Church 403(b) vs. church 401(k)

[Guest pinsall]

I have a church which currently has a 403(B) plan with a discretionary employer profit sharing contribution giving difffering %'s to 3 classes of ees.

There are currently no HCE's

Since a church plan not subject to ERISA

Is there any reason that they couldn't restate to a 401(k) plan? Any real advantages here since testing is a mute point?

I guess one hassle would be that they would have to continue to file a Form 5500 for the 403(B) plan since can't terminate?

Thoughts are appreciated

Thansk

Pat Insall, CPC

[IRC401]

Why would they want a 401(k) plan (as opposed to staying with the 403(B) plan) ?

[Guest pinsall]

2 reasons

#1 = they want a wider opportunity of investment options; are finding soem custiodians have large minimum balance requirements for 403(B) but not 401(k)

#2- MEA calcualtion is cumbersome

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[Guest Danny Miller]

There is not that much difference between a 403(B) and a 401(k) if you are dealing with a church that doesn't have any highly compensated employees. By the way, neither type of plan maintained by a church has to file a 5500. In your situation, one thing to consider is that the 403(B) plan will have to be maintained and cannot be transferred to the 401(k), unless and until Congress changes the law to permit such a transfer (that may happen this year). So, you will have the ongoing expense of the 403(B) anyway. Also, there are several 403(B) vendors out there now who have a fairly wide selection of mutual funds available. I'm not sure who the church's 403(B) is with now, but you might also want to look at another 403(B) vendor to see if a wider range of fund selection is available. Of course, the MEA calculation will be with you wherever you go. Hope this helps.

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Danny Miller

Conner & Winters

1050 17th St., N.W.

Suite 810

Washington, D.C. 20036

(202) 783-5711

dmiller@cwlaw.com

[IRC401]

Have you checked with the major mutual fund families? Do they all have high minimums? (even Vanguard?)

There is no requirement that you allow every employee to contribute up to the MEA limit. You can establish limits on what employees may contribute in order to avoid most problems. Now that elective deferrals count as compensation, the problem should be much less than in prior years.