Tag Archives: Plan Types

At the time of this writing, it is mid-September. The air is beginning to chill, the leaves are starting to turn, but most importantly your kids are now back in school. This makes it the ideal time to talk about 403(b) plans, the savings vehicle most commonly used by teachers (and others in the not-for-profit space) to save for retirement.

If you understand 401(k) plans, you mostly understand 403(b) plans as well. 403(b)s are Defined Contribution plans where the participant’s money is tucked away for tax-deferred growth. Traditional Defined Benefit pension plans for teachers are critically underfunded, and many states have been forced to cut benefits for future retirees. Depending on a DB as a primary source of retirement income can have devastating consequences (just ask the auto workers), which brings us back to 403(b) plans.

According to the Bureau of Labor Statistics, there are approximately 20 million eligible 403(b) participants (both educators and non-profit employees) across the country, which suggests that there are probably about 200,000 403(b) plans. We don’t know what the actual number is, because of one of the most significant differences between 403(b) plans and their 401(k) cousins: ERISA status.

ERISA, the Employee Retirement Income Security Act, provides participants and plan sponsors with certain basic protections and safeguards. The problem is that not all 403(b) plans are ERISA-qualified. In fact, most of them are not. Let’s examine what makes a 403(b) plan ERISA qualified and what that means.

The “default” setting on a 403(b) plan tends to be that it is not ERISA qualified. To qualify for an exemption from ERISA, a 403(b) has to meet certain criteria. There are a lot of them, but it mostly boils down to 3 things:

1. Participation in the plan is completely voluntary
2. The only form of plan contribution allowed is the employee deferrals. In other words… NO EMPLOYER MATCH.
3. The employer doesn’t become too involved in plan administration

The first item on this list is pretty self-explanatory; you can’t force people into the plan or mandate participation. Items 2 and 3 are actually variations on the same theme, though I broke them out here as separate items because I’ve seen #2 trip up a lot of employers. Essentially, in order to maintain an ERISA-exempt 403(b) plan the sponsor has to stay as far away from the plan as possible. The role of the sponsor in this situation is to set up the plan, hire a good TPA to manage said plan, and run for the hills. The more involvement a sponsor has in the 403(b), the more likely it will be that the 403(b) loses its ERISA exemption.

Running an ERISA-qualified 403(b) plan is not a bad thing, necessarily. The upside is that ERISA-qualified plans are generally exempt from state laws because they’re governed by federal ones. This, of course, is super useful if you are a non-profit with employees in multiple states. Sponsors of ERISA-qualified plans can be as involved as they want, making decisions on plan design, dropping in employer matches, and generally ensuring the plan stays in compliance. Both sponsors and participants are also protected by the weight of ERISA. For Sponsors, this means that they are protected from liability for losses arising from the investment decisions of the participants (as long as they meet ERISA 404(c) requirements). For participants, it ensures transparency into fees and other aspects of plan administration, courtesy of the Form 5500 ERISA disclosure document. The downside for a plan sponsor is that now they’ve actually got to file a 5500 and comply with all aspects of ERISA.

Speaking of 5500s, just how many 403(b) plans out there are actually filing? Here’s a look at the number of ERISA-qualified 403(b) plans over the last six years.

You can see from the chart that the number of ERISA-qualified 403(b) plans is declining (though in the interest of full disclosure, the 2018 number is an estimate based on the ~40% of 2018 filings currently available). By my estimate, this means that of all the 403(b) plans out there only about 10% are ERISA-qualified.

There are a number of possible, even probable reasons for this decline. In 2012, the Department of Labor clarified its position on whether or not an employer match is enough to subject a plan to ERISA (yes, it is). This caused some sponsors to unexpectedly find themselves with an ERISA plan they didn’t want, and some have been remodeling their plans to regain an ERISA exemption. Additionally, the introduction of the fiduciary rule has given rise to more TPAs who offer a full, turnkey solution, which is exactly what a 403(b) sponsor needs if they want to be exempt.

So as you are attending “meet the teacher” and “back to school” sessions, make sure you ask your children’s educators about their 403(b) plan. Unless, of course, you work for the school district, in which case you may be inadvertently waiving your ERISA exemption.

If you’re a user of our American Directory of Group Insurance tool, you might be familiar with the Plan Type search, which allows you to search by the plan type codes listed on the Form 5500 (and if you’re not a user of the American Directory of Group Insurance, sign up for a free trial here). While this search is useful for finding basic plan types like Health, Dental, Vision, and etc., there are a number of plan types that aren’t included in this search filter that you might be missing out on. That’s where Carrier Benefits All comes in. We’re going to explore this underused search filter to show you where the data comes from and what the differences are, so that you can use this in your own group insurance lead generation.

Where The Data Comes From

The data that we use for the Plan Types search comes from section 8b on the main Form 5500. This section gives an overview of the basic plan types covered by the entire plan.

Sample Section 8b of the 5500

The data we use for the Carrier Benefits All search filter comes from the Schedule A itself, section 8 in Part III to be exact. This section has a much more expansive list of benefit types, and shows exactly what each policy covers.

Sample Section 8 of the Schedule A

Since Section 8 on the Schedule A covers more types of coverage, Carrier Benefits All is the search filter you’ll want to use if you’re looking to do more prospecting within a specific niche.

Plan Coverages Searchable in Carrier Benefits All, but Not in Plan Type

Prescription Drug:

Prescription drug insurance covers some or all of the costs of prescriptions for the participants in the plan. If you work for one of the many carriers and brokers who specialize in prescription drug coverage, the Carrier Benefits All search filter is just what you’re looking for.

Stop-Loss:

Stop-Loss insurance provides protection against catastrophic or unpredictable losses, and is used by sponsors who self-fund their benefit plans but don’t want to take on all the liability for losses from the plan. If you work with self-funded plans, this type of search is available only through the Carrier Benefits All search filter.

HMO, PPO and POS plans:

If you specialize in working with specific plan network types, these searches are made for you. You can easily identify the plan networks by searching for companies that have HMO, PPO and/or POS contracts with a carrier.

Employee Assistance Program:

These programs were originally instituted to combat occupational alcoholism, but now work with employees to resolve many issues that affect productivity and satisfaction at work. Providers who operate in this space can go to this search to find all the companies who utilize EAPs and how much they’re being paid for the service.

Conclusion

This is just a small sample of the different plan types not covered by the basic Plan Type search in the 5500. If you’re looking for more niche areas of coverage, it might just be available in the Carrier Benefits All search option.