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Match to separate plan destroys ERISA exemption

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Seeking confirmation before I stick my neck out that if a 501(c)(3) org is maintaining a deferral only 403b and a separate 401a plan which receives employer matching and non-elective contributions there's no defensible argument that the deferral only plan is exempt from ERISA (and exempt from 5500 and plan audit), thanks

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You are correct.

403(b) Answer Book - Seymon-Hirsch and Anderson-Briggs,Q 11:9,Is an arrangement that provides employer contributions subject to ERISA?

Last Updated: 7/2017

Yes. DOL Regulations Section 2510.3-2(f) (see Q 11:2), which sets forth narrow criteria exempting a Section 403(b) arrangement from ERISA, permits an employer to collect salary reduction contributions and forward them to the funding agent. An arrangement that provides any contributions other than salary reduction contributions creates employer involvement beyond what is permitted by the exemption. Such an arrangement would be subject to ERISA unless the employer was otherwise exempt as a governmental or church plan sponsor.

Employer matching contributions to a separate plan that are made by the employer on the condition that an employee makes voluntary contributions to a Section 403(b) arrangement would also cause the Section 403(b) arrangement to fail to satisfy the safe harbor. A Section 403(b) plan does not fail to comply with the safe harbor merely because the employer also maintains a qualified Code Section 401(a) plan. However, DOL Advisory Opinion 2012-02A clarifies the DOL view that conditioning employer contributions to the separate plan on the employee making voluntary salary reduction contributions to the Section 403(b) plan would be inconsistent with the limited employer involvement permitted by DOL Regulations Section 2510.3-2(f) (see Q 11:2) and would also conflict with the requirement in DOL Regulations Section 2510.3-2(f) that employee participation in the Section 403(b) arrangement be completely voluntary.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services


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