(a) Scope. This interpretive bulletin sets forth the Department of
Labor's (the Department's) interpretation of section 3(2)(A) of the
Employee Retirement Income Security Act of 1974, as amended, (ERISA) and
29 CFR 2510.3-2(d), as applied to payroll deduction programs established
by employers 1 for the purpose of enabling employees to make
voluntary contributions to individual retirement accounts or individual
retirement annuities (IRAs) described in section 408(a) or (b) or
section 408A of the Internal Revenue Code (the Code).
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\1\ The views expressed in this Interpretive Bulletin with respect
to payroll deduction programs of employers are also generally applicable
to dues checkoff programs of employee organizations.
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(b) General. It has been the Department's long-held view that an
employer who simply provides employees with the opportunity for making
contributions to an IRA through payroll deductions does not thereby
establish a ``pension plan'' within the meaning of section 3 (2) (A) of
ERISA. In this regard, 29 CFR 2510.3-2 (d) sets forth a safe harbor
under which IRAs will not be considered to be pension plans when the
conditions of the regulation are satisfied. Thus, an employer may, with
few constraints, provide to its employees an opportunity for saving for
retirement, under terms and conditions similar to those of certain other
optional payroll deduction programs, such as for automatic savings
deposits or purchases of United States savings bonds, without thereby
creating a pension plan under Title I of ERISA. The guidance provided
herein is intended to clarify the application of the IRA safe harbor set
forth at 29 CFR 2510.3-2 (d) and, thereby, facilitate the establishment
of payroll deduction IRAs.
(c) Employee Communications. (1) It is the Department's view that,
so long as an employer maintains neutrality with respect to an IRA
sponsor in its communications with its employees, the employer will not
be considered to ``endorse'' an IRA payroll deduction program for
purposes of 29 CFR 2510.3-2(d).2 An employer may encourage
its employees to save for retirement by providing general information on the
IRA payroll deduction program and other educational materials that
explain the advisability of retirement savings, including the advantages
of contributing to an IRA, without thereby converting the program under
which the employees' wages are withheld for contribution into the IRAs
into an ERISA covered plan. However, the employer must make clear that
its involvement in the program is limited to collecting the deducted
amounts and remitting them promptly to the IRA sponsor and that it does
not provide any additional benefit or promise any particular investment
return on the employee's savings.
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\2\ The Department has specifically stated, in its Advisory
Opinions, that an employer may demonstrate its neutrality with respect
to an IRA sponsor in a variety of ways, including (but not limited to)
by ensuring that any materials distributed to employees in connection
with an IRA payroll deduction program clearly and prominently state, in
language reasonably calculated to be understood by the average employee,
that the IRA payroll deduction program is completely voluntary; that the
employer does not endorse or recommend either the sponsor or the funding
media; that other IRA funding media are available to employees outside
the payroll deduction program; that an IRA may not be appropriate for
all individuals; and that the tax consequences of contributing to an IRA
through the payroll deduction program are generally the same as the
consequences of contributing to an IRA outside the program. The employer
would not be considered neutral, in the Department's view, to the extent
that the materials distributed to employees identified the funding
medium as having as one of its purposes investing in securities of the
employer or its affiliates or the funding medium in fact has any
significant investments in such securities. If the IRA program were a
result of an agreement between the employer and an employee
organization, the Department would view informational materials that
identified the funding medium as having as one of its purposes investing
in an investment vehicle that is designed to benefit an employee
organization by providing more jobs for its members, loans to its
members, or similar direct benefits (or the funding medium's actual
investments in any such investment vehicles) as indicating the employee
organization's involvement in the program in excess of the limitations
of 29 CFR 2510.3-2 (d).
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(2)The employer may also do the following without converting a
payroll deduction IRA program into an ERISA plan: An employer may answer
employees' specific inquiries about the mechanics of the IRA payroll
deduction program and may refer other inquiries to the appropriate IRA
sponsor. An employer may provide to employees informational materials
written by the IRA sponsor describing the sponsor's IRA programs or
addressing topics of general interest regarding investments and
retirement savings, provided that the material does not itself suggest
that the employer is other than neutral with respect to the IRA sponsor
and its products; the employer may request that the IRA sponsor prepare
such informational materials and it may review such materials for
appropriateness and completeness. The fact that the employer's name or
logo is displayed in the informational materials in connection with
describing the payroll deduction program would not in and of itself, in
the Department's view, suggest that the employer has ``endorsed'' the
IRA sponsor or its products, provided that the specific context and
surrounding facts and circumstances make clear to the employees that the
employer's involvement is limited to facilitating employee contributions
through payroll deductions.3
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\3\ For example, if the employer whose logo appeared on the
promotional materials provided a statement along the lines of in the
first sentence of footnote 5, the employer would not be considered to
have endorsed the IRA product.
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(d) Employer Limitations on the number of IRA sponsors offered under
the program. The Department recognizes that the cost of permitting
employees to make IRA contributions through payroll deductions may be
significantly affected by the number of IRA sponsors to which the
employer must remit contributions. It is the view of the Department that
an employer may limit the number of IRA sponsors to which employees may
make payroll deduction contributions without exceeding the limitations
of 29 CFR 2510.3-2(d), provided that any limitations on, or costs or
assessments associated with an employee's ability to transfer or roll
over IRA contributions to another IRA sponsor is fully disclosed in
advance of the employee's decision to participate in the program. The
employer may select one IRA sponsor as the designated recipient for
payroll deduction contributions, or it may establish criteria by which
to select IRA sponsors, e.g., standards relating to the sponsor's
provision of investment education, forms, availability to answer
employees' questions, etc., and may periodically review its selectees to
determine whether to continue to designate them. However, an employer
may be considered to be involved in the program beyond the limitations
set forth in 29 CFR 2510.3-2(d) if the employer negotiates with an IRA
sponsor and thereby obtains special terms and conditions for its
employees that are not generally available to similar purchasers of the
IRA. The employer's involvement in the IRA program would also be in
excess of the limitations of the regulation if the employer exercises
any influence over the investments made or permitted by the IRA sponsor.
(e) Administrative fees. The employer may pay any fee the IRA
sponsor imposes on employers for services the sponsor provides in
connection with the establishment and maintenance of the payroll
deduction process
itself, without exceeding the limitations of 29 CFR 2510.3-2(d).
Further, the employer may assume the internal costs (such as for
overhead, bookkeeping, etc) of implementing and maintaining the payroll
deduction program without reimbursement from either employees or the IRA
sponsor without exceeding the limits of the regulation. However, if an
employer pays, in connection with operating an IRA payroll deduction
program, any administrative, investment management, or other fee that
the IRA sponsor would require employees to pay for establishing or
maintaining the IRA, the employer would, in the view of the Department,
fall outside the safe harbor and, as a result, may be considered to have
established a ``pension plan'' for its employees.
(f) Reasonable Compensation for Services. 29 CFR 2510.3-2(d)
provides that an employer may not receive any consideration in
connection with operating an IRA payroll deduction program, but may be
paid ``reasonable compensation for services actually rendered in
connection with payroll deductions or dues checkoffs.'' Employers have
asked whether ``reasonable compensation'' under section 2510.3-2(d)
includes payments from an IRA sponsor to an employer for the employer's
cost of operating the IRA payroll deduction program. It is the
Department's view that the IRA sponsor may make such payments, to the
extent that they constitute compensation for the actual costs of the
program to the employer. However, ``reasonable compensation'' does not
include any profit to the employer. See 29 CFR 2510.3-1(j), relating to
group or group-type insurance programs. For example, if an IRA sponsor
offers to pay an employer an amount equal to a percentage of the assets
contributed by employees to IRAs through payroll deduction, such an
arrangement might exceed ``reasonable compensation'' for the services
actually rendered by the employer in connection with the IRA payroll
deduction program. An employer will also be considered to have received
consideration that is not ``reasonable compensation'' if the IRA sponsor
agrees to make or to permit particular investments of IRA contributions
in consideration for the employer's agreement to make a payroll
deduction program available to its employees, or if the IRA sponsor
agrees to extend credit to or for the benefit of the employer in return
for the employer's making payroll deduction available to the employees.
(g) Additional rules when employer is IRA sponsor or affiliate of
IRA sponsor. Under certain circumstances, an employer that offers IRAs
in the normal course of its business to the general public or that is an
affiliate 4 of an IRA sponsor may provide its employees with
the opportunity to make contributions to IRAs sponsored by the employer
or the affiliate through a payroll deduction program, without exceeding
the limitations of Sec. 2510.3-2(d). If the IRA products offered to the
employees for investment of the payroll deduction contributions are
identical to IRA products the sponsor offers the general public in the
ordinary course of its business, and any management fees, sales
commissions, and the like charged by the IRA sponsor to employees
participating in the payroll deduction program are the same as those
charged by the sponsor to employees of non-affiliated employers that
establish an IRA payroll deduction program, the Department has generally
taken the position that this alone will not cause the employer to be
sufficiently involved in the IRA program as an employer or to have
received consideration of the type prohibited under Sec. 2510.2(d)(iv)
to warrant the program being considered outside the safe harbor of the
regulation.5 Under such circumstances, the employer, in
offering payroll deduction contribution opportunities to its employees, would
appear to be acting generally as an IRA sponsor, rather than as the
employer of the individuals who make the contributions.6
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\4\ For purposes of this interpretive bulletin, the definition of
``affiliate'' in ERISA section 407(d)(7) applies.
\5\ While the funding medium offered by an employer that is an IRA
sponsor or an affiliate of an IRA sponsor might be considered an
employer security when offered to its own employees, the fact that
informational materials provided to employees identify the funding
medium as having as one of its purposes investing in securities of the
employer would not, in the Department's view, involve the employer
beyond the limits of 29 CFR 2510.3-2(d). Neither would the fact that the
funding medium may actually be so invested. However, the Department
would consider that an employer may have exceeded the limitation of
2510.3-2(d) if the informational materials the employer provides to
employees suggest that the employer, in providing the IRA payroll
deduction program for purposes of investing in employer securities, is
acting as an employer in relation to persons who participate in the
program, rather than as an IRA sponsor acting in the course of its
ordinary business of making IRA products available to the public.
\6\ However, if an employer that is an IRA sponsor waives enrollment
and management fees for its employees' IRAs, and it normally charges
those fees to members of the public who purchase IRAs, the employer
would be considered to be so involved in the program as to be outside
the safe harbor of the regulation.
[64 FR 33001, June 18, 1999]
