ERISA

An important ERISA consideration for plans of private tax-exempt employers is that for sponsors of non-ERISA voluntary-only programs (other than qualifying church plans), the exercise of certain discretionary acts may trigger the requirement to comply with Title I of ERISA. 

Options for ERISA 403(b) plans sponsored by a private tax-exempt entity 
403(b) plan sponsors may choose to maintain the plan under the new guidelines, freeze the plan (i.e., cease all contributions to the plan but continue to update the plan in compliance with the regulations) or terminate the plan and distribute assets in accordance with the requirements of the new regulations.

Maintaining an active or frozen plan  
With the exception of qualifying church plans, any plan in existence on or after January 1, 2009, must maintain a written document even if it is frozen. Generally, this can be a single document or a collection of documents which when taken together, satisfy the plan requirement (while IRS Notice 2009-3 extended the deadline to adopt a written plan, the requirement for the plan to be operated in accordance with applicable law was not extended. Once a written plan is adopted, the sponsor must retroactively fix any defects). The plan must continue to comply with all applicable laws as long as there are plan assets. Such laws include—but are not limited to—withdrawal restrictions, loan limitations, and required minimum distributions. Information sharing agreements will be needed if exchanges will be allowed to providers outside the plan. Participant communication is important for plan compliance. For example, an active plan must meet the universal availability requirements. Also, freezing a plan may entail communication about new retirement planning opportunities in another plan.

Compliance with the laws under 403(b) and Title I of ERISA is essential, and generally administration may be accomplished with either centralized or decentralized administration, or a combination. Beginning with reporting in the 2009 plan year, ERISA compliance will include preparation of financial information for the annual Form 5500 filing, and compliance administration planning should take this into consideration.

Terminating a 403(b) plan 
The final regulations introduced rules enabling a plan sponsor to terminate a 403(b) plan and distribute a plan’s assets, subject to some very important limitations. One is that all plan assets must be distributed within a reasonable period. As a result, before beginning such a termination, it will be important to check with your vendors and your legal counsel to understand which products may be forced out of the plan to participants and which will require participant consent to ensure all assets may be distributed in accordance with requirements of the regulations. One key consideration is that contributions to all 403(b) plans of the employer—not just the terminating plan—must be stopped for a period starting on the termination date and ending 12 months following the date of last distribution. Until all assets are distributed, remember that compliance with all laws must continue and participant communication is needed and any plan in existence on or after January 1, 2009, must maintain a written plan document, even if the plan is subsequently terminated.