Side-by-Side ERISA and Non-ERISA 403(b) Plans

[Christine Roberts]

This is an interesting plan documentation question.

Not-for-profit employer established a 403(B) plan in 1966, calling for employer contributions only (no deferrals), equal to 10% of compensation. Money is contributed to individual TDAs of employees.

At some point (possibly even prior to establishment of employer-contributory plan), employees are permitted to make salary deferrals to their own TDAs. This "plan" is not documented and would appear to meet requirements of ERISA exception for 403(B) arrangements with minimal employer involvement.

Employer now wants to restate plan document. Is it necessary to treat the entire arrangement (i.e., including deferral arrangement) as subject to ERISA and address in a single document? Or is it OK to restate the employer contributory plan, only, and not mention deferral arrangement? Is the answer different if the employee salary deferrals and the employer contributions are made to the same TDAs?

[mbozek]

Any np plan with employer contributions is subject to ERISA unless the employer is a state entity or a church. However, under Dol regs an employer can establish a separate plan limited to employee salary reductions to avoid ERISA issues such as spousal consent for loans and distributions and fiduciary responsbility for investment issues. Although not recommended, a non ERISA plan is not required to be in writing as long as the employees have a written agreement for salary reduction. The restatement can be limited to the current plan with employer contributions- There is no requirement to include the salary reduction program. While normally the salary reduction contributions are made to a separate contract for ERISA and accounting reasons,( EG. the employer contributions are subject to ERISA fiduciary requirements) there is no requirement that there be separate contracts.

[Christine Roberts]

Thanks for the thorough response.