“The 403(b) plan was established as a non-ERISA plan. However, it is my understanding that the Department of Labor would consider the 403(b) plan as an ERISA plan because of the arrangement whereby matching contributions from an ERISA plan are tied to the 403(b) Plan. Am I correct?”
Michael A. Webb, Vice President, Retirement Services, Cammack LaRhette Consulting, answers:
This is an extremely timely question, as the Department of Labor/EBSA recently released Advisory Opinion 2012-02A (http://www.dol.gov/ebsa/regs/aos/ao2012-02a.html) which specifically addresses this issue. In the opinion, the DOL is quite clear that matching contributions to a 401(a) plan that are based on 403(b) elective deferrals violate the “limited involvement” of an employer required to maintain the exemption from ERISA under Reg. 2510.2-2, as follows:
“It is the view of the Department, however, that conditioning employer contributions to the separate pension plan on the employee making salary reduction contributions to the 403(b) plan would be inconsistent with the limited employer involvement permitted by section 2510.3-2(f)(3) of the safe harbor, and would also conflict with the requirement in section 2510.3-2(f)(1) that employee participation in the 403(b) plan be ‘completely voluntary.’”
Thus, the 403(b) plan in your example would indeed be subject to ERISA.
This Advisory Opinion should be required reading for any plan sponsor who maintains, or wishes to maintain, an ERISA-exempt 403(b) arrangement under Reg. 2510.2-2. And, of course, the advice of counsel well versed in such issues should always be sought regarding such arrangements.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.