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403(b) for HCE Only


Guest Patrick Foley
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Guest Patrick Foley

My church client wants an easy deferred comp vehicle for its CFO --one of its few highly compensated employees. The church has a qualified DB plan covering full-time employees, including the CFO.

All its employees can contribute to 403(b) contracts or 403(b)(7) accounts, but there is no 403(b) "plan" and no employer contributions.

Since church 403(b)'s aren't subject to the nondiscrimination rules of section 403(b)(12), employer contributions to a 403(b)(7) account for the CFO seem like a good solution.

Am I missing anything here?

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Guest Danny Miller

You're right on the 403(b) side of things. There are no nondiscrimination and coverage rules applicable to a 403(b) "contract" purchased by a church. ((b)(7)s and (b)(9)s are "contracts" for purposes of 403(b)).

You should check the 410(b) regs on the possible impact of the CFO's participation in the 403(b) plan on testing the qualified DB plan. See Reg. section 1.410(b)-7(f) and Reg. section 1.410)b)-6(g) (soon to be amended pursuant to a proposed reg that's now under consideration). The regs read sort of funny on this issue at this point in time. Would be interested in hearing your conclusions on the 410(b) reg issue.

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Guest Patrick Foley

The qualified plan is a non-electing church plan that's not subject to 410(b). If it were, there is an argument that, because it's not subject to 403(b)(12)(A)(i), the HCE's 403(b) would have to be taken into account in testing the qualified plan. (If that were the case, wouldn't the ad hoc salary deferral 403(b) program also have to be taken into account?) However, it seems more likely that 1.401(b)-7(f) excludes a 403(b)(12)(A)(i) plan because it's separately subject to 410(b), and that 1.401(b)-7(f) is written without regard to church 403(b)'s.

I don't see any relevance of 1.410(b)-6(g), before or after the proposed reg is finalized, since there is no 401(k) in this picture.

Old Code 401(a)(3) and Reg. 1.401-3 don't seem to require the 403(b) to be taken into account in determining coverage compliance of the qualified plan.

Thanks.

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My understanding is that the IRS has deferred application of the non discriminaton rules to non electing church plans until further notice. Notice 2001-46

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