TLGeer

Oddly, yes. As to employees, the issue is whether there has been a 401(k)-type severance.

FAB 2010-01 is very poorly written and belies any knowledge of the real world. That said, the employer, in the plan document, is assumed to appoint a plan administrator of some sort. in the quoted language from FAB 2007-02. Reading the language narrowly, a problem arises only where the employer appoints a third party to make discretionary determinations. It is entirely possible, under the rubric of "administrative functions, including those related to tax compliance," to designate a TPA as plan administrator either in the plan document or otherwise. As to limitations on the TPA's authority: 1-As to loans, there are discretionary determinations only where there is discretion. If the eligibility and amount rules in the plan document are mechanical (i.e., amount, duration, etc. are formulaic), it is hard to see any discretion. 2-As to hardship, again there can be circumstances where no discretion is exercisable. E.g., the amount is deemed both an immediate and heavy financial need and necessary to satisfy financial need. However, there also can be circumstances under which there is discretion, as the DOL understands that term. On the flip side, where a participant has more than one product vendor, it is possible for the participant to request loans/hardship distributions independently from each. This could easily result in excess loans or hardship amounts. Under the 403(b) regs. (i.e., the second sentence of Regs.1.403(b)-3(b)(3)(ii)), there must be someone performing those limitation functions. The cautious approach would provide that the TPA simply collect and transmit information to the product vendors, giving the participant a single location for loan and hardship applications, coordinating so that maximum limits are not exceeded. and forwarding the results to the product vendors for discretionary determination. This much is not only permitted, but required. In theory, there could be a less cautious approach that would attempt to draw a line, as to loans and hardship, between mechanistic determinations and discretionary ones. For example, a safe harbor/safe harbor hardship determination might be permitted, but others referred to the product vendors. Functionally, this runs into two problems. First, having ordinary TPA employees draw those sorts of lines will (not may) result in errors. Second, the product vendor has to make its own determination, under the terms of its own contract, as to whether or not the loan/hardship is permitted, and will not rely on the TPA unless the venodr has selected the TPA. A third theoretical option is available. The plan document can designate a plan administrator (say, a corporate officer/nonparticpant) that can retain the services of a TPA. Unfortunately, this runs into the "what caused the big bang" problem. That is, appointing someone to appoint someone else to exercise discretion is, in the eyes of the DOL, a discretionary decision. So, probably a no-go here as well. I am no philosopher or logician, but DOL seems to be unaware of two basic logical/linguistic fallacies. First, they take the position that the kinds of factual determinations underlying loans and hardships are discretionary. Clearly, in the real world, this is not true all the time. And, even where there are factual issues, they are, in fact, factual. Thus, such determinations are inherently unlike decision such as whether or not to have a 403(b) plan. DOL appears to be confused by the routine language inserted in plans (broadest discretion, etc.) to get an abuse of discretion review of plan decisions into believing that all actions are discretionary. Is the determination as to whether an employer is of the sort that can offer the 403(b) catch-up any less discretionary than the determination that a person's house has burned down? There is a pretty clear argument that this source of discretion can be eliminated simply by stating that the standard of decision for plan determinations other than as to tax compliance issues is nondiscretionary and the standard of review is de novo. And, in the kind of plan we are talking about (loosely connected products to which the employer makes no contribution), the kind of exposure to costs that motivates the seeking for an abuse of discretion standard of review is either reduced or absent. To the extent that the participant gets money, it is, after all, the employee's money. This is the fourth theoretical option. The second fallacy is the illogic of infinite regression. Anything that is a necessary, or "but for," logical or sequential precondition to the determination of a discretionary determination can be caught under this fallacy. If the employer allows or requires a product vendor to make a determination, is that employer decision discretionary? Yes. If the plan permits or requires vendor determinations, is the employer's adoption discretionary? Yes. Once on this path, there is no place to stop.

Government plans are still subject to universal availability. However, note that appointed or elected employees are not coverable unless they have to have training or experience. Testing is entity-by entity (SD-by-SD) except that SDs are aggregated if they have a common payroll. Employer contribution rules are more complex.

We recommend an allocation schedule that describes the allocation pattern clearly, using the terms used in the plan documents, and that this be adopted by appropriate employer action (e.g., corporate resolution).

Your post does not contain enough facts. Did you file a 5500? Are you taking the position that the assets are nonreportable under the DOL FABs? Is the plan subject to ERISA? Does the plan have current contributions? What is abbreviated in the SAR? What, specifically, are you asking about when you ask whether there is anything else to do? Reporting, disclosure, minimum standards, fiduciary duties? Did you receive a response to your letter to the DOL?

First. remember that unforeseeable emergency determinations are based on individual facts and circumstances. To actually answer your question, we would need actual facts of one participant. Subject to that caveat, here are some thoughts. There is no time limitation on unforeseeable emergency distributions. Does the rule require that a participant adapt to the lower income levels over time, by reducing expenses? Probably not, but I would be concerned about the issue. (The obvious counter is that if the participant is gone long enough to create any basis for that argument, then there is a disability and a severance.) How long has the participant been out and what is the prognosis for return? Has there been a severance from employment? The participant is unable to work, but your post does not give enough detail to determine whether the participant is coming back or is gone for good. Is the participant receiving STD or LTD benefits? We also do not know whether the participant was an employee or a contractor. Tom Geer

Demographics are all. Before you look at cures, you have to make sure there's actually a coverage problem.

As to employer contributions, you will have full nondiscrimination testing. Step one is to determine whether or not the coverage as to employer contributions is nondiscriminatory. That would be the normal safe harbor, etc., analysis under the 410 regulations. If so, the next real-world question is whether or not the demographics are stable enough that you should rely on that analysis in planning. If you have a failure or future uncertainty, you can (a) put in a qualified plan at the for profit, or (b) consider a 457 for the nonprofit. The 457 could either replace the 403(b) or be used to remove the HCE group from the 403(b) so that it passes. Which would be preferable depends on demographics, employer design goals and costs. In addition, not that the interaction of the ERISA eligibility rules on minimum service requirements and the way the part-time exclusion under 403(b) interact reduces the utility of the part time exception to universal availability. In effect, it will have to be modified to hideous complexity or only be applied in the first year of employment. Best of luck. Tom Geer

This response assumes we are only discussing elective deferrals. For employer money, the rules are very different. As to elective deferrals, the only nondiscrimination testing rule under 403(b) is the universal availability rule. Actual use is not tested, unlike 401(k). The elective deferral rule generally applies on an entity-by-entity basis, so that the controlled group rules are not relevant. State entities with a common payroll are aggregated and there is elective disaggregation for separately operated, geographically distinct divisions that historically have been treated separately for benefits purposes. In addition, church employers, in the 403(b) sense, are not subject to universal availability. So, assuming no unusual facts, the arrangement is fine whether or not the for profit has a plan. A source of your question may be the plan-type coordination rules. In applying universal availability, the nonprofit generally can exclude anyone eligible to make elective deferrals under another 401(k), 403(b) or governmental 457(b) plan. This conceptual thread can lead to confusion in thinking about other issues.

Are you sure the document doesn't allocate forfeitures? My experience is that documents that create forfeitures allocate those forfeitures. An existing forfeiture allocation clause would complicate the analysis considerably, particularly if the employer action (e.g., corporate resolution) terminating the plan has already been taken. Also, while salary reduction contributions are generally not subject to nondiscrimination testing, absent some exclusion (i.e., governmental or church plan under 403(b)) forfeiture allocations would be subject to nondiscrimination testing. Unless the forfeiture allocation is based on compensation during an available testing period, you should model the proposed allocations and test them for nondiscrimination. Last, the termination provisions of the plan document may or may not be comprehensive. Any employer considering a plan termination should consider a termination amendment describing, and prescribing. what the employer actually intends to do, in enough detail to eliminate discretion in the termination process.

I am sure you know that the 402(g) limit is personal. However, the 457 limitation, including for elective deferrals, other than in come catchup situations, is purely additional. Also, a 457(f)/409A has no limits, but design constraints make it less likely to meet the doctor's needs.

Yeah, that's a problem. Mayne there's something like what I suggested in a drawer somewhere. The person most motivated to find a way out should be whoever drafted the plan before, so I'd contact them and see if they have anything. Note that governmental plans are not subject to 411, and in particular not to 411(d)(6). So it should be easier to cut back on employee ancillary rights. However, I've never encountered your facts so I don't know to what extent pre-ERISA law prevented cutbacks. In particular I'd be worried about alternative forms of benefits that affect the actuarial value value of the participants' rights, and would consider a wear-away approach to be cautious. But I'm just shooting from the hip.

How about using the prototype with an amendment, appendix or exhibit that makes the provisions required only for nongovernmental plans inapplicable?

Given the lack of specific authority, should I then charge you to produce authority that the plan is not subject to ERISA? Or is probably not? Or is not probably? No, I shouldn't. I won't engage in asymmetrical debate, and nor should you. Your response seems to assume that each stated factor constitutes, in and of itself, a safe harbor. They are not. Each is a component in a multiple factor, more or less impressionistic, analysis/judgment. The phrase "may include but would not necessarily be limited" requires that each factor at least be considered for relevance and that the claimant (DOL or a participant, beneficiary or spouse or former spouse) can raise other factors. Just as an example, I would not want to be arguing a multi-factor case against a former spouse denied QDRO/QJSA rights when the plan has already paid benefits and the claim is economically against the employer. Notice my reference to the treatment of discarded options and the treatment of suggestions for additional options. My basic view of the law here is that turning down additional options requires a judgment that they are in some sense duplicative or that they would unduly increase plan costs. Suppose, arguendo, that the plan includes a low-fee Wilshire index mutual fund, and a participant suggests an annuity with the same fund inside an annuity, but the annuity both eats 20% of the gains and and guarantees no losses on amounts invested over 5 years. Does rejecting the annuity leave the plan with a reasonable array? How do you argue against including in the plan the reduced risk of loss inherent in the annuity for participants who seek a lower risk than the market has shown over the last few weeks? Can anyone state, as a matter of law, what is reasonable? No. The factors are not safe harbors, and all judgments as to the adequacy of the array are inherently factual and inherently subject to second guessing, eventually by a court considering assessing one or more, or all, of the penalties a wrong classification would cause. Are you prepared to list all of the risks of bad classification, and then say that an all mutual fund, restricted array of funds will always qualify? I hope, for your sake, and that of your clients, you would not. Given the looseness of the facts, my answer is infinitely better that the other responses here. In essence, assume the worst, design a process that provides enough opening for materially different options, and make sure that any suggested alternative has been turned down because it is fundamentally duplicative. Beats the bejabbers out of failure to comply with ERISA. If the TPA can't handle more than one place to send money, then the employer have chosen the wrong TPA. There are truly product-neutral common remitter/TPA providers out there whose fees don't vary based on where the money is sent. Hiring one that is not up to the requirements of the law is just a bad choice, not a reason to ignore the requirements of the DOL regulations. Justifying a failure to comply with the law based on inadequate service providers is sometimes referred to as the "Streetcar Named Desire" defense, or "I have always relied on the kindness of strangers." That may be a useful tactic, but it ain't a legal defense. Just in case you're thinking I'm an idiot, I am aware of the DOL statement that 2 options may be enough, as to which I have 2 responses. First, the DOL appears to have been following my father's rule of ask a stupid question, get a stupid answer; does anyone really believe, given the ana;ysis of the DOL under the QDIA rules, that two selections is enough? Second, does anybody believe that two funds (or 3 or 5 or 8) inside of a single trading platform is the DOL's two? You may, but I don't. If you will attend to the tenor of my posts, you will see that (1) I have listed the factors involved in determining relative probability, (2) I have described some, but not all, of the risks inherent in treating plan as ERISA-exempt when it is not, or may not be, (3) I have clearly stated that further inquiry is required, and (4) I have cautioned against undue risk-taking and the sort of simplistic, facile analysis of the other responders. If you have a better approach, please advise. I have to say that I find your "DOL is aware" argument surprising. The DOL is also aware that lots of employers don't comply with effective availability, or the writing requirement that has been inherent in the statute all along, or proper application of loan and hardship rules. This does not mean that these are acceptable in the future? Does my knowledge that an NBA referee fixed games makes that acceptable in the future? FYI, that's called a reductio argument. Last, I fully agree that the regulation is badly done. Please address all such comments to the DOL, and not to me. The last time I looked, I had no capacity to change them, only to advise clients how to so their best to avoid the myriad penalties in ERISA. The complexity of the regulations clearly requires a complex analysis, and the proposed simplistic analyses surely require a change to some form of bright-line test that DOL could have done easily in connection with the issuance of the 403(b) regulations by the IRS. Given the DOL's history of vague factual discussions of fiduciary duties (yes, I know they are not technically relevant, but they show a mindset or analytical preference) and the tendency to think about process rather than result, I would not hold my breath, or advise my clients that complex regulations are simple.

Probably is subject to ERISA. Final answer would depend on understanding the process, including what other investment options were considered, if any were turned down and if so why. Responsiveness to suggestions for other options would also matter. This issue has a lot of ramifications not ordinarily considered, other than the Form 5500. For example, how do you reconcile the part-time exclusion under 403(b) with ERISA minimum service rules-you don't, and the 403(b) part-time rule becomes essentially unusable. Plus, you have J&S compliance and ERISA notice and statement rules apply, inter alia. A misclassified plan can generate a lot of penalties.

Three ways to be ERISA-exempt- 1-Church plan 2-Governmental plan 3-"open market" plan Assuming the first two don't apply, the remaining question on your stated facts is whether "(2) All rights under the annuity contract or custodial account are enforceable solely by the employee, by a beneficiary of such employee, or by any authorized representative of such employee or beneficiary; (3) The sole involvement of the employer, other than pursuant to paragraph (f)(2) of this section, is limited to any of the following: (i) Permitting annuity contractors (which term shall include any agent or broker who offers annuity contracts or who makes available custodial accounts within the meaning of section 403(b)(7) of the Code) to publicize their products to employees, (ii) Requesting information concerning proposed funding media, products or annuity contractors; (iii) Summarizing or otherwise compiling the information provided with respect to the proposed funding media or products which are made available, or the annuity contractors whose services are provided, in order to facilitate review and analysis by the employees; (iv) Collecting annuity or custodial account considerations as required by salary reduction agreements or by agreements to forego salary increases, remitting such considerations to annuity contractors and maintaining records of such considerations; (v) Holding in the employer's name one or more group annuity contracts covering its employees; (vi) Before February 7, 1978, to have limited the funding media or products available to employees, or the annuity contractors who could approach employees, to those which, in the judgment of the employer, afforded employees appropriate investment opportunities; or (vii) After February 6, 1978, limiting the funding media or products available to employees, or the annuity contractors who may approach employees, to a number and selection which is designed to afford employees a reasonable choice in light of all relevant circumstances. Relevant circumstances may include, but would not necessarily be limited to, the following types of factors: (A) The number of employees affected, (B) The number of contractors who have indicated interest in approaching employees, © The variety of available products, (D) The terms of the available arrangements, (E) The administrative burdens and costs to the employer, and (F) The possible interference with employee performance resulting from direct solicitation by contractors; and (4) The employer receives no direct or indirect consideration or compensation in cash or otherwise other than reasonable compensation to cover expenses properly and actually incurred by such employer in the performance of the employer's duties pursuant to the salary reduction agreements or agreements to forego salary increases described in this paragraph (f) of this section." Your statement that only mutual funds are available raises an issue under the reasonable choice requirement, because annuities are not the same sort of financial instrument as mutual funds. As a result, a mutual fund and an annuity wrapped around the same mutual fund are different and the annuity can only be turned down, consistently with the exemption, if there is, otherwise, a reasonable choice.

I agree that the structure you propose fits within the literal terms of the cited regulation. The last sentence of that subsection provides the model supporting imposing vesting on both the salary reduction and the match. Whether the IRS would agree is more problematic, although they should do so. I would recommend an opinion of counsel or a PLR from the IRS, if the money is large enough, and avoiding the risk if the money involved is too small.

Do Medicare providers "perform service for the employer"? Nothing helpful in the Regs. In form, the Medicare provider performs services for the patient, and is paid by Medicare in the same way they would be paid by Blue Cross for another patient. I doubt the idea works, and would not recommend trying it absent a ruling from the IRS.

Just to correct one item, educational organizations can be 501©(3) and then sponsor 403(b) plans. There may be some peculiarity in how charter schools are organized that interferes with one or the other plan type. Otherwise, I entirely agree with mjb.

Two comments. First, any 457(f) is also a 409A situation. Because the two provisions are parallel but not identical, any 457(f) question requires three answers--457(f), 409A and combined. Second, the structure of the 457(f)/409A rules is such that any deferral of any kind is regulated. The question is always whether there is an applicable exception or rule allowing the practice. Fortunately, on your narrow facts, and assuming we can assume that all else is normal, there is no problem. However, for example, if that last payroll were part of an annualization arrangement for part-year employees there most definitely would be a problem. There is no hard answer to any general question, and the term "normal" has no relationship to how and when the rules bite. Tom Geer

Church plans can have waiting periods. that's churches, conventions or associations and qualified churh-controlled organizations.

I am assuming the plan is for just the church proper. If so, the universal availability rule does not apply. However, UA only applies to employee contribution rights, not to employer contributions. The employer contributions for plans of a church proper are not subject to any tests other than the 403(b) limitations, so the employer can do pretty much whatever it wants. Structurally, the easiest way to set this up is with a plan that has language like a cross-tested/new comparability plan (i.e., each employee is a separate category, and we'll decide annually what to put in). Don't overgeneralize from what I just said. There are at least 6 different kinds of church 403(b) plans, and the rules vary from one to the other. For those who think they are interested, they are: 1-Plans of churches or conventions or associations of churches-nonelecting 2-Plans of churches or conventions or associations of churches-electing 3-Plans of qualified church-controlled organizations-nonelecting 4-Plans of qualified church-controlled organizations-electing 5-Plans of other church-related organizations-nonelecting 6-Plans of other church-related organizations-electing Tom Geer

Difference 1-RIA can buy any investment type, not just annuities and mutual funds. Difference 2-Hardship distributions of employer money permitted, unlike 403(b)(7) custodial account. Difference 3-RIA makes plan subject to requirement for a written plan document.

Regs. 1.403(b)-3(b)(3)(iii) says "This paragraph (b)(3) applies to contributions to an annuity contract by a church only if the annuity is part of a retirement income account, as defined in §1.403(b)-9." "This paragraph" is the written plan requirement. Tom Geer

Maybe "obsolete" was too strong a word. There continue to be technical advantages to having multiple plans, including the ones you mention. However, many employers will conclude that the additional costs outweigh the benefits, which are around the edges rather than at the core of plan design. The existence of a collective bargaining agreement does not change the analysis. It simply means that changing plans requires more people to agree that the change is beneficial. There is another, more dramatic, way to use a two-plan structure, which I didn't cover in the first response. This is to take advantage of the fact that the 415 limitation on the 403(b) is essentially personal, absent an employer controlled by the employee. This means that the 403(b) can have employer contributions that essentially double the ordinary limitations on employer contributions. Absent a governmental or 3121(w)(3) employer, the combined plans are going to have to be nondiscriminatory, which is why you don't see this very often. However, it is a niche planning concept, which I think of as an alternative or supplement to a 457(b). Also, you can gimmick with the 403(b) and the qualified plan to make available a different investment array for some people. If you think of it as having the higher-tiered employees in a cross-tested plan in the 403(b) in addition to or instead of the 401(k), you can see how this can be used to increase contributions or simply to move the smaller group to a different investment regime. Tom Geer