Category Archives: DOL

Today in ERISA History

Jan. 6, 2006 – The Dept. of Labor issues Advisory Opinion 2006-01a. It addresses whether a real estate transaction between an Individual Retirement Account (IRA) and an S-Corp and an LLC owned in part by the same person is a prohibited transaction under Internal Revenue Code section 4975.

The idea proposed by the parties was that several individuals would form an LLC, which would purchase land, build a warehouse, and lease the warehouse to a S-Corp.

The LLC owning the property would be partially financed by self-directed IRAs owned by the individuals who owned or managed the S-Corp. Specifically, the investors in the LLC would be:

    Individual A’s IRA: 49%
    Individual B’s IRA: 31%
    Individual C: 20%

The S-Corp leasing the property is owned by:

    Individual A and his wife: 68%
    Individual C: 32%

The individuals with management responsibility for both the LLC and the S-Corp were:

    Individual B, who was the comptroller of the S-Corp.
    Individual B and Individual C, who managed the LLC.

In Advisory Opinion 2006-01a, the Dept. of Labor discusses the Internal Revenue Code’s prohibitions against any direct or indirect sale, exchange or leasing of any property between a plan and a “disqualified person”, and determines that this leasing of property between the LLC and the S-Corp would be a prohibited transaction under Code section 4975 for Individual A’s IRA.

On Feb. 3, 2011, the Dept. of Labor releases Advisory Opinion 2011-04a, which cites to Advisory Opinion 2006-01a in finding that another real estate transaction between an IRA held by a family trust purchasing the promissory note secured by an apartment building owned and managed by the trustees of the family trust was a prohibited transaction.

The Dept. of Labor Addresses When Bankruptcy Meets ERISA

When Bankruptcy Meets ERISA is not the latest Gary Marshall film or the sequel to Sleepless in Seattle, it is the very real mess created when a plan sponsor files Chapter 7 bankruptcy. In the last month, there has been so much written about Hostess disappearing, and almost nothing written about Hostess’ pension plan disappearing, which I think is the real Hostess story – it is not about a future without Twinkies, but about the men and women who made the Twinkies facing a future where Hostess made their vested retirement benefits disappear. Unfortunately, Hostess is not alone. Over the last several years, there are a number of companies, and one U.S. Territory (the Northern Mariana Islands Retirement Fund) which have looked to a bankruptcy court to resolve their underfunded pension issues.

Since the first step to solving a problem is recognizing that it exists, the Dept. of Labor has taken the lead on this one ahead of the bankruptcy courts. Last week, the Dept. of Labor released new proposed regulations updating the Abandoned Plan Program, in part to address this situation. The preamble states:

“Pursuant to these proposed amendments, chapter 7 plans would be considered abandoned upon the Bankruptcy Court’s entry of an order for relief with respect to the plan sponsor’s bankruptcy proceeding. The bankruptcy trustee or a designee would be eligible to terminate and wind up such plans under procedures similar to those provided under the Department’s current Abandoned Plan Regulations. If the bankruptcy trustee winds up the plan under the Abandoned Plan Program, the trustee’s expenses would have to be consistent with industry rates for similar services ordinarily charged by qualified termination administrators that are not bankruptcy trustees. The proposed amendment to the class exemption would permit bankruptcy trustees, as with qualified termination administrators under the current Abandoned Plan Regulations, to pay themselves from the assets of the plan (a prohibited transaction) for terminating and winding up a chapter 7 plan under an industry rates standard.”

The regs are a little long but well worth reading, and it is great to see the DOL tackle this issue. I’m hoping the bankruptcy courts recognize that winding up a qualified plan is not something a bankruptcy trustee can pick up on the fly, and that the bankruptcy trustees will be permitted to bring in ERISA experts on terminating plans and distributing the assets.

404(a)(5) Fee Disclosure: When Participant Means All Employees

With the 404(a)(5) fee disclosure deadline approaching fast, I’ve been fielding a lot of questions about what must be disclosed, when it must be disclosed by, and who it must be disclosed to. One of the trickier parts of new Labor Reg. 2550.404a-5 is answering the “who” question.

Labor Reg. 2550.404a-5(b)(1) says:

“In general. The plan administrator of a covered individual account plan must comply with the disclosure requirements set forth in paragraphs (c) and (d) of this section with respect to each participant or beneficiary that, pursuant to the terms of the plan, has the right to direct the investment of assets held in, or contributed to, his or her individual account. Compliance with paragraphs (c) and (d) of this section will satisfy the duty to make the regular and periodic disclosures described in paragraph (a) of this section, provided that the information contained in such disclosures is complete and accurate. A plan administrator will not be liable for the completeness and accuracy of information used to satisfy these disclosure requirements when the plan administrator reasonably and in good faith relies on information received from or provided by a plan service provider or the issuer of a designated investment alternative.”

Normally, it is easy to identify who the participants and beneficiaries are for plan purposes. The plan document contains a definition of each term, and the plan administrator applies that definition when determining who the participants and beneficiaries are for compliance purposes.

For complying with Labor Reg. 2550.404a-5, the Dept. of Labor has thrown a curve at plan administrators. In the preamble to the final regulations, the DOL says:

“Several commenters suggested that the Department clarify, and in some cases modify, the scope of the proposal as to the specific participants and beneficiaries of covered plans to which the rule applies. The proposed rule required disclosures to each participant and beneficiary of the plan that ‘‘pursuant to the terms of the plan, has the right to direct the investment of assets held in, or contributed to his or her individual account.’’ The question presented by the commenters was whether disclosures must be furnished to all eligible employees or only those who actually participate in the plan. Consistent with the definition of ‘‘participant’’ under section 3(7) of ERISA, disclosures must be made to all employees that are eligible to participate under the terms of the plan, without regard to whether the participant has actually become enrolled in the plan.”

A quick check of ERISA section 3(7) reveals that the DOL is correct on this one if you read ERISA section 3(7) very broadly. ERISA section 3(7) says:

“(7) The term “participant” means any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit.”

For more fee disclosure tips and to make compliance easier, we’ve put together a guide to the Final 404(a)(5) Regulations. It combines Labor Reg. 2550.404a-5 with current guidance in a easy-to-follow format along with a self-study module which Enrolled Retirement Plan Agents can complete for continuing education credit.

Today in ERISA History

Aug. 7, 1996 – The Dept. of Labor issues Advisory Opinion 96-15a, addressing whether a trust company which is a wholly-owned subsidiary of a registered investment adviser is a “bank or trust company” for purposes of ERISA section 408(b)(8), and a bank for purposes of PTE 91-38, and 29 CFR 2510.3-101(h)(ii). In this Advisory Opinion, the DOL finds that it is.

The Scudder Trust Company was a wholly-owned subsidiary of Scudder, Stevens & Clark, Inc., a registered investment adviser under the Investment Company Act of 1940. Scudder Trust served as discretionary trustee and 3(21) fiduciary for the assets of various employee benefits plans subject to Title I of ERISA. Scudder Trust hired Scudder, Stevens & Clark to manage or supervise the assets of those plans.

Scudder Trust, pursuant to a New Hampshire state statute, established several investment trusts designed to seek particular investment objectives. The investment trusts commingled the assets of eligible investors, including ERISA-covered plans, with substantially similar investment objectives into pooled investment trusts. Scudder Trust had the authority to appoint persons to manage the investment funds, and Scudder Trust appointed Scudder, Stevens & Clark, its parent company, to manage the funds.

Scudder Trust would be paid by the plans rather than from the investment funds. Scudder Trust would disclose to plans that Scudder, Stevens & Clark would be acting as the investment adviser and an independent fiduciary acting on behalf of the plans would both authorize transfers of plan assets to the investment trusts and approve the terms of the fees to be paid. The fees paid to Scudder, Stevens & Clark for managing the funds would be paid by Scudder Trust pursuant to an arrangement negotiated between the parties.

It was important to Scudder Trust that the DOL find the pooled investment funds are “maintained by a bank or trust company” in order to qualify for the statutory exemption of ERISA section 408(b)(8), Internal Revenue Code section 4975(d)(8) and Prohibited Transaction Exemption 91-38 because, unless the exemptions applied, the arrangement between Scudder Trust and Scudder, Stevens & Clark would violated ERISA sections 406(a)(1)(A), 406(a)(1)(D), 406(b)(1) and 406(b)(2).

The DOL found that the terms “bank or trust company” in ERISA section 408(b)(8) and the term “bank” in PTE 91-38 are not defined. The DOL further found that Scudder Trust was regulated by the same state authority and in the same manner as state chartered banks, and therefore, to the extent that Scudder Trust was so regulated, the DOL’s opinion was that Scudder Trust was a bank or trust company for purposes of ERISA section 408(b)(8) and a bank for purposes of PTE 91-38, and 29 CFR 2510.3-101(h)(ii).

Advisory Opinion 96-15A is mentioned in Advisory Opinion 2006-07A (Aug. 15, 2006) to support the proposition that a trust company which retained its parent company to manage a collective investment fund and whose activities were subject to a state banking commissioner’s supervision and examination would be considered a bank for purposes of PTE 91-38.

Dept. of Labor Revises 404(a)(5) Fee Disclosure Guidance

I have to confess that the DOL’s 404(a)(5) regulations are not among my favorite. There is something about these regulations that make my eyes glaze over, and yet I know I will face more questions from family members at Thanksgiving about these regulations than about anything else happening in plan-land this year. Just when I thought I had read everything to do with these regulations, the Dept. of Labor issued a revised Field Assistance Bulletin 2012-02 yesterday (July 30, 2012), designated as Field Assistance Bulletin 2012-02R. It supersedes Field Assistance Bulletin 2012-02 which was issued on May 7, 2012. (Spoiler Alert: The DOL did not extend the Aug. 30, 2012 disclosure deadline.)

It is interesting that the DOL decided to supersede FAB 2012-02 and issue FAB 2012-02R because FAB 2012-02R only contains 2 changes from FAB 2012-02.

First, Q&A-30 from FAB 2012-02 has been deleted from FAB 2012-02R. Q&A-30 said:

Q-30: A plan offers an investment platform consisting of a large number of registered mutual funds of multiple fund families into which participants and beneficiaries may direct the investment of assets held in or contributed to their individual accounts. Although the plan fiduciary selected the platform provider, the fiduciary did not designate any of the funds on the platform as “designated investment alternatives” under the plan. Is this platform itself a designated investment alternative for purposes of the regulation?

A-30: Paragraph (h)(4) of the regulation specifies that a brokerage window or similar arrangement is not a “designated investment alternative.” A platform consisting of multiple investment alternatives would not itself be a designated investment alternative. Whether the individual investment alternatives are designated investment alternatives depends on whether they are specifically identified as available under the plan. As the Department explained in the preamble to the final regulation (75 FR 64910), when a plan assigns investment responsibilities to the plan’s participants and beneficiaries, it is the view of the Department that plan fiduciaries must take steps to ensure that participants and beneficiaries are made aware of their rights and responsibilities with respect to managing their individual plan accounts and are provided sufficient information regarding the plan, including its fees and expenses and designated investment alternatives, to make informed decisions about the management of their individual accounts. Although the regulation does not specifically require that a plan have a particular number of designated investment alternatives, the failure to designate a manageable number of investment alternatives raises questions as to whether the plan fiduciary has satisfied its obligations under section 404 of ERISA. See generally Hecker v. Deere, 569 F.3d 708, 711 (7th. Cir. 2009). Unless participants and beneficiaries are financially sophisticated, many of them may need guidance when choosing their own investments from among a large number of alternatives. Designating specific investment alternatives also enables participants and beneficiaries, who often lack sufficient resources to screen investment alternatives, to compare the cost and return information for the designated investment alternatives when they are selecting and evaluating alternatives for their accounts.

Further, plan fiduciaries have a general duty of prudence to monitor a plan’s investment menu. See Pfeil v. State Street Bank, 671 F.3d 585, 598 (6th Cir. 2012). If, through a brokerage window or similar arrangement, non-designated investment alternatives available under a plan are selected by significant numbers of participants and beneficiaries, an affirmative obligation arises on the part of the plan fiduciary to examine these alternatives and determine whether one or more such alternatives should be treated as designated for purposes of the regulation.

Pending further guidance in this area, when a platform holds more than 25 investment alternatives, the Department, as a matter of enforcement policy, will not require that all of the investment alternatives be treated, for purposes of this regulation, as designated investment alternatives if the plan administrator—

    (1) makes the required disclosures for at least three of the investment alternatives on the platform that collectively meet the “broad range” requirements in the ERISA 404(c) regulation, 29 CFR § 2550.404c-1(b)(3)(i)(B); and
    (2) makes the required disclosures with respect to all other investment alternatives on the platform in which at least five participants and beneficiaries, or, in the case of a plan with more than 500 participants and beneficiaries, at least one percent of all participants and beneficiaries, are invested on a date that is not more than 90 days preceding each annual disclosure.

Second, the DOL added Q&A-39 to FAB 2012-02R. It says:

Mutual Fund Platforms and Brokerage Windows

Q39: A plan offers an investment platform that includes a brokerage window, self-directed brokerage account, or similar plan arrangement. The fiduciary did not designate any of the funds on the platform or available through the brokerage window, self-directed brokerage account, or similar plan arrangement as “designated investment alternatives” under the plan. Is the platform or the brokerage window, self-directed brokerage account, or similar plan arrangement a designated investment alternative for purposes of the regulation?

A39. No. Whether an investment alternative is a “designated investment alternative” (DIA) for purposes of the regulation depends on whether it is specifically identified as available under the plan. The regulation does not require that a plan have a particular number of DIAs, and nothing in this Bulletin prohibits the use of a platform or a brokerage window, self-directed brokerage account, or similar plan arrangement in an individual account plan. The Bulletin also does not change the 404(c) regulation or the requirements for relief from fiduciary liability under section 404(c) of ERISA or address the application of ERISA’s general fiduciary requirements to SEPs or SIMPLE IRA plans. Nonetheless, in the case of a 401(k) or other individual account plan covered under the regulation, a plan fiduciary’s failure to designate investment alternatives, for example, to avoid investment disclosures under the regulation, raises questions under ERISA section 404(a)’s general statutory fiduciary duties of prudence and loyalty. Also, fiduciaries of such plans with platforms or brokerage windows, self-directed brokerage accounts, or similar plan arrangements that enable participants and beneficiaries to select investments beyond those designated by the plan are still bound by ERISA section 404(a)’s statutory duties of prudence and loyalty to participants and beneficiaries who use the platform or the brokerage window, self-directed brokerage account, or similar plan arrangement, including taking into account the nature and quality of services provided in connection with the platform or the brokerage window, self-directed brokerage account, or similar plan arrangement.

The Department understands plan fiduciaries and service providers may have questions regarding the situations in which fiduciaries may have duties under ERISA’s general fiduciary standards apart from those in the regulation. The Department intends to engage in discussions with interested parties to help determine how best to assure compliance with these duties in a practical and cost effective manner, including, if appropriate, through amendments of relevant regulatory provisions.

To make these changes, and the Final 404(a)(5) Regulations, easier to understand, we’ve put together a new e-book – A Compendium of the Final 404(a)(5) Fee Disclosure Regulations. It includes a copy of Labor Reg. 2550.404a-5 organized by topic along with the DOL’s guidance and explanations about this regulation in an easy-to-follow format. We’ve also created a self-study module around the Compendium so you can earn 2 ntinuing education credits for learning about 404(a)(5) as you read the e-book.

Today in ERISA History

July 31, 1996 – The Dept. of Labor issues Advisory Opinion 96-14A addressing whether the schedule of “usual and customary” fees, which is used as a basis for determining the dollar amount that will be paid for health claims under a welfare benefit plan, must be made available for examination and/or furnished by the plan administrator upon the request of a plan participant or beneficiary. The request for the advisory opinion was made by a plan whose plan document did not contain the schedule of “usual and customary” fees even though the plan provided for the reimbursement of the full cost of medical care incurred by the employee-participants based on a “usual and customary” fee.

The DOL decided that the schedule of “usual and customary” fees are required to be disclosed to participants and beneficiaries by ERISA sections 104(b)(2) and 104(b)(4). ERISA section 104(b)(2) requires a plan administrator to make copies of certain information related to the plan available for examination by any plan participant or beneficiary. ERISA section 104(b)(4) requires this information to be furnished to participants and beneficiaries upon written request and allows plan administrators to impose a reasonable charge to cover the cost of providing these documents.

In a footnote, the DOL states that under their interpretation of Labor Reg. 2520.104b-30, the charge assessed by the plan administrator to cover the costs of furnishing documents is reasonable if it is equal to the actual cost per page for the least expensive means of acceptable reproduction, but in no event may such charge exceed 25 cents per page. Further, the DOL stated that no other charge for furnishing documents, such as handling or postage charges, is considered reasonable.

With technology advancing since 1996 to allow scanning and emailing as the least expensive means of acceptable reproduction, is anyone still charging participants and beneficiaries 25 cents per page?

Today in ERISA History

July 27, 2000 – The Dept. of Labor issues Advisory Opinion 2000-10A addressing whether allowing the owner of an IRA to direct the IRA to invest in a limited partnership in which relatives and the IRA owner in his individual capacity are partners, will violate Code section 4975. After discussing the meaning of Code section 4975(e)(2)’s definition of “disqualified person” and how it applies in this situation, the DOL found that the IRA’s purchase of an interest in the partnership would not constitute a Code section 4975(c)(1) transaction. Code section 4975(c)(1) prohibits any direct or indirect sale or exchange or leasing of any property between a plan and a disqualified person. The DOL further said that whether the proposed transaction violates Code section 4975(c)(1)(D) or (E) is a factual determination which the DOL will not issue an opinion on.

Violations of Code section 4975(c)(1)(D) or (E) can occur if the transaction is part of an agreement, arrangement or understanding in which the fiduciary causes plan assets to be used in a manner designed to benefit such fiduciary, or any person which such fiduciary had an interest which would affect the exercise of his best judgment as a fiduciary.

While this Advisory Opinion does not really add much to the rules the DOL applies when examining prohibited transactions, and the prohibited transaction rules have evolved since this Advisory Opinion was issued in 2000, it is noteworthy because of the investment itself. The investment was a family affair. The people involved in the investment covered by the Advisory Opinion were the fiduciary, the fiduciary’s son, the fiduciary’s father-in-law, the fiduciary’s son’s brother-in-law, the fiduciary’s mother-in-law, the fiduciary’s daughter and the fiduciary’s sister-in-law.

The IRA plan assets were managed by Bernard L. Madoff Investment Securities.

Today in ERISA History

July 25, 2002 - The Dept. of Labor issues Advisory Opinion 2002-07A, addressing whether the Glass Companies Multiemployer Pension Plan is a multiemployer plan. What makes this Advisory Opinion noteworthy is that within the opinion, the DOL reiterated how the Department applies the 4 factors in Labor Reg. 2510.3-37(c) when determining if a plan is a multiemployer plan.

For a plan to be a multiemployer plan, ERISA section 3(37)(A) required the plan: (1) include more than one employer who was required to contribute plan; (2) the plan is maintained by one or more collective bargaining agreements between one or more employee organizations and more than one employer, and (3) satisfy other requirements imposed by the Secretary of Labor in regulations. One of those other requirements imposed by the Secretary of Labor in regulations was that the plan must be established for a substantial business purpose.

As stated in this Advisory Opinion, the 4 factors considered in determining a “substantial business purpose” are:

    1. the extent to which the plan is maintained by a substantial number of unaffiliated contributing employers and covers a substantial portion of the trade, craft or industry in terms of employees or a substantial number of the employees in the trade, craft or industry in a locality or geographic area;
    2. the extent to which the plan provides benefits more closely related to years of service within the trade, craft or industry rather than with an employer, reflecting the fact that an employee’s relationship with an employer maintaining the plan is generally short-term although service in the trade, craft or industry is generally long-term;
    3. the extent to which collective bargaining takes place on matters other than employee benefit plans between the employee organization and the employers maintaining the plan; and
    4. the extent to which the administrative burden and expense of providing benefits through single employer plans would be greater than through a multiemployer plan.

Once the Dept. of Labor applied these factors to the Glass Companies Multiemployer Pension Plan, the Department found that the plan was not a multiemployer plan because the number of participating employers did not constitute a substantial number of unaffiliated contributing employers, the employee relationships with an employer maintaining the plan are generally short-term, collective bargaining with the employers maintaining the plan is in the context of maintaining single-employer plans and not in the context of a multiemployer plan, and the administrative burden and expense of maintaining single-employer plans is not significantly greater than maintaining a multiemployer plan.

Fixing a 408(b)(2) Fee Disclosure Failure

By July 1, 2012, most plan fiduciaries and service providers complied with the Final 408(b)(2) Fee Disclosure Regulations by disclosing information about service provider compensation and potential conflicts of interest. For those that didn’t, the Final 408(b)(2) Fee Disclosure Regulations require responsible plan fiduciaries to file a notice with the Dept. of Labor to obtain relief from ERISA’s prohibited transaction provisions. On July 16, 2012, the DOL issued a Final Rule explaining where and how to file that notice.

Effective Sept. 14, 2012, the DOL is setting up a webpage to allow responsible plan fiduciaries to electronically file those notices with the Department. The DOL has also established a new address if the responsible plan fiduciary decides to mail the notice to the Department instead of filing it electronically. In the Final Rule on Amendment Relating to Reasonable Contract or Arrangement Under Section 408(b)(2) – Fee Disclosure/Web Page, the DOL has amended Labor Reg. 2550.408b-2(c)(1)(ix)(F) to add that the notice required by Labor Reg. 2550.408b-2(c)(1)(ix)(C) can be furnished to the DOL electronically in accordance with instructions published by the Department or the notice can be mailed to the DOL at the address contained in the regulation.

After this change, the language of Labor Reg. 2550.408b-2(c)(1)(ix) now says:

    (ix) Exemption for responsible plan fiduciary. Pursuant to section 408(a) of the Act, the restrictions of section 406(a)(1)(C) and (D) of the Act shall not apply to a responsible plan fiduciary, notwithstanding any failure by a covered service provider to disclose information required by paragraph (c)(1)(iv) or (vi) of this section, if the following conditions are met:

      (A) The responsible plan fiduciary did not know that the covered service provider failed or would fail to make required disclosures and reasonably believed that the covered service provider disclosed the information required by paragraph (c)(1)(iv) or (vi) of this section;

      (B) The responsible plan fiduciary, upon discovering that the covered service provider failed to disclose the required information, requests in writing that the covered service provider furnish such information;

      (C) If the covered service provider fails to comply with such written request within 90 days of the request, then the responsible plan fiduciary notifies the Department of Labor of the covered service provider’s failure, in accordance with paragraph (c)(1)(ix)(E) of this section;

      (D) The notice shall contain the following information—

        (1) The name of the covered plan;

        (2) The plan number used for the covered plan’s Annual Report;

        (3) The plan sponsor’s name, address, and EIN;

        (4) The name, address, and telephone number of the responsible plan fiduciary;

        (5) The name, address, phone number, and, if known, EIN of the covered service provider;

        (6) A description of the services provided to the covered plan;

        (7) A description of the information that the covered service provider failed to disclose;

        (8) The date on which such information was requested in writing from the covered service provider; and

        (9) A statement as to whether the covered service provider continues to provide services to the plan;

      (E) The notice shall be filed with the Department not later than 30 days following the earlier of—

        (1) The covered service provider’s refusal to furnish the information requested by the written request described in paragraph (c)(1)(ix)(B) of this section; or

        (2) 90 days after the written request referred to in paragraph (c)(1)(ix)(B) of this section is made;

      (F) The notice required by paragraph (c)(1)(ix)(C) of this section shall be furnished to the U.S. Department of Labor electronically in accordance with instructions published by the Department; or may sent to the following address: U.S. Department of Labor, Employee Benefits Security Administration, Office of Enforcement, P.O. Box 75296, Washington, DC 20013; and

      (G) If the covered service provider fails to comply with the written request referred to in paragraph (c)(1)(ix)(C) of this section within 90 days of such request, the responsible plan fiduciary shall determine whether to terminate or continue the contract or arrangement consistent with its duty of prudence under section 404 of the Act. If the requested information relates to future services and is not disclosed promptly after the end of the 90-day period, then the responsible plan fiduciary shall terminate the contract or arrangement as expeditiously as possible, consistent with such duty of prudence.

Today in ERISA History

July 24, 2007 – The Dept. of Labor issues Field Assistance Bulletin 2007-02 addressing ERISA coverage of 403(b) Tax-Sheltered Annuity Programs and providing guidance to the DOL’s national and regional offices about the extent to which compliance with the IRS’ newly issued Final 403(b) Regulations would cause employers to exceed the limitations on employer involvement permitted under Labor Reg. 2510.3-2(f) for non-ERISA plans.

Labor Reg. 2510.3-2(f) says that 403(b) plans are not subject to Title I of ERISA if:

    1. the participation of the employees is completely voluntary;
    2. all rights under the annuity contract or custodial account are enforceable solely by the employee or beneficiary of such employee, or the authorized representative of such employee or beneficiary;
    3. the involvement of the employer is limited to certain optional specified activities; and
    4. the employer receive 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.

The safe harbor allows employers to engage in a range of activities to facilitate the operation of the plan without removing the plan from the safe harbor of Labor Reg. 2510.3-2(f). Those activities can include:

    1. permitting annuity contractors, including agents or brokers who offer annuity contracts or make available custodial accounts, to publicize their products;
    2. request information concerning proposed funding media, products, or annuity contractors;
    3. compile such information to facilitate review and analysis by employees;
    4. entering into salary reduction agreements and collecting annuity or custodial account considerations required by the agreements, remitting them to annuity contractors, and maintaining records of such collections;
    5. holding one or more group annuity contracts in the employer’s name covering its employees and exercising rights as representative of its employees under the contract, at least with respect to amendments of the contract; and
    6. limiting funding media or products available to employees, or annuity contractors who may approach the employees, to a number and selection designed to afford employees a reasonable choice in light of all relevant circumstances.

The IRS’ Final 403(b) Regulations imposed a number of requirements on employers sponsoring a 403(b) plan, including maintaining the plan pursuant to a written plan. In Field Assistance Bulletin 2007-02, the DOL addressed what activities the plan sponsor could engage in to comply with the IRS’ Final 403(b) Regulations without becoming subject to Title I of ERISA.

In Field Assistance Bulletin 2007-02, the DOL said that a non-ERISA plan could stay within the safe harbor of Labor Reg. 2510.3-2(f) while still complying with the written plan requirement of the IRS’ Final 403(b) Regulations. The DOL envisioned the written plan for a non-ERISA safe harbor plan would consist largely of separate contracts and related documents supplied by the annuity providers and account trustees or custodians.

The employer could adopt a single document which would coordinate administration among different issuers, and which addressed tax matters that apply, including the universal availability requirement of Internal Revenue Code section 403(b)(12)(A)(ii), without reference to a particular contract or account, and still be within the safe harbor. Such plan document should identify the parties that are responsible for administrative functions, including those related to tax compliance, and should correctly describe the employer’s limited role and allocate discretionary determinations to the annuity provider or participant or other third party selected by the provider or the participant. The employer is permitted to periodically review the documents making up the plan for conflicting provisions and to ensure compliance with the Code and regulations.