The DOL issued its highly anticipated 403(b) Frequently Asked Questions as part of a Field Assistance Bulletin, FAB 2010-01.  The seriousness in which the DOL is taking these 403(b) issues is reflected in the fact that it was issued as a FAB, and not merely the sort of informal guidance offered by a simple FAQ.  As one DOL staffer mentioned to me, though a FAB nay not have a whole lot more legal weight than an FAQ, it does speak to the weight the DOL is giving to the matters at hand.

There are now three DOL 403(b) FABs: 2007-2; 2009-2 and 2010-1.  The three of these should be read together when seeking answers, as they constitute substantial regulatory guidance.

This new FAQ was really designed to give plans and accountants some reporting and disclosure guidance as they attempt to put together their first, full fledged 403(b) Form 5500s, though it does also touch upon important ERISA coverage issues. It does not directly speak to some of the more pressing substantive 403(b) Title 1 issues (such as , what the heck is a 403(b) plan asset?), but it does say some interesting things. Hidden in the mundane, though, are quirks, gems and quirky gems-with a touch of the controversial. Lets sample a few:


  • Q12.  Yes, I am listing this one out of order because this is a High Quality Gem (according to Mr.Giller, there is no specific rating system for gems outside of diamonds, or I would use it here). The DOL extended its discussion of "good faith efforts" in applying the FAB 2009-2 exemptions. It specifically here recognizes that some "non 2009-2 exempted" contracts may not be able to be found. As long as the plan can demonstrate and document a good faith effort to find those contracts, and as long as "the guiding principle must be to ensure that appropriate efforts are made to act reasonably, prudently, and in the interest of the plan’s participants and beneficiaries"  (this is language from 2009-2),  the exclusion of these "non-findable/non-exemptable" contracts will not cause the 5500 to be rejected. Now, to convince your auditor to do cooperate will be something else-its that GAAP thing.
  • Q3.  Knowing where the contract is, and who issued it, does not disqualify it from being excludable under 2009-2.
  • Q11.  The DOL verified that 2009-2 extends beyond the 2009 reporting year.
  • Q13. Cool. The DOL recognized the problem with the last payroll we have always had in 403(b) plans (and, to some extent 401(k) plans), particularly in with regard to testing 402(g) limits and, in the past, running MEAs:   making a deposit in 2009 from the last payroll in 2008 will not take the contract out of 2009-2.


  • Q2. In a question designed to answer the question of whether loan repayments forwarded to a vendor by an employer on a contract that otherwise qualifies under 2009-2 for reporting relief takes the contract out of 2009-2 (the answer is yes), an interesting question is raised. Many 403(b) loans are "self-billed", that is, they are paid directly by the plan participant to the vendor.  In a contract that is NOT exempted by 2009-2, do these payments need to be reported on the 5500? If so, what line would you use on Schedules H or I?
  • Q6.  Okay guys, quit teasing us. You used that term again, "plan asset," but just in the context of what a "plan asset" isn’t for the 2009-2 reporting purposes. We really need to know how the plan asset rules  apply in the individual contract context  for other minor  purposes, like fiduciary obligations. Please?
  • Q14. There are two alternative conditions to allowing the applicability of 2009-2,where the employer decides to allow or not allow an optional plan feature (like loans):  a cost basis, that is, including or excluding would serve to increase plan costs; or where including the option could require the use of employer discretion in its execution. 
  • Q15.  The DOL reiterated and affirmed its public stance that an employer hiring a TPA to make discretionary decisions is the same thing as exercising discretion, and cause the plan to fall out of the ERISA 403(b) safe harbor. The employer may, however, allow the purchase of a product where the product vendor exercises discretion without violating the safe harbor. This has the odd effect of allowing the vendor to subcontract out discretion to the same TPA that an employer could not.  In spite of its quirkiness, I believe (and there those who I respect which disagree) the reasoning for this is soundly based.


  • Q7. The DOL giveth, and the DOL taketh away.  It affirms that the right to determine whether any contract is exempted under 2009-2 is reserved to the Plan Administrator. BUT, it also introduces a new "ratting clause" (which is the term I also use to describe the obligation on Schedules A and C to report non-cooperative vendors): If the plan auditor doesn’t agree with the employer, the auditor must note it in the audit report. I have had far too many disagreements with poorly trained, junior auditors on the 401(a) side to even remotely take a shining to this condition. 
  • Q12.  Yes, I listed this as a High Quality Gem. But what makes this one also quirky is the odd reference to personal liability for those who were required to keep records but failed to do so.  In a world where employers and plans mostly kept no such records, and where this recordkeeping obligation was never really formally assigned, and much of it never really required because of the minimal 5500 requirement, it is truly a quirky reference.
  • Q16.  My guess some readers were wondering where I would put this one.  It is truly interesting, and a Quirky Gem.  This is the question of whether the ERISA safe harbor requires a certain number of vendors, or whether a single vendor with a reasonable choice of investment options (whether it be in an annuity contract or in an open architecture program) will suffice. The DOL refrained from affirming some public statements on how many vendors are required to avoid losing the safe harbor;   it did reaffirm that the safe harbor refers to both "contractors" as well "investment products" separately; and it focused heavily on facts and circumstances.  It allows employers (or, more precisely, imposes the burden on the employer) to establish that the costs and administrative burdens on that employer justify a use of a single open architecture program or annuity contract.

In any event, attempting to claim protection of the safe harbor will require hard work and diligence and, ultimately, the cooperation of the vendor. 




Any discussion on any tax issue addressed in this blog (including any attachments or links) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any transaction or tax-related position addressed therein. Further, nothing contained herein is intended to provide legal advice, nor to create an attorney client relationship with any party.