(b)lines Ask the Experts – Separate Plans for Employee and Employer Contributions

May 24, 2011 (PLANSPONSOR (b)lines) – “Can a 501(c)(3) entity sponsor a non-ERISA 403(b) for deferral contributions and a SEP-IRA for employer contributions?”

David Powell, Groom Law Group, answers:    

The short answer is yes, but it may raise a question of whether the non-ERISA plan is actually subject to ERISA.  Note also that you ask about SEP-IRAs.  You don’t ask about SARSEPs, which a tax exempt employer is not permitted to maintain, or a SIMPLE IRA that a governmental employer cannot maintain.  

However, keep in mind that if the employer contributions to the SEP-IRA are linked in any way (typically as matching contributions) to the 403(b) plan, the DoL “safe harbor” under Labor Reg. § 2510.3-2(f) for salary-only 403(b) plans with limited involvement by the employer would likely not apply.  Also, the DoL has stated that the safe harbor can only be satisfied if there is only one 403(b) vendor if “an employer can demonstrate that increased administrative burdens and costs to the employer in offering a number of contractors under the arrangement would be sufficient to cause the employer to stop making its payroll system available to collect and remit payroll deduction contributions to any 403(b) contractor.”  See Field Assistance Bulletin 2010-01.  It would seem unlikely that the DoL would consider that met if the employer maintains another retirement plan, even a SEP IRA.  


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.