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EBSA Lets Nonprofits Keep Annuity Plans Out Of ERISA

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The Employee Benefits Security Administration says tax-exempt employers can shut down a 403(b) plan and limit the number of investment options offered without subjecting the plan to the pension plan requirements in Title I of the Employee Retirement Income Security Act.

EBSA, an arm of the U.S. Department of Labor, has published that interpretation of the law in Field Assistance Bulletin 2007-02.

The bulletin deals with 403(b) tax-sheltered annuity plans.

In 1964, the Labor Department created “safe harbor” regulations that enable employers to keep ERISA Title I pension plan rules from applying to 403(b) plans. If employees are the sole source of a 403(b) plan’s funding, the plan can stay outside the scope of the ERISA pension plan rules, according to Robert Doyle, the EBSA official who wrote the field assistance bulletin.

Earlier this month, the department released new 403(b) regulations that make administration of 403(b) plans more flexible.

Because of the new flexibility, determining whether any particular employer has established a plan covered by the ERISA Title I pension rules now requires a case-by-case analysis, Doyle writes in the bulletin.

Terminating a 403(b) plan and using a single document to coordinate the efforts of various annuity providers and plan trustees or custodians would not put the plan out of compliance with the safe harbor, Doyle writes.

In addition, a 403(b) plan will not, in the Labor Department’s view, come under ERISA Title I pension plan rules “merely because the written plan conforms to the new 403(b) regulations by limiting employees to exchanges of contract funds only among providers who have adopted the written plan, or transfers from the program of a former employer to that of the current employer,” Doyle writes.

Employers must allow annuity providers to offer plan members a reasonable choice of products, but it can put a reasonable limit on the number of providers, Doyle writes.


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