403(b) Plan In Combination With A Qualified Plan

[Guest merlin]

I have a client who currently sponsors a profit sharing plan through his medical practice that covers himself and his one employee. He also teaches at a local university and now has the opportunity to participate in the u's 403b plan. His 403b deferrals count towards his 415 limit, and thus will reduce the amount he needs to deposit for himself to get to his maximum allocation, which in turn will require a smaller allocation for his employee in his ps plan. But as far as I know, for all other purposes, the 403b is completely separate and apart from the ps plan for purposes of coverage, nondiscrimination, etc.

Am I missing anything? Is there any reason not to recommend his participation in the 403b plan?

[QDROphile]

I think you are missing the proper treatment of the 415 limit. Under the circumstances you describe, the qualified plan limit is unaffected by participation in the University 403(b) plan

[Guest merlin]

Normally there would be no aggregation of the 403b with the qualified plan for 415 purposes, but there is an exception where the 403b participant owns more than 50% of ,i.e. controls, another entity. See 415(k)(4) and reg. 1.415-8(d)(2).

[Bird]

merlin, I don't think you're missing anything. Most of our small plans would be set up as safe harbor 401(k) plans, and in that case it wouldn't matter if he did 401(k) or 403(b) deferrals. This way he gets the deferral without the hassle.

[Guest merlin]

Thank you, Bird. Would the answer change if the u made a match on his 403b deferrals? I think not, because then you truly would have unrelated employers for 415 purposes,and the exception is only on the 403b deferrals.

As for coverage and nondiscrim, as I understand the rules, a qualified plan cannot be aggregated with a 403b to test the qualified plan for 410b and 401a4. But the 403b plan can be aggregated with the qualified plan. Is that right?

[QDROphile]

merlin:

Sorry, I was looking through the wrong end of the telescope. The cite under the new regulations is 1.415(f)(2), but the rule has not changed.

[J Simmons]

Merlin,

Does the doctor's profit sharing plan have a 401k feature?

While I agree that he would start with a new, fresh 415c limit under his profit sharing plan than what applies to the 403b (that is, the dollars accrued under either do not eat away at the 415c limit that can be accrued under the other) unless he controls the local university.

However, I understand that the 402g limit applicable to employee deferrals would be 'cross-wired'. That is, the $15,500 (or $20,500 with over age 50 catch up) is one-per-person between a 403b and the 401k feature of a profit sharing plan. No doubling up on that aspect. (457b is another matter.)

[Guest mjb]

merlin:

Sorry, I was looking through the wrong end of the telescope. The cite under the new regulations is 1.415(f)(2), but the rule has not changed.

I though the cite is 1.415(f)-1(f)(1) and (2) which requires that the Drs PS plan contribution must be aggregated with all 403b annuity contributions made by the Drs U employer for the purpose of the 45k limit (50k if age 50), not just the salary deferrals subject to the 402g limits. The PS contributions for the Drs plan would not have to be aggregated with a Q plan maintained by the University if the Dr does not have control of the U under 414(b).

[QDROphile]

This is really a bad day. I dropped part of the cite.