more 403(b) plans. That is the simple answer to the question. I thought the question had a hidden agenda and the simple answer did not address the real question.

How about you? Do you think an employer can have a non-ERSIA elective-deferral-only plan and match the elective deferrals?

[rcline46]

Look back to Post #2. If a match goes to another plan, BOTH plans are ERISA plans. It does not matter what TIAA-CREF wants to believe.

TIAA-CREF does not want to be involved in accounts which may have a vesting schedule.

Any bets they will get out of the business with fee disclosures?

[Guest Benny Guy]

Thank you guys. I will take the position that both will be ERISA based on the IRS regs QDROphile mentioned, even though the word "match" might not apply. As for what I think, no, employer monies means ERISA. They aren't actually matching, but making non-elective contributions. But from what I understand, employer money = ERISA.

So this is what is going on, one 403b plan receives the non-elective employer contributions... as the employee you get this money whether you like it or not. The other 403b receives the elective deferrals that are not matched. There is no "matching".... only, "you must take this money" contributions. Elective deferrals are not matched.

As for what it should be, I don't see why the IRS would have a problem with one non-ERISA plan following the non-ERISA rules, then having an ERISA plan. Although the whole situation does smell funny and probably doesn't pass the sniff test IMO.

If the education sector ERISA exemption goes away... that's kind of game over for TIAA CREF, or a big hit to their business anyway.

[QDROphile]

So why do I have at least two clients that have TIAA-CREF as the only provider for their 403(b) plans and the employer makes contributions and no one, not the least TIAA-CREF, questions that the plans are subject to ERISA?

Among other things, requiring elective deferrals to the TIAA-CREF plan only would make it an ERISA plan.

The IRS dos not care how many 403(b) plans an employer has, but all the contracts and providers must be coordinated as required by the regulations and the plans will be treated as a single plan for various purposes.

What is an education sector ERISA exemption?

[Guest Benny Guy]

So why do I have at least two clients that have TIAA-CREF as the only provider for their 403(b) plans and the employer makes contributions and no one, not the least TIAA-CREF, questions that the plans are subject to ERISA?

Among other things, requiring elective deferrals to the TIAA-CREF plan only would make it an ERISA plan.

The IRS dos not care how many 403(b) plans an employer has, but all the contracts and providers must be coordinated as required by the regulations and the plans will be treated as a single plan for various purposes.

What is an education sector ERISA exemption?

Hmmm, the exec. director said TIAA CREF told her that they don't do ERISA (at least that's what the phone rep said). Maybe he meant "we don't do ERISA for a plan your size".

I should have said governmental plan exemption, i.e. public school districts. I thought teachers and such were TIAA CREF's wheelhouse. Not that it's important to what I'm trying to find out here.

Just found this: http://www.pozekonpension.com/pozek-on-pen...erisa-403b.html

Looks helpful. Thanks for your help Q, it's an ERISA plan. I think TIAA CREF gave the non-profit I'm speaking with some bad info. TIAA CREF had told them they were ERISA exempt, but they didn't meet:

“To meet the terms of the safe harbor, the arrangement generally must offer a choice of more than one 403(b) contractor and more than one investment product.” (From that website). Although they did meet the other requirements.

I want to walk away from this one.

[mbozek]

So why do I have at least two clients that have TIAA-CREF as the only provider for their 403(b) plans and the employer makes contributions and no one, not the least TIAA-CREF, questions that the plans are subject to ERISA?

Among other things, requiring elective deferrals to the TIAA-CREF plan only would make it an ERISA plan.

The IRS dos not care how many 403(b) plans an employer has, but all the contracts and providers must be coordinated as required by the regulations and the plans will be treated as a single plan for various purposes.

What is an education sector ERISA exemption?

Hmmm, the exec. director said TIAA CREF told her that they don't do ERISA (at least that's what the phone rep said). Maybe he meant "we don't do ERISA for a plan your size".

I should have said governmental plan exemption, i.e. public school districts. I thought teachers and such were TIAA CREF's wheelhouse. Not that it's important to what I'm trying to find out here.

Just found this: http://www.pozekonpension.com/pozek-on-pen...erisa-403b.html

Looks helpful. Thanks for your help Q, it's an ERISA plan. I think TIAA CREF gave the non-profit I'm speaking with some bad info. TIAA CREF had told them they were ERISA exempt, but they didn't meet:

“To meet the terms of the safe harbor, the arrangement generally must offer a choice of more than one 403(b) contractor and more than one investment product.” (From that website). Although they did meet the other requirements.

I want to walk away from this one.

Beneguy:

TIAA did not necessarily give bad info. You relied on bad advice.

You have fallen into the trap of using financial journalists for legal and tax advice which is always a big mistake. Whether he was unaware of the applicable reg or just wanted to get noticed, Posek ignored the DOL reg on exempting salary reduction only non profit 403b plans from ERISA if they provide a limited menu of investment options. Reg. 29 CFR 2510.3-2(f) permits an employer sponsoring a 403b plan exempt from ERISA to limit the funding media or products offered to employees to a number and selection which is designed to afford employees a reasonable choice in light of all relevant circumstances including but not limited to:

number of employees affected

number of contractors who have expressed interest in approaching employees

the administrative burdens and costs to the employer.

There is no requirement in the reg that mandates two or more providers be made available. Only that the number of providers offer a reasonable choice in light of releveant circumstances which would include a lack of interest by providers in offering annuity products/ mutual funds to employess due to the small amount of assets in the plan or admin costs of using more than one provider.

In most small 403b plans funded only by salary reduction it is impossible to get more than one provider because the amount of revenue is too small to support to mutliple providers or the admin cost become too expensive to employees or the employer.

Plan admin in 403b plan funded by a single provider needs to document the reason for a lack of other providers periodically by contacting 403b providers who will indicate that they are not interested in such business or are interested in the business at a prohibitive price. It is my understanding that low cost providers such as TIAA CREF and Vanguard are no interested in taking on new salary reduction only business or require several $M in assets to take over a new plan.