NON-ERISA 403(B) Plans

[Nassau]

ABC Company is a non-ERISA Salary Reduction Only plan. The new plan sponsor is considering changing the plan to be an ERISA plan. What steps are necessary to effect this change from the plan sponsor and/or legal counsel.

[ERISAnut]

Make an employer contribution. That should do it.

[J Simmons]

ERISAnut is correct. Making employer contributions will subject the 403b plan to ERISA since ABC Company is not, I assume, a public school.

As for compliance, you do want to have the plan documented (if it is not already per the new 403b regs set to take effect 1/1/2009), include ERISA provisions such as naming a fiduciary, setting forth the eligibility requirements, when and how contributions may be made and how allocated, claims processing, etc. Also, make sure that you have a summary plan description, etc. An ERISA lawyer should be able to help out.

[QDROphile]

Compliance with the 403(b) plan document requirements will make the plan an ERISA plan in most cases, despite the DOL attempt at rationalizations to the contrary.

[Guest Sieve]

QDROphile -- So, what will you recommend to non-governmental or church 403(b) clients who do not want to be subject to ERISA when they ask you about adopting a plan document to comply with the new 403(b) regs?

[QDROphile]

Prepare to spend too much time and too much money to achieve an uncertain result.

I think you can buy into the DOL delusion without great fear of the DOL; it is just a lot of trouble to understand and comply with the so-called guidance. Sloppy compliance is probably even OK if the DOL has any sense of shame. The important question relates to trouble and liability when a participant finds some way to improve his or her lot under ERISA and the judge does not buy into the DOL delusion.

One point of my previous answer is that ERISA status can be attained by formal actions as well as funding.

[Guest Sieve]

All good and well, -phile. We know that the DOL is treading a thin and often invisible line in the sand, at best, and that there is a risk if the plan is memorialized in writing. But you didn't answer my question (well, you did, but not how I had expected), so I'll put it another way: would you advise a non-governmental/church client--and let's make it easy: there are employer contributions to the 403(b)--NOT to comply with the IRS regs to memorialzie the plan in writing? Remember: this is a client that always has been under the ERISA requirement to have a plan in writing because it makes contributions in addition to employee deferrals, but just never before had such a document. Would your answer be different if the client made no employer contributions and therefore was, at the moment, subject to the ERISA exemption? And, isn't taking a chance on the ERISA side generally worth the risk to make certain that the tax advantages of a 403(b) are certain?

This has been a test . . .

[QDROphile]

Sorry if I missed something because I did not parse your question properly. No 403(b) arrangement should deliberately fail to comply with the 403(b) regulations, incluing the requirement for a plan document. ERISA has nothing to do with whether or not to comply with the tax regulations. The ERISA question is whether or not to try to find that line and walk it. My advice is not to bother.

[Randy Watson]

Sorry if I missed something because I did not parse your question properly. No 403(b) arrangement should deliberately fail to comply with the 403(b) regulations, incluing the requirement for a plan document. ERISA has nothing to do with whether or not to comply with the tax regulations. The ERISA question is whether or not to try to find that line and walk it. My advice is not to bother.

QDROphile, based on your knowledge of 403(b)s and your name I think you might be able to help me out with a question. Can a non-ERISA, 403(b) plan allow a division of benefits pursuant to a QDRO under Code Section 414(p) without subjecting itself to ERISA if the determination of qualified status is pushed onto the vendor? I'm inclined to not include any QDRO provisions in the plan to avoid the possibility of crossing that invisible line in the sand. What do you think?

[ERISAnut]

Randy,

I'd take a minor shot at this one as it does bring up interesting points:

1) Since the plan is not subject to ERISA, then the it may be able to refuse to accept a QDRO, but only to the extent the state law does not require the plan to accept to QDRO. This has always been the case and had not changed.

2) It has always been the case that employers (in such instances) placed the burden on the legal team of the product provider to make the determination. This functionality may still be an option (with the only change is that there are information sharing agreements in place).

3) When speaking to whether passing the responsibility off to a TPA (or other service provider) to make the actual determination, it does seem consistent when the TPA would actually accept this responsiblity. However, employers have typically pawned this responsibility off to the product carriers.

Hope this helps.

[QDROphile]

I have advised employers to stay out of it and leave it to the annuity providers to deal with domestic relations orders out of the concern you stated. I would have to go back to the regualtions and the DOL guidance to reconsider under the new regime because I don't have a recollection of how QDROs fit into the mix. I regret that I can't take the time for review now.

[Guest mjb]

Sorry if I missed something because I did not parse your question properly. No 403(b) arrangement should deliberately fail to comply with the 403(b) regulations, incluing the requirement for a plan document. ERISA has nothing to do with whether or not to comply with the tax regulations. The ERISA question is whether or not to try to find that line and walk it. My advice is not to bother.

QDROphile, based on your knowledge of 403(b)s and your name I think you might be able to help me out with a question. Can a non-ERISA, 403(b) plan allow a division of benefits pursuant to a QDRO under Code Section 414(p) without subjecting itself to ERISA if the determination of qualified status is pushed onto the vendor? I'm inclined to not include any QDRO provisions in the plan to avoid the possibility of crossing that invisible line in the sand. What do you think?

Why not just divide the annuity contract pursuant to a divorce decree under IRC 1041 without tax consequences? This could also work for mutual fund.