403(b) Negative Election Results?

[Ellie Lowder]

Has anyone heard about general results of using negative elections in 403(B) plans? We do get survey results for 401(k) plans which indicate more participants when negative elections are used - but no news on the 403(B) front. As an independent consultant, I generally become aware when something is "hot", but there is a singular lack of comment about this issue relative to 403(B).

[Guest STLGiant]

I might refrain from doing negative elections since most NFPs seek a non-ERISA 403(b) plan arrangement. Under current law 401(k) contributions are considered employer related contributions subject to ERISA. The last thing you want to do is drag your client into a deemed ERISA plan.

Since many NFPs don't seek ERISA rules, regulations or filings, I'd maintain an arms-length distance on negative elections, at least until the Portman-Cardin legislation provision excluding elective deferrals from the stigma of employer-related contributions is addressed.

Finally, the lack of participation in 403(b) plans is comparable to the lack of participation in a for-profit 401(k) plan that has no matching contribution OR other tandem DC or DB plan. Like anything else, education of the benefits of saving pre-tax vs. after-tax is sometimes the best thing to do for a participant--even if they are teachers or professors!

[Guest RJT]

Variable 403(B) investments are all registered products,and you'll run into certain SEC and NASD concerns when you attempt to force anyone to purchase such securities through negative elections. You could use a nonregistered product, such as a fixed annuity, but some at the DOL frown on such as possibly imprudent investments of plan monies (though I do disagree with that. Indeed, guaranteed funds may be ideal for such situations).

[Carol V. Calhoun]

I have heard a couple of explanations for the relative scarcity of negative elections in 403(B) plans. First, because the level of permissible contributions by highly compensated employees is not tied to the level of contributions actually made by other employees, there is not the incentive that there is in 401(k) plans to make sure lower-paid employees contribute. And second, I have heard that many state laws restrict the extent to which governmental employers can deduct amounts from employees' paychecks without their consent, in ways that might apply to a 403(B) plan. However, I have not done a survey of either practice or state law, so you can take this for what it's worth.