Use of TIAA-CREF As Sole Investment Provider

[Christine Roberts]

Small not for profit org permits employees to establish TDAs with TIAA-CREF. Employees have a "reasonable choice of investment alternatives" within TIAA-CREF universe. Is the 403(B) arrangement still within the ERISA exception even if only TIAA-CREF offers accounts/annuities to participants? My understanding is that DOL Reg. 2510.3-2(f) does not require employer to seek out other funding alternatives.

Employer also maintains a employer contributory only 403(B) plan with TIAA-CREF that does comply with ERISA.

[mbozek]

There is no requirment that the sponsor offer more than one fund /investment family to its employees. Many employers maintain a non ERISA 403(B) plan for salary reduction contributions only to avoid the requirements for spousal consent or annuity as normal form.

[QDROphile]

I think that the arrangement would not be exempt from ERISA if the employeer would make salary reduction contributions only to TIAA-CREF, no matter how many fund options are provided within TIAA-CREF. The employer is not required to seek any providers at all. But if the employer imposes too much of a limit, then ERISA applies. We start getting comfortable with the ERISA exemption somewhere around five or more employer-identified diverse providers unless something else funny is going on. If you offer TIAA-CREF but do not restrict, and no one else comes to the party, then you are OK under the exemption.

I don't understand the effort to have an exempt arrangement when the employer has a non-exempt one.

[mbozek]

The regs specifically include as considerations for limiting providers the number of employees and the administraive burdens placed on the employer. Because they do not have an adequate HR staff, small employers cannot deal with the rules of mutliple fund families, the hassles of tranferring funds between the families and admin issues such as multiple spds, 5500s and distribution forms imposed by each fund group. Adding funds because of the demand of a single employee will result in the plan collecting funds serving a inadequate number of employees. Offering multilpe fund families usually results in offering duplicate funds through each fund family withhout greater choice. I dont know where you came up with the number 5 from but it is not required in order for a plan to be exempt from from ERISA. I would be interested in hearing if the DOL ever investigated an exempt plan for not providing an adequate number of funds.

The reason for having an exempt arrangement for salary reduction type plans is to avoid spousal consent for loans, beneficary designations and spousal annuity requirements which are administrative burdens for plans. In the non exempt t/c plans

there is usually no in service distribution of funds- benefits are only paid one time at termination, death or retirement.

[QDROphile]

I may be missing something in the real world, but I thought that the exemption for 403(B) arrangements was based on the idea that the annuity belonged to the employee (similar to the tax view) and the employer had no involvement, except as a conduit for the salary reduction amounts. So the burden on the employer is to send periodic checks or wire transfers to Provider A, Provider B, Provider C, etc. as specified by Employee A, Employee B, Employee C, etc. Where does all this other stuff come in? If the employer is involved in the accounting and account administration, it is an ERISA plan no matter how many providers are available.

The employer can impose reasonable restrictions without triggering ERISA by becoming so involved in the annuity that it is no longer the employee's arrangement. Limiting the employe's options to Provider A only seems like a pretty significant involvement by the employer. The employer has chosen the product. The product is more than just the investment choices, but the investment choices are significant by themselves.

Nothing is magic about 5 as the limit on the number of Providers that the employer will recognize. The question is what is reasonable. I still claim that a limitation to one provider is too restrictive to say that the employer has not become overly involved in the program. I think your best point is that one can argue that a minimum critical mass is necessary to have any program as opposed to none. That minimum is assured by limiting all the action to one Provider. The employer had better be able to make that argument credible.

[mbozek]

Q: You obviously prefer to ignore the regulations which do not require that the employer provide multiple fund families to exempt the plan from ERISA. You also obviously do not have experience with small nps who dont have the capability to do wire transfers or send periodic checks to multiple providers ( in the right amounts) because they dont have the staff or expertise or dont qualify for electronic banking services. Many 403(B) plans are administered by the Exec. director or an assistant who has other duties than just administering a plan. Being involved in the accounting and administraton of the contributions is not a plan function since salary reduction amts are subject to FICA tax and in some cases state income and disability tax as wages as well as the limits under 402(g) which can be complex. I dont know of any authority for the statement that limiting the 403(B) providers to one family creates an ERISA plan.

[QDROphile]

You are right. The regulations don't say anything one way or another on any of those points, and neither does any other published authority. So I don't think anything is truly obvious here. Absence of specific guidance causes us to resort to principles to interpret and apply the regulations. Your experience and ideas are valuable to the readers of this Message Board and so are discussions of contrary and other perspectives.

[AndyH]

oh no, don't get conciliatory; this battle was getting fun to read!

[QDROphile]

If you want entertainment, you have to pay admission.