Opinions April 14, 2009

(b)lines Ask the Expert – ERISA and the 401(a)/403(b) Combo

April 14, 2009 (PLANSPONSOR (b)lines) - A plan adviser asks: "A not-for-profit entity has a defined contribution Code section 401(a) plan (e.g., a profit sharing plan) that receives employer contributions allocated to all eligible employees. Can the not-for-profit match 403(b) plan contributions through contributions to the 401(a) plan in order to keep the 403(b) plan as a non-ERISA plan?"

Reported by

Answer from David Powell and David Levine, Groom Law Group, Chartered:

In the past, most practitioners have thought that making matching contributions to a 401(a) plan alongside a salary reduction only 403(b) plan should not in and of itself cause the 403(b) plan to fail to be a “safe harbor” plan not subject to ERISA under the Department of Labor’s regulatory exemption from ERISA for certain tax sheltered annuities. Rather, the 403(b) arrangement met or did not meet the safe harbor looking only at the 403(b) arrangement. As with many 403(b) issues, though, the DoL had issued no authority on the subject.

However, recently, representatives of the DoL have expressed concern in speeches whether this approach may affect the ERISA status of the 403(b) plan. Employers should exercise some caution.

NOTE: This feature is to provide general information only, does not constitute legal advice as part of an attorney-client relationship, and cannot be used or substituted for legal or tax advice.