Fall 2011 issue of Horizons

not-for-profit - continued

In addition, the plan must be operated in accordance with the requirements under Internal Revenue Code Section 403(b) and applicable regulations. There are numerous service providers that offer investment options and recordkeeping services to employer 403(b) plans that also offer model plan documents to employers. Employers with a non-ERISA 403(b) plan should review their plan document to determine if they completed the proper document. For example, if an employer received the wrong document from their service provider and completed and signed it, then they may have subjected their non-ERISA 403(b) plan to ERISA. In addition, some service provider documents specify that a non-ERISA 403(b) plan will be subject to ERISA if the employer is named as the plan administrator. The employer should designate a third party, if possible, as the administrator to avoid being subject to ERISA. Otherwise, the plan will be subject to ERISA because of the document the employer signed and must comply with all the applicable ERISA requirements.

The employer’s involvement is limited to entering into salary savings agreements with employees, withholding and remitting employee contributions to the provider, holding the contract in employer’s name and limiting the number of funding products. The employer cannot receive any compensation for its administrative services other than reasonable expenses it incurs. In addition, the employer cannot make any discretionary determinations such as those involved with employee hardships or withdrawals, qualified domestic relations orders or loans. An employer may offer more than one investment option provider to the participants. Employers can also offer only one investment option provider if they can demonstrate an increase in the administrative burdens and the provider has a broad range of investment products or an open architect custodial account. If an employer’s plan does not meet all of these requirements or it includes employer contributions, then the plan will be subject to ERISA. Did the Employer Complete the Proper Plan Document? Employers sponsoring a 403(b) plan, either an ERISA or non-ERISA plan, were required to adopt and execute a written plan document by December 31, 2009.

Raise Your Expectations

37