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DOL Advisory Opinion Affects Status of 403(b) Plans

June 22, 2012

Recently, the Department of Labor (DOL) issued an Advisory Opinion (2012-02A) that may surprise many 403(b) plans that provide matching contributions in another plan. Many 403(b) plans are not currently subject to ERISA -- commonly referred to as "non-ERISA" 403(b) plans. These include:

  • Governmental and non-electing church plans. These plans are exempt from ERISA, regardless of whether the employer contributes to the plans or has discretionary authority over the plans.
  • Plans not "established or maintained" by an employer. Generally, these are deferral-only plans which satisfy a DOL safe harbor exemption in DOL Reg. §2510.3-2(f).

In order to satisfy the second condition there are four requirements that must be met:

  • Participation of employees is completely voluntary
  • All rights under the annuity contract or custodial account are enforceable solely by the employee or beneficiary of such employee, or by an authorized representative of such employee or beneficiary
  • The involvement of the employer is limited to certain specified activities
  • The employer receives no direct or indirect consideration or compensation in cash or otherwise other than reasonable reimbursement to cover expenses properly and actually incurred in performing the employer's duties pursuant to the salary reduction agreements.

In this Advisory Opinion the DOL has taken the position that because there is an employer match, even though it is contributed to another plan, participation in the 403(b) plan is not completely voluntary. This causes the 403(b) to be an ERISA covered plan.

Knowing whether or not the plan is covered under ERISA is important because it affects the obligations and duties of the plan sponsor and the responsible plan fiduciaries. If a 403(b) plan is covered by ERISA it is subject to increased reporting and disclosure rules -- including the new 408(b)(2) plan sponsor disclosure regulations and the new 404(a)(5) participant disclosure rules. In addition, the plan needs to comply with the expanded 5500 filing requirement including the requirement for an audit for plans with over 100 participants. The fiduciary requirements for plan sponsors will also require increased oversight of the plan investments.

If you would like to discuss any of these issues please contact your Relationship Manager.