ERISA vs Non-ERISA

[Guest Catherine M. Peery]

A nonprofit has a 401(a) Plan, to which they contribute 5% of pay every pay period. They have a 403(b) plan with deferrals only, and two vendors, no employer contributions. Is the 403(b) plan considered an ERISA plan, with the 5500 requirement?

[QDROphile]

We used to think that if the employer limited the action to two vendors, there were serious concerns about the exemption from ERISA. We did not know a magic number for the exemption, but one was too few and two can be as bad as one if you listen to Three Dog Night. A 401(a) plan was irrelevlant unless the 401(a) plan related to the 403(b) arrangement, such as by matching the 403(b) deferrals. Now all bets are off. The most recent Department of Labor field assistance bulletin on the subject is so full of lies and confusion that all we know for sure is that the DOL does not want the extended responsibillty that probably results from the changes in the tax regulations. In the chaos, some people are floating the idea that limiting vendors is OK as long as a sufficient number of investment options offered by the vendor. The unrelated 401(a) plan is still irrelevant.

[Guest Catherine M. Peery]

I spoke to Susan Rees at the DOL recently, and she said one provider with numerous funds is not sufficient because there must also be alternatives between providers.

But you don't think having employer contributions in one plan is going to make the 403(b) ERISA? I've been hearing that from nonprofits, from CPAs, from everywhere, and I want to pin down the answer and where its coming from.

[Don Levit]

Catherine:

See Title 29, Chapter 25, Part 2510, section 2510.3-2.

Don Levit

[Guest Catherine M. Peery]

I will. Thanks

[Guest Pension Girl]

Is the 403(b) Plan linked to the 401(a) plan - ie is it matching deferrals to the 403b? This would cause the 403b to be an ERISA plan. DOL has confirmed via email to us and also via a webcast last month. Thanks

[Guest Catherine M. Peery]

No, there's no relationship. So that's good.

[Guest Tom:]

These days, it is risky to assume that a 403(b) plan maintained by a 501©(3) employer (other than a non-electing church plan) is not subject to ERISA. A single discretionary act by the employer now or anytime in the past (e.g., signing off on a loan or hardship distribution) may inadvertently subject the entire plan to ERISA. Beyond the new 5500 requirements, a 403(b) plan that has become subject to ERISA may also be subject to QJSA notice, waiver and spousal consent requirements, more restrictive loan limitations, SPD and other ERISA notice and disclosure rules. If you have any doubts, you may want to treat your plan as subject to ERISA now and notify your annuity contract and custodial account vendors accordingly. Otherwise, just hold your breath and wait for additional guidance on this subject that the DOL has promised to release shortly.