Does ERISA expressly exclude 403(b) tax sheltered annuities from ERISA coverage?

For purposes of ERISA, a program for the purchase of an annuity contract or the establishment of a custodial account as described under IRC Section 403(b), pursuant to salary reduction agreements or agreements to forgo an increase in salary and which satisfies the requirements of treasury regulations under Section 403(b), will not be considered “established or maintained by an employer” as that term is used in the definition of the terms “employee pension benefit plan” and “pension plan” if:  

1.    Participation is completely voluntary for employees; 

2.    All rights under the annuity contract or custodial account are enforceable solely by the employee, by a beneficiary of such employee, or any authorized representative of such employee or beneficiary;  

3.    The sole involvement of the employer is limited to any of the following:  

a.    permitting annuity contractors to publicize their products to employees,  

b.    requesting information concerning proposed funding media, products, or annuity contractors, 

 c.    summarizing or otherwise compiling the information provided with respect to the proposed funding media or products that are made available, or the annuity contractors whose services are provided, in order to facilitate review and analysis by the employees,  

d.    collecting annuity or custodial account considerations as required by salary reduction agreements or by agreements to forgo salary increases, remitting such considerations to annuity contractors, and maintaining records of such considerations,  

e.    holding in the employer’s name one or more group annuity contracts covering its employees, and 

f.    limiting the funding media or products available to employees, or the annuity contractors who may approach employees, to a number and selection that is designed to afford employees a reasonable choice in light of all relevant circumstances; and  

4.    The employer receives no direct or indirect consideration or compensation in cash or otherwise other than reasonable compensation to cover expenses properly and actually incurred by the employer

What type of group or group-type insurance programs are expressly excluded from ERISA coverage?

For purposes of ERISA coverage, the term “employee welfare benefit plan” does not include a group or group-type employee pay-all insurance program offered by an insurer to employees or members of an employee organization, under which:  

1.    No contributions are made by the employer or employee organization;  

2.    Participation in the program is completely voluntary for employees or members;  

3.    The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs, and to remit them to the insurer; and  

4.    The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.  

A U.S. District Court in Florida ruled that a disability plan originally maintained by an employer remains subject to the provisions of ERISA even after it becomes an employee pay-all welfare benefit arrangement.  

Such employers who pay all of an insurance program may, unintentionally, find themselves subject to ERISA where the employer or employee organization that has offered the program inadvertently endorses it (e.g., advising employees that the program offers a “valuable” extension of existing insurance coverage, or the marketing pamphlets for the program contain the employer or employee organization’s logos). 

What welfare benefit plans are not subject to ERISA?

The following welfare benefit arrangements are not subject to the general fiduciary provisions of ERISA:  

1.    Payroll practices that are established by an employer and that provide for payment by an employer to employees on account of overtime pay, shift premiums, holiday premiums or weekend premiums, sick pay, vacation pay, jury duty pay, and pay while on leave for military service;  

2.    The maintenance of on-premises facilities such as recreation, dining, or medical/first aid for the treatment of work-related injuries or illness occurring during normal work hours, or other facilities (excluding day care centers) for use by employees;

3.    Programs for the provision of holiday gifts such as turkeys or hams;

4.    Sales to employees of articles or commodities (whether or not they are offered at below-market prices) of the kind the employer offers for sale in the regular course of business;

5.    Hiring halls maintained by one or more employers, employee organizations, or both;

6.    Remembrance funds under which contributions are made to provide remembrances such as flowers, small gifts, or obituary notices on occasion of the illness, hospitalization, or death of an employee;

7.    Strike funds maintained by an employee organization to provide payment to its members during strikes and for related purposes;

8.    Industry advancement programs that have no employee participants and do not provide benefits, regardless of whether the program serves as a conduit through which funds or other assets are channeled to employee benefit plans subject to ERISA; and  

9.    Unfunded scholarship programs, including tuition and education reimbursement programs, under which payments are made solely from the general assets of an employer or employee organization

Which employee benefit plans does ERISA expressly exclude from coverage?

ERISA Section 4(b) establishes that the provisions of ERISA do not apply to any employee benefit plan if:  

1.    The plan is a governmental plan (as defined under ERISA Section 3(32));  

2.    It is a church plan (as defined in ERISA Section 3(33)) that has not made an IRC Section 410(d) election to have participation, funding, and vesting provisions apply;  

3.    It is maintained solely for the purpose of complying with applicable workers’ compensation laws or unemployment compensation laws or disability insurance laws;  

4.    It is maintained outside the United States primarily for the benefit of persons substantially all of whom are nonresident aliens; or  

5.    The plan is an unfunded excess benefit plan (as described under ERISA Section 3(36), which provides benefits for certain employees in excess of the limitations on contributions and benefits imposed by IRC Section 415). 

Family Caregiver, Maternal, and Paternal Leave

The Family and Medical Leave Act allows certain employees to take up to 12 weeks of unprotected, unpaid leave per year. This can be expanded upon by the state or the employer. The employer will continue to pay the employer-paid portion of your health premium (you may have to continue paying your portion of the premium during the leave). Upon returning from leave, you must be restored to the same job or an equivalent job. This means that, the leave does not guarantee that the actual job you held prior to going on leave will still be available and yours upon your return. However, you should get a job that is virtually identical in terms of pay, benefits, and other employment terms and conditions, including shift, location, and overtime. You should also be able to get any unconditional pay increases that occurred while you were on leave, such as cost-of-living increases. 

The Family Medical Leave Act allows you to take time off at any time during your pregnancy or even after childbirth within one year of your child’s birth. You may be able to take leave as a mother before and after having or adopting a baby, which is called maternity or pregnancy leave. Paternity leave for fathers is less common but is available at some firms. 

If enough leave is not provided by your employer, you may be able to negotiate for more leave or negotiate to work from home or on a flex schedule to better suit your adjustment to life with a new child.

Key Considerations and Regulations of Military Leave

Keep in mind that to get these military leave benefits, you must follow all applicable rules (including giving notice for the need to leave for military service). You must also be released from service under honorable conditions, and you must not exceed five years of military leave with any one employer (with some exceptions, such as annual training and monthly drills; these do not count against the cumulative total). The five-year limit does not include active duty training, annual training, involuntary recall to active duty, involuntary retention on active duty, voluntary or involuntary active duty in support of war, national emergencies, or certain operational missions.

There are also benefits for military caregivers. Military caregiver leave entitles an eligible employee who is the spouse, son, daughter, parent, or next of kin of a covered service member to take up to 26 work weeks of leave in a 12-month period to care for a covered service member with a serious injury or illness.

It’s important to note that you’ll have to report back to your civilian job in a timely manner and submit a timely application for employment. This timeliness depends on how long you were deployed for, so it’s important to keep track of all the rules and check off every box on your way back into civilian life.  Some other key considerations to keep in mind include the following:

• Make sure you thoroughly read through anything your employer has you sign since you may be signing something that waives some of your legal entitlements.  

• You must report back to your civilian job by the appropriate deadline, which can range from eight hours to 90 days depending on the length of service.  

• Military leave coverage may vary for National Guard members performing state service rather than federal service for deployment. 

Potential Risks of Military Leave

It is important to know which work benefits will be put on hold and what will stay in place. Don’t assume that disability insurance, life insurance, or any other benefits will stay in place while you are on leave, whether you are receiving pay from the employer, working part time for the employer, or just on leave. It is important to talk to your HR department so you know in advance what benefits will stay and what will disappear while you are gone.  

Generally, employers don’t have to pay the cost of health insurance if you’re on military leave unless you’re on leave for less than 31 days. For longer leaves, you may have COBRA rights, which may require you to pay the full cost of your participation in your employer’s health plan. If there are any lapses in paying any of the employer health insurance money due, you may find that even though your employer agreed to pay health insurance while you are on leave, your health insurance lapses and you are pushed onto a COBRA. So, it’s very important to keep up with all necessary payments because you may need to write checks for the coverage since you are not receiving paychecks from your employer, which would otherwise withhold pay and send medical insurance premiums to the insurer.  

If you have an FSA, you may find yourself in a position in which the Heroes Earnings Assistance and Relief Act (HEART) of 2008 (H.R. 6081) waives the “use it or lose it” clause of the FSA program. It’s important to know whether you will need to spend down any of this money for any given period and what happens to this money if something happens to you during deployment so all contingencies can be planned for.  

For dependent care reimbursement accounts, remember that you will have to maintain eligibility to use this money; otherwise, the money will no longer be available. For instance, if the spouse who is not deployed quits their job, the family may no longer be eligible for their dependent care reimbursement account. 

Potential Advantages of Military Leave

You are not required to use your vacation pay while on military leave like you may be required to for general leave. It may be worth thinking about using your vacation pay during the leave time to use optimal tax planning strategies and to provide additional income you may not otherwise realize if you do not return to your employer. For example, since pay while you’re deployed isn’t taxable, using your PTO first means you get paid tax free, and you can then take unpaid leave in another year to lower a second year’s taxes. This strategy is better than having to pay taxes for your PTO days and being in a higher tax bracket than necessary the following year. Any time when you are deployed and not paying taxes on ordinary income may also be a prime time to convert some of your retirement plan money into Roth IRA money.

Keep in mind that leave provided by the government is unpaid leave, so the employer may choose to provide some pay during your absence. Under certain cases, if you perform work for the employer while you are on military leave, you must be paid your full salary from the employer minus any military pay. Unpaid leave is required in some amount for certain employees. However, some companies may opt to cover non-required employees during leave, have extended leave, or provide a combination of these two solutions.

While deployed, the military provides its own benefit of allowing you to put up to $10,000 into a savings account, giving you a guaranteed interest rate of around 10% during the deployment period. It is generally worthwhile to maximize your contributions to this plan.

As long as you continue your health coverage, the full amount of your FSA, minus any prior expenses for the year, must be available to you at all times during your leave period. However, if your coverage under the health plan terminates while you are on leave, you are no longer entitled to receive reimbursement for claims during the period in which the coverage was terminated.

Military members returning from military leave who have defined contribution retirement plans must be given three times the period of their leave of absence, as long as it’s not greater than five years, to make up for any contributions missed during the leave period. This can be very beneficial in terms of allowing the military personnel to overcontribute to a deductible 401(k) plan, thus lowering their taxes for the years following the return from deployment.

It’s worth keeping four other potential advantages in mind:

• Your state may have greater protections than federal law, so it’s important to look at not only federal law but also what your state has passed to protect you before going on military leave.  
• For pension purposes, returning service members must be treated as if they have been continuously employed for purposes of participation vesting in accrual of benefits.  
• You may be able to take leave to care for yourself or certain family members (e.g., parents, relatives, or even non-relatives depending on your employer). 

Over-50 Catch-Up Contributions

For those who will reach age 50 before the year’s end, the limit on the amount you may contribute to a 403(b), 401(k), or 457 account increases by $6,000. This boosts the individual contribution limit from $18,500 to $24,500. 

General Breakdown of 401(k)s, 403(b)s, and 457 Plans 
When it comes to comparing 401(k)s, 403(b)s, and 457 plans, there are many similarities and few differences. The similarities include: 

• $18,500 contribution limit (2018);
• $6,000 over-50 catch-up contribution; 
• Risk of investing falls on employee; 
• Withdrawals taxed as ordinary income; and 
• Amounts deferred on a pre-tax basis. 

 The major differences include: 

• 403(b)s and 457s have additional catch-up deferrals, as discussed above; 

• 401(k)s are open to most employers, 403(b)s are open to tax-exempt and non-profit organizations, and 457s are open to state/local governments and some non-profit organizations; and  
• 457 plans may not be subject to early withdrawal penalties like 403(b)s and 401(k)s. 

Mingling Contributions Among 401(k)s, 403(b)s, and 457 Plans

If you have a 401(k) and a 403(b), the maximum amount you can contribute to both accounts combined is $18,500 (2018). If you have a combination of a 401(k) and/or a 403(b) paired with a 457 plan, the maximum you can contribute combined is $37,000: $18,500 to the 401(k) and/or 403(b) and $18,500 to the 457. Plus, you can make any catch-up contributions allowed. The money you save into each account should be in order of employer matching with the employer plan that matches you at the highest rate first, until the match is completely maximized; then the money should flow to the account with the second-best matching and so on until you have contributed your overall maximum contribution to all plans.