In Advisory Opinion 2012-02A, the U.S. Department of Labor (the “DOL”) discusses whether the exclusion of a 403(b) plan from coverage under ERISA, by the DOL’s regulation at 29 C.F.R. 2510.3-2(f), would be adversely affected if the employer also maintains a qualified money purchase plan to which the employer makes contributions based on the employee’s salary deferrals to the 403(b) plan.
A 403(b) plan would normally be covered by ERISA. However, a “safe harbor” regulation, at 29 C.F.R. 2510.3-2(f), prevents coverage for a 403(b) plan funded solely by salary reduction contributions, if the following four conditions are met: (1) participation of employees is completely voluntary, (2) all rights under the plan are enforceable solely by the employee, (3) the involvement of the employer is limited to certain specified activities, and (4) the employer receives no direct or indirect compensation, other than reasonable reimbursement to cover expenses incurred in performing its duties under the agreements by which the salary reduction contributions are made.
The DOL said that a 403(b) plan does not fail to comply with the “safe harbor” merely because the employer maintains a separate qualified retirement plan and takes employee participation in the 403(b) plan (including salary reduction contributions) into account in ensuring that employer contributions to the qualified retirement plan meet the tax qualification requirements in the Internal Revenue Code. However, the DOL further said that conditioning employer contributions to the qualified retirement plan on the employee making salary reduction contributions to the 403(b) plan would be inconsistent with the limited employer involvement permitted by condition (3) of the safe harbor, and would also conflict with the requirement in condition (1) of the safe harbor that employee participation in the 403(b) plan be completely voluntary. That is, so conditioning the employer contributions to the qualified retirement plan would probably make the safe harbor inapplicable to the 403(b) plan.