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403(b) ERISA v. non-ERISA post Advisory Opinion 2012-02A.


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501©(3) private school has two 403(b) plans, using TIAA documents. One is an ERISA plan, and gives a 5% match if you defer at least 5%. The other is a "non-ERISA" plan that is deferral only. It is worth noting that these were set up (by whom I don't know) prior to DOL Advisory Opinion 2012-02A. I think TIAA did this two-plan thing routinely.

Although the AO refers to a situation where a separate Money Purchase plan receives the "match" if the employee defers into the deferral plan, it seems to me that the AO would apply to the situation above as well. At the very least, it seems an aggressive interpretation to maintain that the "deferral only" plan is non-ERISA based upon the penultimate paragraph in the AO. I certainly would say the client should get advice from an ERISA attorney if they want to take the aggressive approach.

None of it makes much sense to me, because the ERISA plan has no exclusions. Doesn't exclude participants who are in another 403(b) plan of the employer, so it has to file as a large plan. That being the case, I'm not sure what possible benefit there is to maintaining a separate plan, which now being (perhaps arguably) subject to ERISA will also require filing as a large plan, since it also doesn't exclude anyone. Seems as though everyone is eligible to defer into either plan.

Now you get to prior 5500's. Can you take the approach that audit wasn't required for years prior to the AO (2012)? I don't see how...

I'd love to hear any thoughts on this!

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Ok, I can look into that angle, but would it make any difference to the question at hand? Maybe I'm missing your point?

Thanks.

P.S. - is your question intended to assert that the following would exempt an annuity only plan from the H/Audit requirements?

Exceptions: Insured, unfunded, or combination

unfunded/insured welfare plans, as described in 29 CFR

2520.104-44(b)(1), and certain pension plans and

arrangements, as described in 29 CFR 2520.104-44(b)(2), and

in Limited Pension Plan Reporting, are exempt from

completing the Schedule H.

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Are the matched deferrals made to the ERISA plan (Plan 1), or the other plan (Plan 2)? It seems to me that you could have Plan 1 which provides for employee deferrals that are matched by the employer, and Plan 2 which provides for unmatched deferrals. However, if deferrals to Plan 2 receive a match in Plan 1, I'd agree there is a problem.

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The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Hi Carol - thanks, but this is precisely where I'm having a problem with this concept. It just seems like administrative fiction. Anyone can defer to either plan. so what happens if you defer 5% to the "deferral only" plan? You don't get a match. This forces anyone who wants the match to enroll in the ERISA plan. To me, this crosses the line that the DOL has drawn in the Advisory Opinion - it isn't "completely voluntary" and it seems to also cross the line of "limited employer involvement."

Thoughts?

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It seems to me that the "deferral only" plan could be a non-ERISA plan. The penultimate paragraph of the AO states that a plan will not be forced into ERISA merely because the employer maintains another plan that is subject to ERISA. No distinction is made in the AO between another plan that has matching contributions and one that does not. The issue in the AO seemed to be that an employer match of contributions to Plan 1 (even if the match was made to Plan 2) constituted excessive "employer involvement" in Plan 1. That issue would not be present if contributions to Plan 1 were not matched.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Thank you for your thoughts, Carol. As a matter of nitpicking, I'd observe that the penultimate paragraph says that the 403(b) plan doesn't fail to satisfy the safe harbor merely because a separate 401(a) plan is maintained, but in the context of the discussion at hand I understand your point.

I do have a call in to the DOL asking this question, but they haven't returned my call - if they do, I'll post whatever response they give me.

As an aside, in this particular situation, something like 50 employees out of 250 eligible employees actually contributed to the "ERISA" 403(b) plan, so they were filing as a small plan. Unfortunately for them, their "ERISA" plan allows anyone to defer to it, so they are WAY over the 100 and must file as a large plan with an audit anyway.

Thanks again.

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  • 1 month later...

Just a follow-up on this. What a PIA!

First, big surprise, the DOL never returned my call, although to be fair the government shutdown doubtless screwed things up. I'll call again.

Now for practical ramifications. Since there is a separate 403(b) (non-ERISA deferral only) plan that satisfies the universal availability requirements, then the ERISA plan possibly COULD have excluded anyone deferring less than 5%? Is there any problem with that? I'm not sure this is a valid exclusion category.

Assuming this COULD have been done, let us suppose that the employer operationally (in violation of the ERISA document terms) did this, and only allowed deferrals into the plan if they were at a rate of 5% or more. This brings up a couple of questions:

1. Seems largely "unenforceable" as deferral election can be changed at any time.

2. If you get past (1) above, perhaps this could be submitted under VCP with a proposed retroactive amendment to conform document to operation. Any thoughts on this?

3. Even if you can get the IRS to agree to (2), I don't see that this guarantees that the DOL would accept it as justification for not filing 5500 for prior years as a large plan. Any thoughts on this aspect?

We're going to recommend the client consider getting legal advice from an ERISA attorney, but in the meantime, I'm trying to consider as many aspects as possible.

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  • 4 years later...

I have generally advised clients to avoid this as it can be seen as increasingly precarious to make assumptions about the required things to avoid in order to maintain Non-ERISA status (Wisconsin case in which the DOL maintained that late deposits of deferrals indicated sponsor control which made a plan which the sponsor thought was Non-ERISA, ERISA), but I am now working on a situation in which the client may really want to maintain the alleged Non-ERISA plan side by side with the ERISA plan (TIAA plans).  My concern remains the investments.  I have understood that investment "choice" meant more than one fund family and the old TIAA TDA contracts do not provide for this.

By the way, the discussion and facts  above miss the point of using the "old" pairing technique prior to 2012:  The Non-ERISA plan was for 403(b) deferrals so if the sponsor had over 100 employees and they were all eligible: still no 5500 and no audit.  The ERISA plan did not permit deferrals and was actually 401(a).  This only works when the ERISA plan used a 1 year (or similar) eligiblity and consequently reduced the number of eligibles to fewer than 100: 5500 but no audit.  The DOL essentially said "nice try, but no go!" and made the entire thing ERISA.

 

Patricia Neal Jensen, JD

Vice President and Nonprofit Practice Leader

|Future Plan, an Ascensus Company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@futureplan.com

P 949-325-6727

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Another aspect of the "TIAA 2 plans situation" where one is ERISA and the other Non-ERISA:  I think my client and TIAA are following all the rules for one of the plans to be a Non-ERISA Safe Harbor plan.  And I do not think the two plans (at least in my situation) are "conjoined" in any way.  My final concern is the investments in the Non-ERISA plan.  They are all TIAA.  The DOL has said...

"Q16: Must a "safe harbor arrangement" under 29 CFR 2510.3-2(f) offer participants a reasonable choice of both 403(b) providers and investment products?

Yes. To meet the terms of the safe harbor, the arrangement generally must offer a choice of more than one 403(b) contractor and more than one investment product."

I am concerned that the "Non-ERISA plan" invested in TIAA annuity contracts which offer only TIAA investment choices fails the "more than one 403(b) contractor" part of this rule or possibly both the "more than one contractor" and the "more than one investment product" parts.  Am I over thinking this?  My client really wants to keep the Non-ERISA plan as it is invested in a TIAA Traditional contract which is not sold anymore and has very desirable characteristics.

Thanks!

Patricia Neal Jensen, JD

Vice President and Nonprofit Practice Leader

|Future Plan, an Ascensus Company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@futureplan.com

P 949-325-6727

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