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Funding methods for non-ERISA cafeteria plans


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We are a TPA firm that administers Cafeteria Plans for public employees that are exempt from ERISA requirements. Currently, our clients hold their own checking accounts with which the funds are held. We are looking to offer a funding method where we, as the TPA, have a checking account that the client's funds are held in.

What are our funding options that will keep us compliant with IRC and California banking laws?

Because our clients are exempt from ERISA, but our TPA firm isn't, do we have to comply with ERISA requirements if we decide to hold the funds for them?

We are considering opening one business checking account to hold all of our client's funds with the idea that we would not dip into one client's funds if another falls short, but I am concerned with the commingling of funds and think it would be cleaner (and maybe the only compliant option) if we held separate checking accounts for each client.

If we were to open a Trust, could we commingle different Plan assets then?

Any help would be very much appreciated.

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Something so important to your business model that involves questions under several complex regulatory schemes would be worth obtaining competent professional advice. If you limited yourself to the second question, it would be reasonable to expect an answer in this forum, and that answer is that if the plans are not subject to ERISA, plan funds and operations are not subject to ERISA. You recognized that ERISA preemption does not apply, either

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Thank you, QDROphile. We have reached out to legal for guidance, but I thought I would give this a shot as a second or third opinion couldn't hurt. With regard to the second question, I was almost certain the answer was no because the Plan is not subject to ERISA, but I wanted to make sure in case I was missing something.

My main concern is creating a funding method that is compliant with Code and CA banking laws. Of course we want to use the most cost-efficient method, but do not want to inappropriately commingle Plan assets.

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