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Employer Liability for 403(b) Violations

Q. An employer (school district) elects to change from a multi-vendor 403(b) platform to a single vendor. The employer allows employees hired before Aug. 1, 2014 to continue contributions to deselected vendors, but employees who start after that date can only participate in the single-vendor option.

Transfers between vendors (like-to-like) are allowed, but only if going to the single-provider solution. The single vendor is also a pseudo-administrator of the plan, but the employer still signs off on some things (name changes, beneficiary changes as well as all loan/hardship withdrawals with one of the deselected vendors). 

Since the employer is still responsible for some oversight of the plan as the pseudo TPA doesn't offer all services, does that expose the employer to potential risk of liability for violating some of the 403(b) regulations?

A. The employer is still responsible for complying with the 403(b) regulations since the accounts held with former providers remain a part of the employer’s plan. If the TPA is not providing compliance support for the orphan accounts, then, it will be the employer's responsibility to determine eligibility and authorize — or not authorize — requested transactions.

06/16/2015

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