Current Thinking

Which Types of 403(b) Plans Are Subject to ERISA?

403(b) plans are commonly used by tax-exempt organizations to provide retirement benefits for their employees. Generally, plans that are established or maintained by private tax-exempt organizations are subject to ERISA (governmental and non-electing church plans are always exempt).

However, there have always been questions about ERISA coverage for plans funded only with employee contributions. In 1979, the DOL issued the Exemption Reg. that provided a safe harbor exemption from Title I of ERISA for certain 403(b) plans. There are four requirements under the safe harbor and all must be met in order to claim an exemption from ERISA:

  • Participation must be voluntary.
  • All rights under the annuity contracts or custodial accounts must be enforceable by the employee or beneficiary (not the employer.)
  • Involvement of the employer must be limited to certain restricted activities.
  • The employer must receive no direct or indirect compensation for maintaining the plan other than a reasonable reimbursement of expenses incurred to operate the plan.


The 401(a)/403(b) plan design is common in the not-for-profit market. When a not-for-profit employer has a 403(b) and a 401(a) plan with employer contributions, the 401(a) plan is subject to the 415 limits, but the 403(b) plan has a separate 415 limit. Funds contributed to 403(b) plan generally do not reduce the 415 limits for the 401(a) and vice versa.

In May, 2012 the DOL issued Advisory Opinion 2012‐02A. This Advisory Opinion discusses any 403(b) plan which is part of a retirement plan design which also include a 401(a) money purchase plan where the employer bases its contributions to the money purchase plan on the employee’s salary deferrals to the 403(b) plan. Certain employers have provided a matching contribution to a qualified 401(a) plan for employee salary reduction contributions to a 403(b) plan. There was serious question as to whether a 403(b) plan could maintain the exemption from ERISA under circumstances where a contribution to a 401(a) plan was conditioned on those employees contributing to the 403(b) plan. With this Advisory
Opinion, the DOL removes all doubt.

The DOL has stated unequivocally that a matching employer contribution to a qualified plan will constitute sufficient employer involvement with the 403(b) plan to disqualify reliance on the safe harbor provided in the regulations. The DOL also noted that such a plan design called into question whether the employee’s participation in the 403(b) plan was completely voluntary-another requirement of the safe harbor.

However, the DOL did state that  “[a] 403(b) plan does not fail to comply with the “safe harbor” merely because the employer maintains a separate plan qualified under Code section 401(a). Nor does compliance with the safe harbor preclude an employer from taking employee participation in the 403(b) plan (including salary reduction contributions) into account in ensuring that employer contributions to the other plan meet tax qualification requirements in the Code.”

About the Author

Regina Montrony

Regina is one of our 403(b) area experts. Acting as liaison between the Plan Sponsor, our recordkeeping provider and advisors, Regina is the point of contact for questions regarding administration and the day-to-day operation of clients’ accounts. Regina also provides technical guidance and support with respect to regulatory and legislative issues impacting the 403(b) plan.


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