Patricia Neal Jensen

If you are talking about pooled investments....Ugh ...to be professional about it.🤨 The best illustration of why this is a bad idea is the valuation and distribution payout problem. Herbie terminates in June but the plan only values the pool of assets and pays benefits after December 31. Stock market goes steadily down between June and December. Does Herbie sue because he alleges that he is entitled to a June payout when his share was worth more? (Probably) The valuation costs are high and the plan sponsor will be reluctant to pay for this to be done very often during the year. Plan Sponsor has no 404(c) protection and is subject to second guessing on the performance of the portfolio. Participants today are used to and believe they are entitled to daily valuation and choices about the investment of plan assets. This plan sponsor will spend all the money he has allegedly saved with this idea paying lawyers to defend his decisions and the disappointed expectations of the participants in the plan. MEP's are an entirely different idea. I don't like them either (TPA ends up doing more work than they are paid for) but they are very fashionable today. Talk to someone who has been put in one sponsored by one of the payroll companies...

No, they do not have to file a 5500. And the past error of filing a 5500 does not make a church plan an electing church plan (which would be covered by ERISA). A Church plan has to file a formal election (a "410(d) election") to become ERISA. It cannot "accidently" become ERISA. Church plan status is statutory. Non-Electing (Non-ERISA) Church plans have very little in common with other Non-ERISA 403(b) plans. The idea that a match affects this is a mistaken confusion of the church plan 403(b) rules with the rules applicable to Non-ERISA plans sponsored by 501(c)(3) NonProfits. If this church has not filed a 410(d) election, it is not ERISA and they do not file 5500's. No matter who is in the plan, what the eligibility rules are or whether or not employer contributions are made.

Check the plan document. Some documents say "Participant's estate."

Happens to us when taking over Non-Electing Church plans from TPA's who were filing 5500's. We agree re not filing "final" 5500 because the plan still has assets. We have a letter we help the plan sponsor send when contacted by the IRS about the "missing filing." That approach seems to work fine.

Belgrath is correct!

IRS FAQ: "The terms of the employer’s 403(b) plan govern when an employee may enroll. However, a 403(b) plan is generally required to allow all eligible employees to participate in the plan as of their employment commencement date (the universal availability rule)."

IRS Web Page on 401(k) Plan Terminations says: "100% vesting applies to Affected Participants. "Affected Participants" are current or former employees who have not received full payment of their vested interest... unless they have incurred at least 5 consecutive 1 year breaks in service." I realize that you are not dealing with a plan termination but thought this was a useful rule to examine. The IRS language certainly does not suggest that some former employee Participants with balances and without 5 1 year breaks-in service be kept on a more restrictive vesting schedule. Ask the administrator for a cite to support the rule they are suggesting and ask them to explain the inconsistency with the IRS Rule regarding 100% vesting in the event of plan termination.

Sorry for the additional addition! If these plans are as I suspect (supposed Non-ERISA 403(b) and a 401(a) containing the match), there are two ways to go to avoid filing 2 5500's in the future: 1. If the Participant/ Employee count is not a problem (large and at or close to large plan filer status), I would amend the 403(b) and put the match in it and terminate the 401(a). It is not possible to merge the 401(a) and the 403(b), so the 401(a) assets will be 100% vested and paid out, if that is what the plan says. Participants can, of course, roll such assets into the 403(b). 2. If the Participant count is a problem, perhaps an answer would be to amend the 401(a) into a 401(k) so that you could use a service eligibility (1 year wait?) and terminate the 403(b). It is possible to terminate a 403(b) but may not be easy. It depends on what kind of contract the assets are in and how many accounts there will be to disburse. 3. If the 403(b)s in this question have not filed 5500's, I suggest a strategy call with the client's ERISA attorney. Hope this helps. Let me know if you have other questions. PNJ

Just want to add a note. Assuming your clients are 501(c )(3) and not government sponsors, the technique of using a 401(a) to provide matching for deferrals in a Non-ERISA 403(b) is old and now unacceptable. It was usually used to try to avoid a large plan audit caused by a large Participant count due to universal availability in the 403(b). The DOL "squashed" this idea in DOL Advisory Opinion 2012-02A. So your clients who did this and have not corrected it in any way each now have two ERISA plans, each one with a 5500 filing requirement, etc. If they have not been treating these 403(b) plans as ERISA, I would suggest that they have bigger problems than whether the match can be Safe Harbor.

I agree with Belgarath. It is no longer possible to make a "Non-ERISA" Plan have a contribution relationship with an ERISA plan. This arrangement will make the 403(b) ERISA.

DOL Non-ERISA.docx Thought this might help... DOL Advisory Details: Private sector (nongovernmental) 403(b) plans established by 501(c)(3) tax-exempt organizations that meet certain requirements may be exempt from ERISA. It is important to note that these plans are NOT automatically non-ERISA plans. Based on the Department of Labor (DOL) Safe Harbor, a private sector 403(b) plan will not be subject to Title I of ERISA if, among other requirements: 1. employees participate in the 403(b) on a voluntary basis; 2. all rights under the annuity contract or custodial account are enforceable solely by the employee or beneficiary; 3. there are no company contributions and the employer maintains very limited involvement with the 403(b) plan; 4. and the employer receives no compensation, other than a reasonable amount to cover expenses related to the employer’s duties under the contracts. This limited involvement encompasses activities such as depositing contributions, allowing vendors to explain their products, and providing investment choices. Plan sponsors who wish to maintain non-ERISA plans may not make decisions concerning the processing of distributions, approve hardship distributions or loan requests, review qualified domestic relations order (QDRO) requests received by the plan, authorize plan-to-plan transfers or otherwise make any discretionary determinations regarding plan administration. The DOL has determined that handling these functions internally will make the plan subject to ERISA. Field Assistance Bulletin 2010-01 explains that while an annuity provider or other responsible third party selected by a person other than the employer can make these types of administrative decisions, if a Third Party Administrator (TPA) is retained by the employer to provide these services to the plan, the plan will no longer be a non-ERISA plan. 11/12/2020

Agree with Ellie (of course!) and JOH. No mention of ERISA or Non-ERISA status.

So far two inappropriate entries to this Board. Mike Baker.... someone needs to explain what we are doing here to this guy. Thanks!

Mike... Please explain what we are about here to Zooey72. I am not interested in his rant on Social Security! thanks! PNJ

I am assuming you are talking about a 1/31/21 plan year end? I may have missed something here, but why would it be ok to amend a plan to provide for a contribution to anyone for a plan year which has already passed? Not OK as far as I know. And I believe a true up which would apply only to HCE's is discriminatory. I doubt if a pre-approved document would permit this anyway. I would suggest a discretionary match which includes all Participants, including the HCE's, for the plan year ending 1/31/2022 (easy and painless to take matching out if the test fails). The plan sponsor needs to decide on whether or not to true-up in the future, but whatever they decide applies to all Participants. Anytime you are discussing bending a rule for HCE's, the alarm bells should go off. PNJ

Agree with shERPA. I work for a TPA and ran our 3(16) service for a short time (thank goodness; Ascensus has a TPA which has an active and experienced 3(16) service and I am no longer involved). The documents for hiring a 3(16) are much more comprehensive and involve more decision making than this suggests. Aside from what this TPA intends, I would not suggest to this plan sponsor that they sign such a document without a thorough review of all the documents and the delegation involved. The plan sponsor remains a fiduciary on the hiring and delegation issues.

First step would be to make sure someone knowledgeable has examined the annuity contract's (Assuming this "GCA" is an annuity contract) termination process and rules and/ or discussed this with the issuing insurance company. A significant difference between this and a 401(k) termination is the extent to which you must deal with the annuity contract. Get a good contact at the ins. co. and establish a working relationship with them. The challenge in some (most?) 403(b) terminations is that the assets must be paid out within 12 months. Since many of these contracts require Participant consent to payout, regardless of whether or not it is a group contract, this can be a significant problem. If the annuity contract requires Participant consent to pay out, you may not be able to do a default payout for a non-responsive Participant. In some situations, you may be able to get the insurance company to "payout" the annuity contract without cashing it out. This is possible because the payout of an annuity contract as a whole is not a taxable event; only distributions from the contract are taxable. The loan issue should be resolved by examining the existing plan and contract that the Participant is in now and the Plan the participant is joining which may or may not accept a loan transfer. Review Rev. Rules 2011-7 and 2020-23 for IRS guidance. Also a good source in groom.com/resources/irs-guidance-provides more detail on terminating 403b plans

Have difficulty in most of our 403(b) plans thinking of a situation in which NRA does something necessary or important. Unless client hires someone within an age range close to and the plan vests 100% at NRA.

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!

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

I would not presume to tell you how to fix this, but, having worked with the ERISA attorney who assists with most of our work of this kind, the better choice would be to leave the contributions in the plan and amend the formula or whatever reconciles the YOS with what they did. Nothing makes this error "disappear" but the better correction would be to reconcile the formula to what actually happened. Removing assets from accounts (and recalculating benefits for 10 years, including payouts, etc.) for 10 years would not seem to be the best for the Plan Participants.

The rule is concerned with when the assets were no longer in the sponsor's control/ bank account. I would argue that the transfer to the TPA (in this case) is the date to be concerned about and, if done timely, this is not a late deposit. As an aside, I would not support transferring assets to a TPA. There are a host of stolen asset cases where the TPA failed to transfer the correct amount of assets to the vendor holding the Participant accounts. If the TPA is not crediting interest to assets it is holding, that is another potential problem. Any delay in transferring assets to the investment accounts is a problem, maybe just a PR problem with Participants, but a problem nonetheless (Participants can see or find out when the assets were transferred to the investments and will not be "happy" if there is a delay caused by an administrative concern.)

Agree with Former Esq. The answer is in the plan document.

Bill Presson is correct (of course)! I am glad the HR person knew and was supportive. Sometimes this can be a fight and there has been litigation. In general, if the plan sponsor does not want to true up, they should be careful to articulate the fact that the match is paycheck to paycheck without a true up.

Agree. Sub, as a for profit, cannot sponsor a 403(b). Sub should adopt a 401(k). Or the 501(c )(3) can terminate the 403(b) and adopt a 401(k) and then the Sub can also adopt the 401(k). (Not recommending the latter but it would put them both in the same plan, if that goal is important.)