Ask the Experts April 30, 2024

Can Employees in Canada Benefit from a 403(b) Plan?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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Q: We are a denominational church that sponsors a 403(b) plan. We have an increasing number of employees who are Canadian citizens who live and work in Canada. Could we sponsor a 403(b) plan for such employees?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

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A: The tax deferral advantages of 403(b) plan for U.S. Citizens would not apply to Canadian citizens working in Canada. Therefore, you would not want to provide a 403(b) plan to these employees. Typically, churches provide after-tax retirement arrangements. However, there are retirement plans that can be provided to Canadian employees working in Canada that offer tax advantages under Canadian law.

One such plan is a registered retirement savings plan, known as an RRSP, which is similar to an American individual retirement account, or IRA, under U.S. federal law. You should contact a Canadian attorney with retirement plan expertise to discuss options for your Canadian employees.

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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Compliance April 29, 2024

How Does the DOL’s Independent Contractor Rule Affect Plan Eligibility?

401(k) and 403(b) plans should review plan documents and independent contractor processes.

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The Department of Labor’s final rule on employee classification, finalized in January, could change which workers are eligible to join a retirement plan.

The rule requires employers to use six criteria, with equal weighting, when determining if a worker is an independent contractor or an employee:

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  • The worker’s opportunity for profit or loss
  • Relative investment between employer and worker
  • The degree of permanence of the relationship
  • The worker’s level of control over pricing and hours, among other things
  • How integral the work is to the employer’s business
  • The level of skill and initiative required on the part of the worker

This framework makes it harder to classify workers as independent contractors and as a result can lead to more of them being classified as employees.

According to David Levine, a principal at Groom Law Group, independent contractors are eligible to join 457 plans but are not eligible to join 401(k)s or 403(b)s. There is an exception, however, for self-employed ministers, who may join 403(b) church plans.

Levine says that “plan sponsors should certainly evaluate how independent contractors may be treated under the new rules.” He added that “many plans have language about individuals who are not classified as employees not being eligible even if reclassified,” as a categorical exception.

Levine recommends plans conduct a review of “independent contractor process and plan language,” and consult with their plan counsel on which workers might become eligible.

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