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RWPHoenix

Grandfathered non-ERISA plans - How to terminate

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A t/x client just acquired another tax exempt that appears to have 3 different 403(b) arrangements with 3 different vendors.  2 of these arrangements have 1-3 participants each and individual annuity contracts are involved.  The arrangements were frozen before 2004 and are non-ERISA plans.  It appears (although I am not certain of this) that plan documents were not required for these arrangements as of 12-31-09.  The question is how does the client terminate these arrangements since there is no plan to terminate?  If the annuity contracts are between the employees/former employees and the contract issuers does my client need to do anything with respect to these arrangements?  The contract issuers are saying that the employer needs to take no action - are the correct?

The last arrangement had employee contributions made to it after 2005 and involves custodial accounts.  There is no plan document (although there may be a custodial account application form) and I'm thinking a VCP is necessary to create a plan document retro to 2009.  Am I off base here?  The mutual fund company holding the custodial accounts doesn't maintain a pre-approved 403(b) plan and generally of no assistance.

 

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The three different arrangements may be not subject to ERISA because the arrangement(s) took advantage of the conduit exception to ERISA.  They may not be three different arrangements either.  I am not sure there is anything to terminate.  If the employer intended to take advantage of the conduit exception, taking action to terminate the arrangement(s) may blow up the conduit exception.  I haven't looked at that issue in some time.

The conduit exception says ERISA doesn't apply to an 403(b) arrangement if the only role the employer has is to send $ to the investment provider and information from the fund to the employee-participant.  The employer may only limit the investment providers to a reasonable number.  That is about all the employer can do if it wants to avoid ERISA.  For arrangements that meet the exception, they are really just employee-investment provider deals not unlike an IRA.  This approach was common and there were no documents often before the 2007 final regs.

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