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Governing Documentation (Plan Documentation)  

Several non-ERISA plan considerations can be very important.  First, these plans are required to comply with applicable requirements of the Code but not ERISA.  When considering a document provided by a third party it is important to confirm that the document does not impose inapplicable ERISA requirements.

Additionally, non-ERISA plans of public employers can be governed significantly by applicable state and local laws and regulations.  Those laws and regulations generally are, and should be, considered a part of the plan.  And the plan generally will need to address any conflicts, particularly if the governing laws or regulations do not make an exception for such conflicts.

Non-ERISA retirement plans of private employers generally fall into a few specific categories, including:

  • Self-employed plans: these generally follow the same document process as other non-ERISA plans;
  • 403(b) plans: these have a few important and unique considerations, described below, under plan-specific considerations; and,
  • Unfunded deferred compensation plans: these often require a filing with the Department of Labor.

Specific Plan Considerations

  • 403(b) plans: Several unique considerations apply to these plans.
    • Although ERISA 403(b) plans have always been subject to an ERISA requirement to be maintained pursuant to a written plan, 403(b) plans generally first became subject to such a requirement under the final Treasury regulations issued in 2007.  Thus, until 2009/2010 many non-ERISA 403(b) plans did not have a written plan.
    • Additionally, as part of that regulatory transition, certain older 403(b) annuity contracts and custodial accounts were eligible for exclusion from the scope of the written plan under grandfathering or similar rules relating to Code and/or ERISA requirements.
    • Also as a part of that regulatory transition, the IRS issued model language that could be used by any 403(b) plan sponsors.  Public schools (including higher education) that used that language could obtain reliance for those portions of its written plan, much the same as if they had adopted a pre-approved plan.
    • Qualifying church plans that are not funded with a retirement income account (see “Eligible Investments”) are not required to have a written plan unless they affirmatively elect for Title I of ERISA to apply to the plan.
    • ERISA safe-harbor 403(b) plans maintained by private tax exempt plan sponsors can be exempt from ERISA provided that they satisfy key requirements for the safe-harbor.  Those key requirements generally include:
      -    Limiting contributions to voluntary employee deferrals; and,
      -    Limiting employer involvement in the plan, generally to those areas necessary for plan compliance.
    • While a written plan is generally permissible for these ERISA safe harbor plans, the level of employer control under such a document is generally very limited.  For example, such plans can permit the employer to design the plan and to provide factual information to the investment provider. It would not permit the employer to approve hardship withdrawals or make other similar discretionary determinations, or engage a third party other than the investment provider to do so, but rather would look to each investment provider to do so.
  • 457(b) Plans: The requirements for these plans are generally determined based on the type of employer.  Thus:
    • A public employer’s 457(b) plan must be a funded plan, and participants have considerable flexibility in taking their plan distributions once they qualify for distributions.
    • A private tax-exempt employer’s 457(b) plan must be an unfunded plan, with assets subject to the claims of the employer’s creditors.  However it can be funded with an arrangement intended to minimize the risk of the employer using the assets for other purposes (not including bankruptcy).  This arrangement is often referred to as a “rabbi trust,” having first been approved by the IRS in guidance issued to a rabbi.