“Aren’t IRAs exempt from the Employee Retirement Income Security Act (ERISA), and thus any of ERISA’s fiduciary provisions? And what about the many 403(b) plans that are also not subject to ERISA? If the fiduciary does not apply to those plans, why would it apply to IRAs?”
David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
Excellent questions! Let’s address non-ERISA 403(b) plans first, as such plans are specifically exempted from the final fiduciary rule by the following language:
“Code section 403(b) contracts and custodial accounts purchased or provided under a program that is either a ‘governmental plan’ under section 3(32) of ERISA or a non-electing ‘church plan’ under section 3(33) of ERISA are not subject to the final rule. Similarly, the Department in 1979 issued a ‘safe harbor’ regulation at 29 CFR 2510.3–2(f) which states that a program for the purchase of annuity contracts or custodial accounts in accordance with section 403(b) of the Code and funded solely through salary reduction agreements or agreements to forego an increase in salary are not ‘established or maintained’ by an employer under section 3(2) of the Act, and, therefore, are not employee pension benefit plans that are subject to Title I, provided that certain factors are present. Those non-Title I 403(b) plans would also be outside the scope of the final rule.”
Thus, any 403(b) plan that is not subject to ERISA is exempt from the final fiduciary rule. However, there are many 403(b) plans of private, tax-exempt employers that are subject to ERISA, and would thus be subject to the final fiduciary rule.
As for IRAs, you are correct that they are generally exempt from ERISA provisions. However, IRAs are subject to the Tax Code; and Section 4975 of the Internal Revenue Code address prohibited transactions between IRAs an “disqualified persons” including fiduciaries. The section then goes on to define to define a fiduciary to include any person designated as a fiduciary under ERISA. It is this basis that the DOL is using to affirm that its definition of what constitutes a fiduciary applies to Section 4975 of the Code as well. In addition, the DOL has specific authority over Code Section 4975 through Reorganization Plan No. 4, an executive order issued in 1978. Of course, enforcement of these prohibited transaction rules under the Tax Code would be the responsibility of the Internal Revenue Service (IRS), and not the DOL. It should be noted that 403(b) plans are specifically exempt from Code Section 4975, which partially explains the differing treatment of IRAs and non-ERISA 403(b) plans under the final fiduciary rule.
And, of course, as you stated in your question, the applicability date of the final fiduciary rule has been delayed, so none of its provisions apply as yet.
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