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I want to set up a 401a plan for matching contributions to a 457 plan,


Guest nicdaryl

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Guest nicdaryl

Can anyone explain 401(a) plans? I understand you can use this plan with a 457 plan for employer matches, however, when I called a couple mutual fund companies they have "never heard of such a plan". Are there any investments that can not be used in the 401a? I'm just feeling dumb calling all these places and no one has heard of this, where can I go? I am in Missouri.

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I may be able to help you find some resources, but first a question or two - why are you doing this? Are you wanting to get around the limits imposed on annual deferrals in a 457 plan? Do the majority of the employees participate in the current plan or just a select few? What kind of employer is it - tax-exempt or governmental?

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Guest nicdaryl

OK, First it's a tax exempt govt. hospital. They want to set up the 401a to match the employees 457 dollars. Here are 130 employees with 32 particapating. The plan does not exclude low paying employees.

Since I wrote I found that the mutual fund company that is doing the 457 will be the investment 401a plan only. They don't have a document in place for a Govt. Non profit 401a plan. So... my question now is can I get a phototype anywhere? Thank you for your reply.

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Guest nicdaryl

Sorry, I messed up the last message. What I was trying to say was. They will only be the investment vehical. They don't have a 401a document currently for govt. non-profits.

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This has been a continuing issue. Although governmental entities can have qualified plans (you can click here to see the requirements for one), governmental entities are exempt from many of the rules that apply to nongovernmental entities, and are covered by state laws from which nongovernmental entities are exempt. Thus, standard form documents do not cover them very well. Some governmental employers just use plans designed for private employers, but this may cause the governmental plans to be subject to rules that otherwise would not apply to them, to have plan documents that do not work very well (e.g., to require Department of Labor consent to certain kinds of transactions, when the Department of Labor will not get involved with transactions involving governmental plans), and to violate state laws that do apply to them. The only other alternative is an individually designed plan. However, this may not be feasible if few employees are covered.

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I have to agree with Carol. As a governmental unit, adopting a general prototype agreement for a 401(a) plan may not be all that simple an option in the long run. I suggest that you start with one of your professional associations - for example, I believe that there is an association of city managers. Those associations may be aware of service providers for this specialized service to a small governmental unit.

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Guest tkellogg

Check with deferred comp providers that specialize in 457 plans (ICMA-RC, Nationwide Retirement Solutions and T Rowe Price are examples). I know both ICMA and Nationwide have 457 to 401(a) matching programs and plan documents already established. As others have indicated, this is not as simple to do as it seems, since the 401(a) has different plan provisions (such as potential vesting schedules) that must be considered.

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  • 3 weeks later...
Guest ronc

This type of arrangement is becoming more and more popular with governmental-type entities. We have had one for two years now. We match 457 deferrals and deposit them into our 401(a) plan.

I recommend you contact the National Assn of Government Defined Contribution Administrators, 859-231-1904, www.nagdca.org.

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  • 2 years later...

I unfortunately do not work with 457 plans that often but have a client that has inquired about setting up a 401(a) plan for matching contributions to the 457 plan. Is the benefit to this arrangement that it allows employers to provide a match to the 457 plan when they otherwise would not be allowed to do so under the 457 rules? Does this arrangement avoid including the matches in the 457 plan totals? Do the matches going to a 401(a) plan escape FICA when the employer contributions to a 457 plan would not? Could anyone recommend other resources that discuss these arrangements in detail. Thanks.

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You really need to retain a competent tax advisor to answer this queston. Is the employer a private or public entity? The max deferral for a non profit 457 plan is 13k and it cannot be used in conjunction with a qualified plan because only highly compensated emplyees or select members of mgt can participate.

mjb

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Mbozek,

Thanks for your response. The employer is a governmental entity and the existing 457 plan is an eligible 457(b) plan. While I am familiar with the general rules for 457 plans, I, like our client, have seen general references to combination plans along the lines of the earlier posts but have not found much in the way of detailed discussion as to how they operate. They would like to get a little better understanding of how these combo plans work before pursuing this with additional counsel. Any thoughts on additional information on the mechanics of such combo plans would be appreciated.

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  • 2 months later...

We have recently prepared a 401(a) plan through which the employer (governmental hospital) matches a participant's compensation to an eligible deferred compensation plan under 457(b). We filed the 401(a) plan for a determ letter and have not heard back from the IRS as of yet. However, we don't think that we have any qualification issues through the arrangment.

The Hospital's payroll system is set up to work similar to a 401k with a match. The only difference is the E-er and E-ee money go to different "pots" with the trustee.

401 Chaos - You are correct that the matching contribution is not subject to FICA/Medicare whereas the contribution would be subject to FICA/Medicare if the match was to a 457(b) plan. Also, you can subject the matching contribution to a vesting schedule in the 401(a) plan, but may run into problems if you add vesting provisions to a 457(b).

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  • 4 months later...
Guest cpowley

Boy I am so glad to have found this website. We are in the midst of setting up a 401a plan for our matching contribution of our 457 plans. I am looking for anyone who has successfully completed this setup senario in the "Lawson" benefit system.

Thanks

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I know next to nothing about these plans but in reading the posts I had some questions.

Is a 401(a) plan a qualified plan?

If it is then mbozek post raises a question. How then can you have a qualified plan that is linked (used in conjunction with) to a 457 plan?

another question is raised by the original post which stated that the the current 457 provider was also going to be involved with 401(a). Why would anyone want to have a plan which involves a provider who could not help you set it up and who could not even provide the basic set up material? Or who would want a provider who could not provide help?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GBurns,

I do not mean to say there are no potential problems with using combined 457 and 401(a) plans as discussed above--there appears to be a lack of real guidance from the IRS in this area--but the Service appears to have approved 401(a) plans designed to provide matching contributions to 457 plans.

One thing I did want to point out which I think is confusing for all is that there are a couple of different types of 457 plans--457(b) and 457(f) plans. The 457(b) plans in use here by governmental entities are generally open to all employees, not a select group of management or HCEs as Mbozek's post implies.

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Guest cpowley

We will be using one provider to administer our 457 and 401a plan but the problem is getting this plan to work within our benefit system. Within our current benefit system matching can only occur within the same type of plan.

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