Ask the Experts July 24, 2012

(b)lines Ask the Experts – Maintaining ERISA 403(b) Alongside non-ERISA 403(b)

July 24, 2012 (PLANSPONSOR (b)lines) – “A private 501(c)(3) with whom I work maintains an ERISA 403(b) plan. Currently the plan has no employer contributions, only elective deferrals, but the plan did have employer contributions in the past, so unfortunately the sponsor is subject to all of the requirements of both Code and ERISA, including an audit for annual reporting purposes.
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“The entity knows that it will have this obligation until there are no longer any assets in the existing plan, but they at least want to start afresh with a non-ERISA elective deferral-only plan that satisfies the requirements under DOL regulation 29 CFR 2510.3-2(f), that limit an employer’s involvement in such arrangements. I know that in a recent Ask the Expert column you stated that there was a recent DOL Advisory Opinion that subjected an elective-deferral-only plan to ERISA if deferrals were matched in the ERISA plan, but here there will be no connection between the ERISA and Non-ERISA plans.    

“Can a non-ERISA plan be maintained alongside an ERISA plan in this fashion?”    

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Michael A. Webb, vice president, Retirement Plan Services, Cammack LaRhette Consulting, answered:  

Excellent question! There is not a tremendous amount of DOL/EBSA guidance addressing the issue of operating 403(b) ERISA plans alongside non-ERISA plans in general. The Advisory Opinion you cited (see “Ask the Experts: No Safe Harbor If 401(a) Match Tied to 403(b)”) refers to a match of a 403(b) elective deferral to a 401(a) plan, but does not address the general issue of whether a non-ERISA and ERISA plan can be maintained alongside one another. However, in the absence of any DOL guidance to the contrary, it would appear that a plan sponsor could freeze an existing ERISA 403(b) plan and establish a 403(b) plan that is ERISA-exempt and satisfies the minimal involvement requirements of 29 CFR 2510.3-2(f) and that the plans are not linked in any way.    

The problem is that it has become more difficult for plan sponsors to satisfy the requirements of 29 CFR 2510.3-2(f) as plan sponsors struggle with making certain that they satisfy the final 403(b) regulations without exercising the type of discretion that would cause the plan to become subject to ERISA. The DOL has provided some important guidance in this regard in the form of Field Assistance Bulletin 2010-01 (http://www.dol.gov/ebsa/regs/fab2010-1.html) which provided some examples of how careful plan sponsors must be in order to satisfy the ERISA exemption. For example, if the plan sponsor in your situation uses one vendor for its ERISA plan, it would likely not be able to use that same single vendor for non-ERISA plan without triggering ERISA coverage; indeed, the use of ANY single vendor (as opposed to multiple vendors) for the non-ERISA plan may prove to be problematic. In addition, applicable support staff at the plan sponsor need to trained as to the plan differences so that they do not inadvertently trigger ERISA coverage. For example, hardship distributions may be approved by a plan sponsor in an ERISA plan, but not in an ERISA-exempt plan, and it can be difficult for staff to be required to remember two sets of rules continuously so that errors are not made.    

Thus, though it is possible for a plan sponsor to operate ERISA and non-ERISA 403(b) plans “under one roof”, it clearly requires special effort to do so. 

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. 

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Administration July 23, 2012

Half of Those with a Financial Plan on Track to Meet Goals

July 23, 2012 (PLANSPONSOR.com) - Half of individuals who have a financial plan are on track to meet their goals, according to a survey of 1,500 financial decision makers.  
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Planning makes all the difference in helping people manage their money for long-term goals, the Certified Financial Planner Board (CFP Board) and Consumer Federation of America (CFA) found in a survey. For those without a plan, only 32% said they are on pace to meet their goals.

“In all income classes, those with a financial plan had much greater financial confidence and security,” Stephen Brobeck, CFA executive director, told a press conference Monday. “Those with a plan are more confident about managing money and have more effectiveness with achieving financial goals, in addition to greater annual savings and net wealth.”

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Kevin R. Keller, chief executive of the CFP Board, added: “Those who plan do better and feel better than those who do not. Whether rich or poor or middle class, the benefits of financial planning are not only for the rich, but are universal. Our job is to educate consumer that there is something they can proactively do, even in difficult economic times and even if they are not rich.”

Other key findings on those who have devised a personal financial plan:

  • 52% feel “very confident” about managing money, savings and investments, compared with 30% without a plan.
  • 48% say they are living comfortably, compared with 22% without a plan.
  • Among those earning between $50,000 and $99,999 a year, 57% of planners are saving 10% or more of their income, versus 39% of those in that income bracket without a plan.
  • Among those earning $25,000 to $49,999, 46% of planners pay the entire balance on their credit card bills each month, compared with 26% of non-planners in that income bracket.

Comparing figures from a CFA-NationsBank survey conducted in 1997, the Consumer Federation found a deterioration, nonetheless, in investors’ confidence about their financial future, with only 34% expecting to retire before age 65, down from 50% 15 years ago. Similarly, 51% feel behind on their retirement savings today, down from 38%, and only 48% are saving for their children’s higher education, down from 56% in 1997.

“While many Americans would require not to develop a personal financial plan because it requires one to think seriously about one’s finances—many Americans would prefer not to—it can only improve one’s financial confidence and security,” Brobeck said.

To this end, the CFP Board has an investor website, letsmakeaplan.org, where investors can vet financial advisers’ records and find a list of recommended questions to ask a prospective adviser, as well as red flags.

Keller said the CFA defines a comprehensive financial plan as one that covers “savings and investments, retirement, college, an emergency fund and other financial goals and insurance needs.” Asked what a comprehensive financial plan should cost, Brobeck said that it is all over the map. However, he added, “There are options for middle Americans, ranging from financial planners to other professionals, such as credit and housing counselors, for households with a great deal of debt.”

Lee Barney 

 

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