Allowable Options for Non-ERISA 403(b)

[Chalk R. Palin]

According to the DOL's FAB 2007-02, an employer could not, consistent with the 2510.3-2(f) safe harbor (for non-ERISA plans), have responsibility for, or make, discretionary determinations in administering the program. Examples of such discretionary determinations are making determinations regarding eligibility for or enforcement of loans.

Does this mean that, when choosing options for a volume submitter plan, if the employer chooses for the plan to not allow loans, the plan falls outside the safe harbor, and thus becomes subject to ERISA?

[ERISAnut]

According to the DOL's FAB 2007-02, an employer could not, consistent with the 2510.3-2(f) safe harbor (for non-ERISA plans), have responsibility for, or make, discretionary determinations in administering the program. Examples of such discretionary determinations are making determinations regarding eligibility for or enforcement of loans.

Does this mean that, when choosing options for a volume submitter plan, if the employer chooses for the plan to not allow loans, the plan falls outside the safe harbor, and thus becomes subject to ERISA?

No, this would be a design issue, not an administration issue. An administration issue would be to make the loan approval when such application is received (in the event loans are allowed). Since loans are not allowed, there is no approval, or disapproval, to be made.

[Everett Moreland]

My reading of 2510.3-2(f) is that it does not allow the employer to decide whether loans will be available. The following from FAB 2007-2 also suggests that 2510.3-2(f) does not allow the employer to decide whether loans will be available:

"Negotiating with annuity providers or account custodians to change the terms of their products for other purposes, such as setting conditions for hardship withdrawals, would be a form of employer involvement outside the safe harbor."

[QDROphile]

Under the world as we knew it, if the employer designed plan terms, such as availability of loans, the plan would be subject to ERISA. The Department of Labor has not admitted to changing the world as we know it, but claims that all sorts of things can be done now that will not cuase the arrangment to be subject to ERISA. The Department got put in a corner and chose to survive by abandoning credibility and integrity. So the answer to all 403(b) questions is that you can do what you want without fear from the DOL, but if you do something to anger a participant who is willing to go so far, you might help clarify the law by giving the courts an oppotunity to muddle through the questions. I still think a plan design (or product mandate, as mentioned in the excerpt above) by the employer would cross the line into ERISA.

[Chalk R. Palin]

What do you think of this argument:

Choosing options available under a volume submitter plan is covered under the safe harbor if it amounts to the employer limiting the products (already) available to employees to a number and selection which is designed to afford employees a reasonable choice in light of relevant circumstances, including the administrative burdens and costs to the employer and/or the terms of the available arrangements. (From 29 CFR Sec. 2510.3-2(f)(3)(vii))

In such a case, the employer is not so much negotiating to change plan language, but limiting options to already drafted and available plan language.

[QDROphile]

I don't buy it. Legally, the employer is totally in control of the plan lauguage, so any limitation imposed by the plan is the act of the employer, which mkaes the employer responsible fo determining benefits, and triggers ERISA. But in the brave new world, I can't say what is right.

[Guest mjb]

In plans funded with individual annuity contracts the employer doesnt have the option of choosing whether to allow loans because loans are automatically provided under the annuity contract as required under state insurance law and the employee can payoff the loan directly to the insurance company because the contract is between the employee and the insurance company and the employer has no invovement with the loan. The employer cannot prevent an employee from exercising a right under the annuity contract to take out a loan. Under the 403b regs loans will have to be reported to the plan administrator.

[Peter Gulia]

Consider a rhetorical question: If the employer really is hands-off and does not "establish" or "maintain" anything, why would it care about restraining loans?