PLANSPONSOR - October-November 2022 - 4

INDUSTRY ANALYSIS
Sponsors on the Periphery
U
nlike 401(k) plans, not all 403(b)
plans are subject to Employee
Retirement Income Security Act
regulations. A 403(b) plan is exempt from
ERISA if the sponsoring employer meets
certain requirements, such as having only
limited involvement with the plan.
To take advantage of this exemption,
many 403(b) sponsors choose deferral-only
plans. They may also limit their involvement
by avoiding other discretionary decisions
that expand plan operations, such as
approving distributions or loans.
Non-ERISA plans do not technically
need a " plan administrator " as defined in
ERISA Section 3(16), which ERISA plans
do need, noted attorneys from Groom Law
Group
Chartered, in PLANSPONSOR
.com's Ask the Experts. The Internal
Revenue Code has no corresponding rule
requiring nonexempt plans to have a plan
administrator, the experts explained,
adding even non-ERISA plans generally
have one in practice-typically the
employer, or committee, fills the role.
It is difficult to gather data or get a full
picture of 403(b) plans, as non-ERISA plans
do not need to file a Department of Labor
403(b) Plans: ERISA or non-ERISA?
Form 5500. Data from respondents to the
2022 PLANSPONSOR Recordkeeping
Survey in fact indicate that as much as
80% of 403(b) plans are non-ERISA.
Asked whether four out of five
403(b) plans being non-ERISA plans is
surprising, Barbara Van Zomeren, senior
vice president ERISA with Ascensus in
St. Cloud, Minnesota, says, " Not when
you consider the types of employers that
offer 403(b) plans. Public schools, certain
governmental agencies and 501(c)(3) organizations-such
as hospitals, churches
and
charitable
organizations-are
all
eligible to offer 403(b) plans. Some of these
employers may not have the resources
to contribute to a plan or to take on the
administrative responsibilities that come
with maintaining an ERISA plan.
" In some types of organizations, such
ERISA 20%
Non-ERISA 80%
as public schools, " she continues, " a 403(b)
plan is often merely a supplement to a
defined benefit plan. So the school district
may routinely offer a deferral-only 403(b)
to employees and turn most of the administrative
responsibilities over to the investment
providers selected. "
Further, Van Zomeren says, non403(b)
Participants, by Market Segment
Health care/Hospital
50%
K-12 schools
Higher education
19%
16%
Church or religious organizations 6%
Charitable organizations
All other 403(b) segments
ERISA 403(b) plans may be less expensive
to maintain. They have no ERISA
reporting, disclosure or fiduciary requirements
and, on the whole, no nondiscrimination
testing requirements. Of the
latter, she says, a plan's option to include
certain discriminatory provisions might
be helpful. For instance, a church might
want to provide retirement benefits only
to its senior pastor and not be obligated to
contribute on behalf of the support staff.
Before sponsors start adding on provisions,
she has a word of warning, though:
" An employer that becomes too involved
1%
8%
Source: 2022 PLANSPONSOR Recordkeeping Survey
with plan operations or investments for
a non-ERISA 403(b) plan can turn it into
an ERISA 403(b) plan, meaning it then
must follow all of ERISA's provisions and
become subject to the DOL's jurisdiction. "
-Judy Faust Hartnett
4 PLANSPONSOR.COM October - November 2022
http://www.PLANSPONSOR.COM
PLANSPONSOR - October-November 2022

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