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What Do the 403(b) Regulations Really Require? – Part I
The new regulations left plan sponsors asking: Did the regulations subject all 403(b) plans to Title I of ERISA? The obvious answer for public employers is no, and even for private tax-exempt employers the answer is that compliance with the regulations did not automatically trigger ERISA for a plan that was not previously subject to ERISA (although the regulations did make some challenging issues yet more difficult). Did the regulations impose fiduciary standards of conduct? The obvious answer to this for all employers is no. Moreover, the assumption that some fiduciary standards will always apply was also an incorrect one. Any fiduciary standards applicable to 403(b) plans – and in many cases there will not be any – must come from somewhere other than the Internal Revenue Code. In the case of plans subject to Title I of ERISA, the obvious source of these requirements is ERISA. In the case of public employer plans, the application of certain state model investment fiduciary standards is rather tenuous at best for many of these employers. However, certain undertakings by those public employers – such as restricting a plan to a single provider – might actually cause one or more of those state model laws to apply. Did the regulations prescribe the investments (type or number), the plan structure, or the plan features that a plan sponsor must select? Once again the obvious answer is no. What the regulations did was to establish a set of requirements, which employers could satisfy in any way they chose, including any qualifying investment arrangement and any plan features, within any plan structure that otherwise met the requirements.
The new regulations left plan sponsors asking:
Did the regulations subject all 403(b) plans to Title I of ERISA?
The obvious answer for public employers is no, and even for private tax-exempt employers the answer is that compliance with the regulations did not automatically trigger ERISA for a plan that was not previously subject to ERISA (although the regulations did make some challenging issues yet more difficult).
Did the regulations impose fiduciary standards of conduct?
The obvious answer to this for all employers is no. Moreover, the assumption that some fiduciary standards will always apply was also an incorrect one. Any fiduciary standards applicable to 403(b) plans – and in many cases there will not be any – must come from somewhere other than the Internal Revenue Code. In the case of plans subject to Title I of ERISA, the obvious source of these requirements is ERISA. In the case of public employer plans, the application of certain state model investment fiduciary standards is rather tenuous at best for many of these employers. However, certain undertakings by those public employers – such as restricting a plan to a single provider – might actually cause one or more of those state model laws to apply.
Did the regulations prescribe the investments (type or number), the plan structure, or the plan features that a plan sponsor must select?
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