(Editor’s Note: Members will be interested to know that NTSA GAC and ASPPA GAC are working their way through the proposed regulations, and will plan to comment as appropriate. Note that the regulations are issued in proposed form only, and, following the comment period, would be finalized. NTSA will keep you in the loop!)
The recently released Department of Labor (DOL) proposed regulations on fiduciary status apply to individuals or organizations giving investment advice to a plan or its participants or beneficiaries. Members have been asking for clarification on which “plans” are covered and, specifically, whether 403(b) plans of public school districts are included.
In the proposed regulation defining a fiduciary, “Plan” is defined as “any employee benefit plan described in section 3(3) of the ACT [ERISA] and any plan described in section 4975(e)(1)(A) of the Code.”
Section 3 of ERISA defines an “employee pension benefit plan” very broadly as any plan, fund, or program maintained by an employer that provides retirement income to employees. Thus, 401(k) plans, pension, profit sharing, defined benefit and other qualified plans are covered. Also included are employer-sponsored IRAs, such as SEPs and SIMPLE IRAs, although not all of ERISA’s requirements apply to these plans.
Section 4 of ERISA, Coverage, stipulates that Title I of ERISA does not apply to “governmental” plans and church plans that do not elect ERISA coverage. So, a 403(b) plan maintained by a public school, community college or state university is exempt from these regulations since they are governmental plans. Governmental 457(b) plans and most church plans are exempt. (Keep in mind, however, that a recommendation to roll over into an IRA will make you a fiduciary regarding the IRA under these proposed rules.) A 403(b) plan sponsored by a not-for-profit organization may be subject to ERISA depending upon the degree of employer involvement, a topic that has been covered in previous MarketBeat articles.
Regulation §2510.3-3(b) also excludes plans without employees such as those that only cover owners and spouses, for example a one participant 401(k) plan.
Under the long-standing rules which govern the relationship between the DOL and the IRS, these regulations apply not only to ERISA plans, but also plans covered under Internal Revenue Code Section 4975(e)(1). The proposed regulations make it clear they apply to:
Note that 403(b) plans are not covered under Code Section 4975.
What this all means is that 403(b) plans of public school districts are not covered by these new regulations, and there is no need to apply the “prohibited transaction” exemptions which were issued with the regulation.
More information on these proposed regulations can be found in the following stories on NTSA Net:
DOL Issues Proposed Rule Prohibiting 'Conflicted Advice'
DOL’s Fiduciary Proposal Preserves Advice — But at What Cost?
Perez Nixes Comment Period Extension
Opinions expressed are those of the author, and do not necessarily reflect the views of NTSA, or its members.
David R. Blask, CPC, TGPC, AIF®, is Senior Pension Consultant, Lincoln Investment Planning.
The recently released Department of Labor (DOL) proposed regulations on fiduciary status apply to individuals or organizations giving investment advice to a plan or its participants or beneficiaries. Members have been asking for clarification on which “plans” are covered and, specifically, whether 403(b) plans of public school districts are included.
In the proposed regulation defining a fiduciary, “Plan” is defined as “any employee benefit plan described in section 3(3) of the ACT [ERISA] and any plan described in section 4975(e)(1)(A) of the Code.”
Section 3 of ERISA defines an “employee pension benefit plan” very broadly as any plan, fund, or program maintained by an employer that provides retirement income to employees. Thus, 401(k) plans, pension, profit sharing, defined benefit and other qualified plans are covered. Also included are employer-sponsored IRAs, such as SEPs and SIMPLE IRAs, although not all of ERISA’s requirements apply to these plans.
Section 4 of ERISA, Coverage, stipulates that Title I of ERISA does not apply to “governmental” plans and church plans that do not elect ERISA coverage. So, a 403(b) plan maintained by a public school, community college or state university is exempt from these regulations since they are governmental plans. Governmental 457(b) plans and most church plans are exempt. (Keep in mind, however, that a recommendation to roll over into an IRA will make you a fiduciary regarding the IRA under these proposed rules.) A 403(b) plan sponsored by a not-for-profit organization may be subject to ERISA depending upon the degree of employer involvement, a topic that has been covered in previous MarketBeat articles.
Regulation §2510.3-3(b) also excludes plans without employees such as those that only cover owners and spouses, for example a one participant 401(k) plan.
Under the long-standing rules which govern the relationship between the DOL and the IRS, these regulations apply not only to ERISA plans, but also plans covered under Internal Revenue Code Section 4975(e)(1). The proposed regulations make it clear they apply to:
- traditional IRAs
- Roth IRAs
- Coverdell education savings accounts
- health savings accounts
- Archer medical savings accounts
Note that 403(b) plans are not covered under Code Section 4975.
What this all means is that 403(b) plans of public school districts are not covered by these new regulations, and there is no need to apply the “prohibited transaction” exemptions which were issued with the regulation.
More information on these proposed regulations can be found in the following stories on NTSA Net:
DOL Issues Proposed Rule Prohibiting 'Conflicted Advice'
DOL’s Fiduciary Proposal Preserves Advice — But at What Cost?
Perez Nixes Comment Period Extension
Opinions expressed are those of the author, and do not necessarily reflect the views of NTSA, or its members.
David R. Blask, CPC, TGPC, AIF®, is Senior Pension Consultant, Lincoln Investment Planning.
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