On May 25, 2012, the Department of Labor (DOL) issued Advisory Opinion 2012-02a, which discusses Section 403(b) plans that are linked to a Section 401(a) plans in that, when an employee makes salary deferrals into the Section 403(b) plan, the employer makes a matching contributions into a Section 401(a) plan.
Generally, a Section 403(b) plan established by a non-governmental tax-exempt organization is a pension plan subject to the requirements of Title I of the Employee Retirement Income Security Act of 1974 (ERISA). (Government and church plans are generally excluded from coverage under Title I of ERISA.) In the case of Section 403(b) plans funded entirely with employee salary deferrals, the DOL issued, in 1979, what is commonly referred to as the “safe harbor” regulation (29 C.F.R. 2510.3-2(f)), which exempts Section 403(b) plans from Title I of ERISA if they meet four requirements. These requirements are: (1) participation of employees is completely voluntary; (2) all rights under the annuity contract or custodial account are enforceable solely by the employee or beneficiary of such employee, or by an authorized representative of such employee or beneficiary; (3) the involvement of the employer is limited to certain specific activities, for example summarizing information for employees and collecting and remitting employee contributions; and (4) the employer receives no direct or indirect consideration or compensation, in cash or otherwise, other than reasonable reimbursement to cover expenses properly and actually incurred in performing the employer’s duties pursuant to the salary reduction agreements.
The Advisory Opinion indicates that, if an employer organization conditions its employer contributions to a Section 401(a) plan on the employee making salary reduction contributions to a Section 403(b) plan, the exemption will not apply, for two reasons. First, the employer involvement would be too broad for the third requirement above to be met. Secondly, participation would no longer be completely voluntary, and the first requirement above would not be met.
Thus, using a 401(a) plan to receive an employer’s matching contributions for an employee’s salary reduction contributions to a Section 403(b) plan will constitute sufficient employer involvement with the Section 403(b) plan to disqualify reliance on the “safe harbor” regulation.