403(b) - does adoption agreement trump non-ERISA status?

[Guest ellis14]

Looking at a 403(b) TDA plan, it meets all the requirements of being a non-ERISA plan. However, when reading the adoption agreement, they have selected to allow employer contributions and they have selected that they intend to operate the Plan in compliance with ERISA Section 404( c ).

The employer has never contributed to the plan and has no intentions to do so.

Does the fact that the employer selected these items in the adoption agreement create a Title 1 ERISA plan by default, or can the Plan rely on the way it has been functioning (i.e. as a non-ERISA plan)?

Trying to determine the filing requirement.

Thanks!

[mbozek]

If the plan has consented to be subject to ERISA then it is subject to all provisions even though no employer contributions have been made because 403b plans can voluntarily consent to be subject to ERISA even though no employer contributions are permitted. Only 403b plans of government entities cannot be subject to regulations under ERISA even if they consent because govt plans are exempted from ERISA by statute.

[Guest ellis14]

That is my initial thought, I guess I just needed to hear it from someone else. This plan hasn't ever filed a 5500 because it was under the impression that it was a non-ERISA plan. I have quite a bit of work ahead of me...

thanks!

[Belgarath]

I have a question related to this subject. Suppose you have a non-profit, who uses a salary-deferral only adoption agreement, and specifically elects to not have ERISA apply.

The DOL "safe harbor" is rather unforgiving, in terms of any employer discretion. So, the employer can't make QDRO determinations, or determine eligibility for distributions, withdrawals, etc...

What I'm wondering is this: it is all fine and wonderful for the employer to say, "I'm not going to make these determinations. That will be up to the vendor."

In real life, how many vendors actually do this? Won't most vendors send a form to the employer, saying "you need to authorize this distribution/QDRO/whatever."

If both the employer and the vendor refuse to authorize the distribution, now the participant is stuck. If the employer relents, and authorizes it, then the ERISA exemption is blown.

How do see this Gordian knot handled in real life?

[Peter Gulia]

Belgarath's question is apt.

In your experience, does an insurance company or trust company respect an employer's choice not to be involved (beyond furnishing factual information in the employer's control) in claims decisions?

And let's ask the flip-side question about who relents: If an employer refuses to decide a claim, how often does an insurance company or trust company back down and decide something without an employer's instruction?

[K2retire]

Ironically, I tend to see the reverse of this issue: recordkeepers approving loans or distributions without involving the employer.

[Peter Gulia]

K2retire, are you seeing recordkeepers approve a loan or distribution by following a procedure adopted by the plan's administrator? Or are you seeing a recordkeeper act on its own without following such a procedure?

[K2retire]

The one I saw most recently was a 401(k), not a 403(b), so the ERISA question is not applicable. The agreement between the client and the recordkeeper says the RK is not a trustee and has no discretion, but will process distributions, loans, etc. in accordance with the parameters set up by the plan sponsor.

[mbozek]

Why would the insurance co that is legal owner of the assets in the non ERISA 403b plan want the employer to be involved in deciding who will receive the benefits since under the contract the insurance co is legally liable if the wrong person is paid? If there are two or more beneficiaries claiming the benefits the insurer files a complaint of interpleader with the court, makes the beneficiaries defendants, pays the disputed funds into the court and is removed from the case. Court will decide who is the beneficiary. In an ERISA plan the plan administrator or other fiduciary will make the decision of who is to be paid or will file a complaint in interpleader b/c the administrator/ fiduciary is liable for incorrect payment.

Insurance co that refuses to pay benefits to a participant in an ERISA 403b plan can be sued.

Years ago a 403b provider refused to pay benefits to a married participant who said a spousal wavier was not required because the spouse was missing and could not be located. Insurer insisted on a spousal waiver. Participant sued and fed court held that the insurer had presented no evidence that spouse was not missing and ordered the benefit to be paid. The insurer was ordered to pay the participant's legal fees because there was no meritorious reason not to pay the benefits.