403(b) Plan: ERISA or Not ERISA?

Q. What does it take for a 403(b) plan to not be covered by ERISA? 

A. In certain circumstances, a 403(b) plan that meets certain criteria may qualify for a safe harbor exemption and therefore not be subject to ERISA. 
In order to fall under what the Government Accountability Office refers to as the “Limited Employer Involvement safe harbor,” employer involvement in the plan must be limited as described in DOL regulations. 

For example, to qualify for the safe harbor, employers cannot contribute to the plan or make discretionary determinations in administering the plan, such as:

• processing distributions;
• authorizing plan-to-plan transfers; and 
• making determinations of eligibility for loans or hardship distributions.

Not only that, participant involvement in the plan must be voluntary (i.e., participants elect to participate in the plan, instead of being automatically enrolled by the employer).

The best available data sources, while not directly comparable, seem to indicate that ERISA 403(b) plans tend to be the sole or primary plan offered by an employer, while non-ERISA plans are mostly supplemental to another retirement savings plan offered by an employer.