Coordinating 403(b) Compliance with State Dictates

For plans governed by the Employee Retirement Income Security Act (ERISA), state laws are preempted, but non-ERISA plans must pay attention to state dictates. As an example, Faye Godwin, Manager of Retirement Programs, The University of Texas System, told attendees of the 403(b) Symposium sponsored by PLANSPONSOR and Cammack LaRhette Consulting, that Texas law requires the System to provide at least four investment choices for participants – which plays a role in dictating vendor offerings going forward.

In addition, Godwin noted that in her state voluntary plans only allow employee contributions; the System is not allowed to provide an employer match. Other states may have similar rules.

Many states have garnishment rules that would prevent a plan from adopting an automatic enrollment feature, and some have rules regarding investment choice and performance. Sponsors should make themselves familiar with the laws of their particular state.

Margaret Meagher, Senior Director of Benefits, New York University, added that for ERISA plan sponsors should review vendor contracts. Some vendor contracts may have provisions based on state laws that conflict with ERISA.

Another key consideration for 501(c)(3) educational institutions is organization politics. Meagher says the issue of faculty vote in decisionmaking can slow compliance progress.

Meagher suggests sponsors keep the dialogue with plan participants ongoing through the process of reviewing investment offerings and choosing new vendors. Sponsors should also show participants the true cost of the current environment versus the cost of the new environment, she adds.

Godwin points out that getting higher ups to buy into the new plan design and provider choices will make communications with participants easier and help prevent participant backlash (See 403(b) Plans: The Senior Management Hurdle ).