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Non-ERISA 403(b) Investment Contributions Curtailed


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A Non-ERISA 403(b) plan sponsor would like to stop sending plan contributions to one of the investments for this plan.  Is this a permissible action for this plan sponsor or an action which will endanger the plan's Non-ERISA status.  (The issue is not about terminating the investment arrangement nor is it about moving the plan assets to another investment.  The plan sponsor simply wants to stop sending plan contributions to this investment.)

I have told the sponsor that this is too close to the "line" and that I would advise against it, but I cannot find an authority which confirms this advice.

Thanks

PNJ

Patricia Neal Jensen, JD

Vice President and Nonprofit Practice Leader

|Future Plan, an Ascensus Company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@futureplan.com

P 949-325-6727

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Questions about why and how much an employer may limit § 403(b) investment choices while neither establishing nor maintaining a plan are fact-sensitive.  The last time I researched this point was a long time ago.  If you were to look now, I doubt you’d find a court’s decision that sets a “bright line” in either direction.

The employer, with its lawyer’s help, might ask this rhetorical question:

If we want no responsibility for maintaining a plan, why do we want to restrain our employee’s investment choice?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Perhaps administrative sanity?  A relatively small school system (small by national standards) - without some limitation, might have to have payroll slots/deductions for for dozens and dozens of companies (my sister-in-law is in the business and I want to invest with her). Then information sharing agreements, the inevitable problems with calls from participants who SHOULD be talking to the investment company, but always call the School's HR people, the problem with no one wanting to certify a QDRO, etc., etc., etc.

I can see why an employer would want to limit the choices to a "reasonable" number.

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That’s an important part of why my rhetorical question italicizes the word why?  The employer’s reasoning for what it does or seeks to do matters.

If a (nongovernmental) employer discontinues salary-reduction contributions to a particular insurer or custodian because the employer considers that vendor’s contracts an unwise investment choice, that reason suggests an employer ought to bear fiduciary responsibility for its decision-making.

But if an employer’s reason for discontinuing a vendor is about limiting the work burden of the employer’s payroll function, applying neutral limits unrelated to evaluating investment choices might be a “reasonable” constraint that neither establishes nor maintains a plan.  (For example, a charitable-organization employer might limit vendors to a specified number, selecting the vendors with the most employee contributors.)

The ERISA rule recognizes “[t]he administrative burdens and costs to the employer” as a factor that might be relevant in evaluating whether an employer’s non-plan payroll practice affords a “reasonable choice”.  29 C.F.R. § 2510.3-2(f)(3)(vii)(E). https://ecfr.federalregister.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-B/part-2510

Issues about which decisions do or don’t “establish” or “maintain” a plan are highly fact-sensitive.

Further, one can’t get an ERISA Advisory Opinion or other advance ruling.  Even if one could, it wouldn’t constrain a court’s decision-making.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Thank you both very much.  The employer has decided to proceed with closing access for future contributions to this source using the Administrative burden" justification.  There are no investment quality considerations involved in this client's decision.

Thanks again!

Patricia Neal Jensen, JD

Vice President and Nonprofit Practice Leader

|Future Plan, an Ascensus Company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@futureplan.com

P 949-325-6727

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