Non-ERISA and loans

[John Feldt ERPA CPC QPA]

Let's assume a deferral-only plan satisfies all of the requirements to be considered exempt from ERISA.

If they decide to allow participant loans for specific purposes, such as medical reasons, can they still be a non-ERISA plan?

If so, what should they be careful to do (or not to do) so they are not considered to be "maintaining a plan"?

[Guest Matthew Gouaux]

A 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]. The safe harbor and the following Field Assistance Bulletins should give you an idea of what an employer should and should not do to avoid maintaining a plan subject to ERISA: FAB 2007-2 [available at http://www.dol.gov/ebsa/regs/fab2007-2.html] and FAB 2010-1 [available at: http://www.dol.gov/ebsa/regs/fab2010-1.html]. Determining whether a plan is subject to ERISA is based on all relevant facts and circumstances and generally less employer involvement makes it less likely that a plan will be subject to ERISA. With respect to loans, it may be necessary to defer to the terms of the various vendors' loan policies and annuity contracts and limit employer involvement to providing whatever information the vendor needs to determine whether the participant is eligible for a loan. If loans are permitted, I doubt that an employer can impose rules or otherwise exercise discretion over the approval of loans without running afoul of the safe harbor.

[TLGeer]

Let's assume a deferral-only plan satisfies all of the requirements to be considered exempt from ERISA.

If they decide to allow participant loans for specific purposes, such as medical reasons, can they still be a non-ERISA plan?

If so, what should they be careful to do (or not to do) so they are not considered to be "maintaining a plan"?

See my post at http://401k-403b-457-plansblog.blogspot.com/

[Guest Matthew Gouaux]

Excellent blog post, Tom. You laid out the loan issues extremely well.