Compliance March 30, 2010

ASPPA Asks for Relief for Plans Falling out of ERISA Safe Harbor

The American Society for Pension Professionals and Actuaries (ASPPA) has requested transitional relief for 501(c)(3) organizations offering 403(b) plans that have found themselves inadvertently subject to Title I of ERISA.
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In a letter to the Department of Labor, ASPPA claims the department’s efforts in FAB 2010-01 (see “EBSA Offers Form 5500 Guidance for 403(b) Plans”) to provide guidance on the manner in which the exemption from Title I coverage provided by the “safe harbor” found in ERISA created a number of transitional problems for many 501(c)(3) organizations which offer 403(b) arrangements, particularly smaller ones. ASPPA noted that new 403(b) regulations dramatically shifted the responsibilities under the Internal Revenue Code for employers sponsoring 403(b) plans, and as a result, many organizations, acting in good faith, adopted practices or took actions which now appear to violate the “limited involvement” safe harbor.     

Specifically, ASPPA said three crucial changes made by the new IRS 403(b) regulations (and related guidance) have exacerbated the Title I problems:

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  • new rules that no longer allow plan administration to be based simply on an employee’s representation(s);
  • the requirement that a 403(b) arrangement be evidenced by written documentation containing the salient features of the plan, including a so-called “Memorandum of Understanding,” which details the allocation of responsibilities for administering the plan (including discretionary determinations) among the employer; and
  • the requirement that a compliant plan document be adopted in a relatively short time frame, giving sponsors insufficient time to consider the plan provisions which impact qualification for the safe harbor exemption.

ASPPA recommends that employers who have become subject to ERISA due to attempts to comply with new regulations should be permitted to stay within the “limited involvement” safe harbor exemption by taking remedial action ASPPA describes in the letter. Affected employers who are willing to forgo the safe harbor exemption should be permitted to retroactively correct any reporting, disclosure, or other ERISA violation without penalty if all actions are completed within a suggested “correction period,” ASPPA said.      

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