Does ERISA apply to a 403(b) program of 501(c)(3) employer?

[Guest goodyrl]

We have a 403b1 Tax Deferred Annuity Plan. The plan is totally funded by employee contributions.

My understanding is that we are exempt from ERISA is this true ?

[Guest goodyrl]

I forgot to mention we are a 501c3 not-for-profit agency that is why we are exempt I was told.

[Dave Baker]

It's not due to your 501©(3) status; it's a regulation interpreting ERISA's definition of "plan." The federal law only regulates an employee benefit "plan."

When the annuities are purchased entirely from salary reductions by employees, such a program usually does not constitute a "plan."

It is possible for an employer to land in the "plan" soup even when the only contributions come from employees' paychecks, though -- the regulation has five or so criteria (in addition to the criterion that the only source of funds is employee paychecks).

I can get the reg cite if you'd like.

[Guest CVCalhoun]

The DOL regulation which exempts most salary reduction 403(B) plans from ERISA is 29 CRF 2510.3-2(f). You can click here to see a copy of the regulation, which also contains the other requirements for having a 403(B) plan exempted from ERISA.

[Francis]

This is a similar situation but different... we are a 501c3 and also had salary deferral into 403b accounts but ours are 403b7 mutual fund custodial accounts held at various mutual fund companies. There was no employer match, just employee salary deferrals only. The salary deferrals into these 403b7 accounts continued until 12/31/2009 (no contributions in 2010 and none expected moving forward).

Do we have to have a written plan for this 403b7 salary deferral arrangement and do we need to file a 5500 by 7/31/10 for the 2009 year since salary deferrals went into these accounts in 2009?

[Guest Matthew Gouaux]

Frank,

All 403(b) plans must have a written plan document. This is an Internal Revenue Code requirement found in the final 2007 403(b) regulations [26 CFR Section 1.403(b)-3(b)(3)]. It is not an ERISA requirement (although ERISA does have its own written plan requirement). Thus, you must have a written plan document even if the plan is not subject to ERISA. The plan document should have been adopted by the end of 2009. You may be able to satisfy the written plan requirement going forward by incorporating the terms of the annuity contracts or custodial accounts into something short of a formalized plan document that contains all the plan terms. However, you really should speak with an benefits attorney or consultant who has experience drafting 403(b) plans regarding your options.

You do not need to file Form 5500 unless your plan is subject to ERISA. Your plan is not subject to ERISA if it satisfies the "safe harbor" found in 29 CFR 2510.3-2(f) [available at: http://www.dol.gov/dol/allcfr/title_29/Par...CFR2510.3-2.htm]. You should also take a look at Field Assistance Bulletin 2007-2 which addresses this issue [available at http://www.dol.gov/ebsa/regs/fab2007-2.html]. Determining whether a plan is subject to ERISA is a fact-intensive inquiry and it is not always clear whether an employer satisfies the "safe harbor". In general, less employer involvement makes it less likely that the plan is subject to ERISA. If your plan is subject to ERISA, you will need to file Form 5500 every year even if no contributions are made, until the plan is terminated and all plan assets are distributed. You may want to file for an extension before July 31 to give you more time to sort this out.