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custodial accounts

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If the employer limits all accounts to a specific vendor ( Fidelity, Schwab, TR Price etc) does the limitation move the non ERISA 403(b) into an ERISA 403(b) plan?

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The employer has some flexibility in limiting the available custodians without losing the safe harbor, but I think a restriction that all accounts be at a single vendor would cross the line and make them ERISA covered. I read the highlighted sentence as saying to remain under the safe harbor, they would have to allow transfers/exchanges to other 403(b) providers.

FAB 2010-01

Q16: Must a "safe harbor arrangement" under 29 CFR 2510.3-2(f) offer participants a reasonable choice of both 403(b) providers and investment products?

Yes. 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. The preamble to the final regulation at 29 CFR 2510.3-2(f) explained that "[t]his [reasonable choice] provision is designed to prevent an employer not wishing to be deemed to be maintaining a pension plan from restricting products available to employees, or limiting available contractors to one selected by the employer when several seek to make their services and products available to employees, unless even in the presence of such limitation the employees of the employer are afforded a reasonable choice, in light of relevant circumstances." 44 Fed. Reg. 23525, 23526 (April 20, 1979). Similarly, in addressing public comments on this condition, the preamble said that "f the employer chooses to engage in such limitation, the condition specifies that employees must be afforded a reasonable choice of both products and contractors under the relevant circumstances in order for the Department to consider the employer not to have established or maintained a plan. It may be that in some circumstances it would be reasonable for the employer to limit to one the number of contractors who may deal with employees under the section 403(b) program." Id.

The Department recognizes that the cost of permitting employees to make contributions through payroll deductions may be significantly affected by the number of 403(b) contractors to which the employer must remit contributions. This may be particularly significant for small employers concerned about the administrative complexity of offering access to multiple 403(b) providers under a safe harbor 403(b) arrangement that normally requires a very limited financial commitment on the part of an employer in the form of affording payroll deductions. In the Department's view, an employer could, consistent with the safe harbor, limit the number of providers to which it will forward salary reduction contributions to one if employees are allowed to transfer or exchange, in accordance with the IRS regulations, their interest to a 403(b) account of another provider. Also, there may be circumstances where an employer can demonstrate that increased administrative burdens and costs to the employer in offering a number of contractors under the arrangement would be sufficient to cause the employer to stop making its payroll system available to collect and remit payroll deduction contributions to any 403(b) contractor. In such cases, limiting available contractors to one offering a wide variety of investment products could be seen as affording employees a reasonable choice in light of all relevant circumstances as described above (e.g., a single insurance company's 403(b) compliant arrangement with access to a broad range of affiliated investment products or a single 403(b) compliant "open architecture" custodial account platform giving employees access to a broad range of unaffiliated mutual fund investment products).

In any case where the employer limits the availability of providers in a 403(b) safe harbor arrangement, affording the employees a reasonable choice under the circumstances requires that limitations on or costs or assessments associated with an employee's ability to transfer or exchange contributions to another provider's contract or account be fully disclosed in advance of the employee's decision to participate in the program.

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The DOL has never explicitly said whether a single-vendor plan could be a valid non-ERISA 403(b) plan. Regarding access to investment options, please note that it is possible to set up a 403(b)(7) plan with one custodian that offers access to practically every mutual fund available through a self-directed brokerage-type account.

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Consider also that the bulletin is not a rule or regulation made in compliance with the Administrative Procedure Act, and so is not an interpretation that a court must defer to.

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I agree with Kevin C but I also acknowledge that there is disagreement. I also think that there is no such thing as a nonERISA 403(b) plan except government and church plans. The DOL is disingenuous about its positions over time and its current position is a laugh.

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When the safe harbor reg was issued in 1979 90% of 403b assets were held by TIAA/CREF which had only 2 products - TIAA traditional annuities and the CREF variable annuity. DOL reg did not require that a safe harbor plan add another vendor such as VALIC or Fidelity in order to have a reasonable choice.

I don't see anything in the DOL reg that requires a safe harbor plan to have multiple vendors. No brainer. DOL Q/A-16 is vague as to whether a plan must have multiple vendors because the regulation does not require it and FAB cannot contradict the safe harbor reg.

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