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Coverage testing for ERISA and non ERISA 403b plans


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We have a hospital (tax exempt and governmental) with a 403b plan and this hospital owns a tax exempt that has their own ERISA 403b plan. The ERISA plan is a safe harbor plan. The ERISA plan fails coverage on a stand alone basis, but if we aggregate it with the non ERISA plan it passes. Once we aggregate, what happens with testing issues where a safe harbor plan cannot aggregate with a non safe harbor plan? Does this rule even matter since neither plan is subject to ADP or ACP testing - the governmental 403b is non ERISA so no testing, and the ERISA plan is safe harbor so no testing.

Any thoughts?

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You have to provide more detail. Failed what test? I suppose we can conclude it's 410(b) since ADP doesn't apply. To say ACP doesn't apply would not be correct, since there is no exemption from the ACP test for 403(b) plans. So, on what basis is your exemption. The beautiful thing about the term "Safe Harbor" is that it has many different uses; safe harbor 401(k), safe harbor hardship, safe harbor allocation conditions, etc...

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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They failed coverage - the ERISA 403b has too many HCEs and not enough NHCEs. So if you understand coverage, if you fail you can elect to aggregate with another plan. THis is the cheaper option. Can I aggregate a safe harbor with a governmental?

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ERISA tk -- governmental 403(b)'s are exempt from ACP testing & coverage testing (IRC Section 403(b)(12)©).

30 - What coverage does the ERISA plan fail? If all are eligible for the deferral (except those who are properly excluded under 403(b)), then you pass 410(b). It's not clear to me that you can fail 410(b) in a 403(b) plan as a consequence of the universal availability rule (unless it's a BRF failure).

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Let me explain better -

A. Non ERISA 403b - no testing required

B. Tax Exempt of controlled group has safe harbor ERISA 403b using the safe harbor match

We have to test for coverage on the match to see if ERISA plan B can stand alone. It cannot because Plan B does not cover enough NHCES - Plan A is not participating

So we need to pass coverage - it fails ratio % and average benefits test. One fix is to cover employees of Plan A, but plan sponsor will go nuts over that solution. Or try to pass ABT by bumping up the NHCEs in Plan B.

Question is can we aggregate the 2 403b plans to pass coverage, which it will. Once you aggregate for coverage, you have to aggregate for nondiscrimination - I realize Plan A does not have testing. And Plan B is safe harbor and cannot be aggregated with a non safe harbor. So what can we do????

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Is it clear that the plan of the tax-exempt entity owned by a governmental employer is not also a governmental plan? Could the 414(d) definition apply to a plan maintained by a wholly-owned subsidiary of a governmental entity? Probably a fact-sensitive inquiry, but has anyone analyzed the pertinent facts?

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Explain (or I am just being thick?) . . . If, as you say, both employers are treated as governmental plans, why is the sub's 403(b) plan subject to ERISA and where is the coverage requirement coming from? I must be msising something (which wouldn't be the first time).

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Let me explain better -

A. Non ERISA 403b - no testing required

B. Tax Exempt of controlled group has safe harbor ERISA 403b using the safe harbor match - fails coverage on a controlled group basis

What is the coverage issue?

If there is a coverage issue can it be avoided if the employer sets up a 457b plan for HCE employees and contributes $16,500? Contributions to the 457 plan are not aggregated with the 403b under 415 or 402g.

There is no discrimination testing in a 457 plan.

Also why isnt the tax exempt hospital with the ERISA plan which is owned by the tax exempt gov. hospital an agency or instrumentality of the Gov entity exempt from ERISA under IRC 414(d)?

mjb

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