Voluntary 403(b) Plans: A Cautionary Note
The DOL has issued an Opinion Letter (DOL Advisory Opinion Letter 2012-02A) relating to 403(b) plans, and when they are deemed to be voluntary and excepted from ERISA.
Generally, 403(b) plans can be sponsored by tax-exempt organizations and certain school districts. If the 403(b) plan is sponsored by an entity, such as a public school, it is exempt from ERISA.
If the 403(b) plan is sponsored by a non-profit entity such as a 501(c)(3) organization, it is generally subject to ERISA unless it falls into a “voluntary category”. This Opinion Letter explains that for a plan to be voluntary, four criteria must be met:
- Participation in the plan must be voluntary;
- The rights under the annuity must be enforceable only by the participant or beneficiary;
- The employer’s involvement is limited to ministerial activities; and
- The employer receives no compensation for its involvement.
Of particular importance, the Opinion Letter underscores that an employer can make available, a voluntary 403(b) plan, and as long as it meets the safe harbor described above, the employer can offer another ERISA plan without jeopardizing the voluntary status of the 403(b) plan. Further, though, the Opinion Letter affirms that conditioning contributions to the ERISA plan on salary reductions through a 403(b) plan would cause the 403(b) plan to lose its status as a voluntary plan exempt from ERISA.
The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.
As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.