(b)lines Ask the Expert – Varying Features Among Vendor Contracts

July 1, 2008 ((b)lines) - A plan administrator states: "We administer a 403(b)(9) plan for our national church body, and we currently have about 2,500 churches and schools participating for their workers. Some of the workers at these churches and schools have been participating in 403(b) plans provided by other vendors as well as in our plan. If these employers want to maintain multiple vendors after this year, can the employer have one umbrella plan document, but within each vendor contract have different rules as to loans and hardship withdrawals?

“For example, our plan allows loans but not hardship withdrawals, but another vendor contract may allow hardship withdrawals and not loans.  Are those variations among the vendors permitted?”

That is a good question. Current thinking is that the plan can draft around that issue by providing that loans or hardship distributions are available, for example, to the extent permitted by, and subject to the terms of, the individual contracts or custodial accounts.  Outside of the church and qualified church-controlled organizations; however, different availability of such rights or features might give rise to nondiscrimination concerns. 

An administrator must be certain that it doesn’t lose sight of the most important objective, which is that if an employer keeps those other contracts and accounts outside of the national plan, the employer is responsible for getting the various vendors to share information with the employer, the administrator, or each other, to make certain the plan can be administered in the aggregate in compliance with 403(b).  The arrangement may be easy to draft, but it may increase the difficulty of complying with the 403(b) rules in operation.

– David Powell, Groom Law Group, Chartered