Unresponsive Providers

[Randy Watson]

I posted this topic yesterday but for whatever reason it has disappeared.

An employer has a non-ERISA 403(b) plan. All they do is forward deferrals to various providers. We have a plan document ready, but can't get the existing providers to cooperate. They won't even respond to our attempts to contact them. I believe we can (or actually must) tell employees that we will not forward deferrals to any provider that does not agree to comply with the terms of the plan document. Can the employer seek out one provider to that agrees to comply with the plan without creating an ERISA plan? This appears to be permissible under FAB 2007-2 as long as the employees can transfer the existing contracts. Of course, we would permit the employees to locate new providers and would gladly forward deferrals as long as they agree to the terms of the document. Any input or advice would be greatly appreciated.

[J Simmons]

I posted this topic yesterday but for whatever reason it has disappeared.

An employer has a non-ERISA 403(b) plan. All they do is forward deferrals to various providers. We have a plan document ready, but can't get the existing providers to cooperate. They won't even respond to our attempts to contact them. I believe we can (or actually must) tell employees that we will not forward deferrals to any provider that does not agree to comply with the terms of the plan document. Can the employer seek out one provider to that agrees to comply with the plan without creating an ERISA plan? This appears to be permissible under FAB 2007-2 as long as the employees can transfer the existing contracts. Of course, we would permit the employees to locate new providers and would gladly forward deferrals as long as they agree to the terms of the document. Any input or advice would be greatly appreciated.

I would be uneasy about the "seek out one provider" aspect of your question. FAB 2007-2 allows for the ER to take steps to assure tax compliance without blowing the ERISA-exemption. The ER can establish criteria for participation by vendors if that criteria is reasonably related to assuring tax compliance. This may include setting a top end number of vendors, "designed to afford employees a reasonable choice in light of all relevant circumstances. * * * [A]n employer may limit the number of

providers to which it will forward salary reduction contributions as long as employees

may transfer all or a part of their funds to any provider whose annuity contract or

custodial account complies with the Code requirements and who agrees to the plan's

division of tax compliance responsibilities among the employer, provider and

participant."

Note, however, that "[n]egotiating 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" from ERISA application.

I think if you establish vendor criteria designed to assure tax compliance and you permit exchanges to any vendor that agrees to that tax compliance criteria, you could limit the total number of vendors to receive new contributions without blowing the exemption from ERISA. However, it would appear that among those vendor(s) to which you limit the new contributions, the 403b products offered by them would need to give employees a reasonable choice of 403b products for the ERISA exemption to apply.