Dave Baker Posted July 20, 2000 Share Posted July 20, 2000 The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission (copyright 2000 TRI Pension Services, all rights reserved). <blockquote>Please feel free to add a reply to this thread (see link towards bottom of this page) if you would like to discuss comments or questions about this article with others!</blockquote> Automatic enrollment feature is permissible in 403(B) plan/caution on Title I issue (added July 18, 2000). Rev. Rul. 2000-35 confirms that an automatic enrollment feature is acceptable under a section 403(B) plan. This is true regardless of whether the plan is funded with annuity contracts or custodial accounts. The requirements parallel those prescribed for 401(k) plans under Rev. Rul. 2000-8. If the automatic enrollment feature is properly applied, the contirubtions deducted from an employee's compensation, for transmittal to the 403(B) plan, are treated as salary reduciton contributions that are excludable from income (subject to the §402(g) limit, the maximum exclusion allowance under IRC §403(B), and the section 415 limits). Caution - Title I issue. If a 403(B) plan is set up solely to receive salary reduction contributions, and no employer contributions will be made to the plan (i.e., no matching contributions and no nonelective contributions), the plan is generally exempt from Title I of ERISA. See DOL Reg. §2510.3-2(f). However, one of the conditions for the Title I exemption is that the employer have limited involvement in the plan. Included in the activities the employer may engage in without creating a Title I plan is the collection of contributions through the salary reduction agreements and transmital of those contributions to the annuity provider or custodian of the custodial account. Is an automatic enrollment program crossing the line, resulting in Title I coverage? This issue is not addressed in Rev. Rul. 2000-35, because the employer makes matching contributions under the plan, resulting in Title I coverage anyway. Perhaps the IRS or DOL will clarify this issue at a later date. Link to comment Share on other sites More sharing options...
Carol V. Calhoun Posted July 20, 2000 Share Posted July 20, 2000 One question on this, for those of you involved with governmental or church plans (i.e., plans not covered by ERISA preemption): are you familiar with any state laws which could create a problem in this situation? I recall that in the case of 414(h)(2) pick-ups, we have sometimes run into problems with state laws which prohibit taking money out of an employee's paycheck without permission. Would this also be a problem in this situation, in which you would not have employee permission (although the employee would have the right to opt out)? 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. Link to comment Share on other sites More sharing options...
IRC401 Posted July 24, 2000 Share Posted July 24, 2000 I don't know of a specific problem under PA law, but the regs, last updated in 1996, still refer to the Pension and Welfare Benefits Act. The law, at least, has been updated for ERISA. Link to comment Share on other sites More sharing options...
Kirk Maldonado Posted July 25, 2000 Share Posted July 25, 2000 Carol: I'm pretty certain that both California and New York have laws precluding wage assignments without the written consent of the employee. Now whether those laws apply to governmental entities within those jurisdictions is a question I can't answer. Kirk Maldonado Link to comment Share on other sites More sharing options...
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