Does the existence of an ERISA 403(b) automatically make and non-ERISA plan subject to ERISA?

[katieinny]

I attended a seminar quite some time ago on 403(b) plans and recall the speaker saying that if the employer (in this case a college) maintains an ERISA and a non-ERISA plan, it is likely that the non-ERISA plan will automatically be subject to ERISA due to the existence of the ERISA plan. However, it didn't sound at the time like this was a rule written in stone. It was phrased similar to "it's been speculated that....." In the meantime, the plan has continued operating as a non-ERISA plan. Is there some definitive source that would tell me if indeed the presence of the ERISA plan has "tainted" the other plan and caused it to inadvertently become an ERISA plan? I hesitate to think about the can of worms this might open, such as having to file several years' worth of 5500s, etc.

[ETA Consulting LLC]

Under the current rules, it is possible for this to happen; as ERISA status applies to the individual contracts as opposed to the plan. Hence, if you have a set of contracts that receive deferrals only with 'limited employer involvement' then those contracts would not be subject to ERISA. At the same time, you can have a group of contracts that receive the deposits of the employer contributions; and subject to ERISA.

This does appear to create an anomaly when it comes to the participant counts on the Forms 5500. You may have only 1/2 of your employees receiving employer contributions, and therfore contracts that are subject to ERISA. However, in your actual participant count, you're counting everyone of the actual plan who is eligible to defer. This, still, does not make those deferral only contracts subject to ERISA.

All this is becoming an issue through the new rules requiring written plans and requiring asset reporting on the Form 5500. "Currently" there is still a differentiation between "contracts" that are subject to ERISA and those that are not. If no contract is subject to ERISA, then there is no Form 5500 filing. However, if at least one contract is subject to ERISA, then the entire host of inconsistencies begin; because ERISA status applies to the contract and not the plan.

Obviously, these points are arguable; but you can clearly see the arguments formulating for and against any point of view.

Good Luck!

[rcline46]

Also, consider a 401(a) ERISA plan that receives the matching contribution for a non-ERISA 403(b). This is the particular situation that the IRS opines makes the non-ERISA plan 403(b) an ERISA plan, because the plans are paired or linked.

[katieinny]

Thank you both for your replys. Both plans have written plan documents. I'm going to take a closer look at how the match works. I believe that EEs contribute to the non-ERISA plan until they become eligible for the match, at which time they start contributing to the ERISA plan up to the amount needed to get the maximum employer match. Anything over the amount needed to get the maximum match continues to go into the non-ERISA plan. However, it sounds like I had better check to see what happens if some EEs resist switching over to the ERISA plan and insist on continuing their contributions to the non-ERISA plan with the match going into the ERISA plan. That could be the rub.

[ETA Consulting LLC]

Remember, the IRS does not determine ERISA status. The DOL has Title I enforcement authority. Currently, as inconsistent as it may appear to many, the DOL applies this to the contract; not the entire plan.

Good Luck!

[QDROphile]

If the employer by plan design or administration participates in the ordering of the contributions, so that the emplyoyee is not completely responsibile and in control of the amounts that go into a plan, both plans are ERISA. For example, if deferrrals are automatically switched from the plan with the match when the deferral for maximum match is attained, both plan are ERISA plans.

That is not to say that both plans are not ERISA plans anyway. Employer participation in the integration of plan operations just makes it certain. I also happen to be one of those who believe that all 403(b) plans are ERISA plans unless they have an express exemption, such as church and government plans.