A 403(b) plan is a type of retirement plan that allows participating employees to make pre-tax contributions. Also called a tax-sheltered annuity or TSA plan, 403(b)s are generally offered to employees of public schools and certain tax-exempt organizations, like churches or government organizations. Plan fiduciaries of 403(b) plans face some unique challenges and making mistakes can expose these fiduciaries to liability. Following 403(b) fiduciary best practices can help reduce the risk of lawsuits and avoid ERISA compliance violations.
ERISA 403(b) or Non-ERISA 403(b)
One of the issues fiduciaries have to deal with depends on whether the plan at issue is subject to the Employee Retirement Income Security Act of 1974 (ERISA). ERISA applies to most private-sector employer retirement plans, like 401(k)s, pensions, and profit-sharing plans. Most 403(b) plans are not subject to ERISA; however, some 501(c)(3) organizations with a 403(b) plan may inadvertently fall under ERISA regulations.
Plan sponsors, employers, and fiduciaries who want to maintain ERISA exemptions can look to the Department of Labor safe harbor guidance for non-ERISA 403(b)s. This includes:
- Employee participation in a 403(b) plan is voluntary;
- Employers cannot make contributions to the 403(b) plan;
- Employers can only have limited involvement in administration of the plan;
- Employers cannot select the plan vendor; and
- Employers cannot be compensated beyond reasonable expenses related to employer's duties under the contracts.
403(b) Offered to All Employees
The “universal availability rule” generally means that if an employer allows one employee to participate in a 403(b) plan, the employer must allow all employees to participate. However, there are certain exclusions for employees who participate in other employer retirement plans, some part-time employees, employees who contribute $200 or less per year, and other limited exclusions.
Loans on 403(b)s and Loan Payments
Employers generally have discretion whether to allow loans from a participant's 403(b). If the employer does allow a loan, there are restrictions based on whether or not the plan is subject to ERISA.
California Fiduciary Laws for 403(b) Sponsors
Just because a plan fiduciary can avoid ERISA's fiduciary restrictions does not mean they are free of fiduciary compliance. A 403(b) plan is still subject to IRS requirements (including the requirement to have a plan document), as well as state fiduciary laws.
San Diego ERISA Litigation Attorneys
Plan sponsors of both ERISA and non-ERISA 403(b)s should talk to their experienced San Diego employee benefit law attorneys to ensure they are keeping with 403(b) best practices to avoid potential fiduciary litigation. If you have any questions about fiduciary best practices for your 403(b) or other retirement plans, the law firm of Butterfield Schechter LLP is here to help. We are San Diego County's largest law firm with a focus on employee benefits law. Contact our office today with any questions on how we can help you and your business succeed.
