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401(a)(4) and 403b plan


30Rock

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Lets say that you have a 401k plan and a 403b plan in the same controlled group. Both plans have deferrals, match and nonelective. The 401k plan can satisfy coverage for purposes of deferrals and match under 1.410(b)-6(g) by excluding the 403b plan. However lets say the 401k plan has a tiered nonelective formula requiring 401(a)(4) testing. When running the average benefits percentage test, do you pull in the match and nonelective - ie all employer contributions, even though you were allowed to exclude the match doing the coverage test? I think deferrals continue to be excludable.

Thanks for any thoughts!

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as close as I've come to seeing an answer is from the ASPPA Q and A 2009 Q and A 20

(and again, such response do not represent an actual position

.............

Q: If matching or nonelective contributions to a 403(b) plan are used in

the average benefits percentage test to satisfy the IRC §410(b)

coverage requirements, are the 403(b) deferrals included in the

average benefit percentage calculation as well (even though 403(b)

deferrals are not generally subject to nondiscrimination testing)?

IRS Response: Yes

(The old copy of the 403b Answer Book I have (1996) said to include all contributions, including deferrals from the 401kplan, but it was unclear how to handle the deferrals from the 403b

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Ughh I have links from 2010 that state the opposite with a comment from you.

Not for profit with 401(a) and 403(b), Average benefit test

rcline46 Post #1

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Not for profit has a deferral only 403(b) and a 401(a) with 'varying' contributions by

person. Since 2002 even Not for Profits have had to pass discrimination testing. Oh by the

way - we are taking the plans over for the 6/30/2010 year....

As I read 415, we aggregate the 403(b) deferral with the 401(a) contribution to test

maximum annual additions. Indications are this was 'overlooked' in the past so I am asking

for confirmation on this point first.

Since the 401(a) contributions are such that they cannot make any safe harbor formula,

and they cannot pass general testing on a contributions basis, I now go to cross testing. IF

(that is a big IF because I do not know the results yet) each rate group does not pass

70%, I will need to perform the Average Benefits Test. If I have to do the ABP, then again

I include the deferrals into the 403(b) plan, correct?

My thoughts are yes and yes, but I am willing to listen to rebuttals.

lippy Post #2

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I don't think 403(b) deferrals are ever included in any nondiscrimination test, including the

average benefits test.

rcline46 Post #3

Mar 17 2010, 05:40 PM

Mar 18 2010, 07:11 AM

Mar 18 2010, 07:36 AM

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I guess technically 415 is not a discrimination test, only a compliance test. SO you do

agree it is in the 415 test?

lippy Post #4

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Sorry, I missed that part of the original post. IIRC, a 403(b) account is considered

individually owned for 415 purposes, so the 403(b) plan contributions and the 401(a) plan

contributions of the non-profit would not be combined for 415 purposes (i.e., separate

limits for the two plans). However, if an employee of the non-profit owns a business of his

own (at least 50%, I think), then any qualified plan sponsored by that business would

share a 415 limit with the 403(b) account. Keep researching - I'm not 100% sure of my

memory on this.

Of course, the individual had one 402(g) limit.

rcline46 Post #5

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When the plans are sponsored by the same employer, I don't think 415 would allow

$49,000 in the 401(a) plan PLUS $16,500 in the 403(b) PLUS any match or non-elective

contributions in the 403(b).

Bird Post #6

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Yes, I think deferrals are in the 415 test, not in the rate group test, and in the ABT.

Mar 18 2010, 08:41 AM

Mar 18 2010, 10:45 AM

Mar 18 2010, 11:33 AM

Mar 18 2010, 11:42 AM

lippy Post #7

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Re ABT, check out Reg. 1.403(b)-5(a)(2) and the ERISA Outline Book, footnote 138 on

page 1B.498 (2009 ed.)

Re 415, look at Reg. 1.403(b)-4(b), Code Section 415(k)(4) and EOB p. 1B.512 (2009 ed.)

rcline46 Post #8

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lippy, did I tell you I HATE REGLATIONS!!!

1.403(b)-4(b) does not seem to be relevant as I am not testing the 403(b), the test is in

the 401(a), and the 415(k)(4) is not relevant as there is only 1 organization involved.

What little I can glean, is that the 403(b) deferrals ARE included in the 401(a) 415 test.

Actually it would seem there is only one 415 test which is not related to plan type. Would

be nice see something that says that, but my search skills on the BNA site don't seem to

match the way they present stuff.

As for the references for ABP - not testing 403(b), but I see deferrals are not included in

the discrimination testing for 403(b).

There EOB references - don't have the 2009 EOB, have 2008 and page numbers don't

seem to line up.

Tom Poje Post #9

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Question 10 from the 2008 ASPPA Conference:

If matching or nonelective contributions to a §403(b) plan are used in the average benefits

percentage test to satisfy the IRC §410(b) coverage requirements, are the §403(b)

deferrals included in the average benefit percentage calculation as well?

You should exclude salary deferrals from ABT test. See Treas. Reg. §1.403(b)-5.

lippy Post #10

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The 415 bit is on pp. 1.899-900 of the 2008 EOB.

The ABT footnote is not in there - it was added in the 2009 book. Come to think of it, I first

met this issue before the 2009 books were out, and I recall the older books weren't very

helpful. I did some research elsewhere and determined that while the issue was unclear,

Not for profit with 401(a) and 403(b) - BenefitsLink Message B... Page 3 of 6

http://benefitslink.com/boards/index.php?showtopic=44993 10/6/2011

Mar 18 2010, 11:45 AM

Mar 18 2010, 01:23 PM

Mar 18 2010, 02:42 PM

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the case that 403(b) deferrals are never included in a 410(b) or 401(a)(4) test was more

convincing. Then the 2009 books came out with the footnote that supports that position.

The footnote refers to an IRS comment at the 2008 ASPA conference.

If I can find my research and it's not copyrighted material, I'll post it. Won't be today

though because I have some very urgent business to tend (yeah, I have to get to the

liquor store and back before basketball starts). Maybe one of the real 403(b) experts (i.e.,

not me) on these boards will chime in with some enlightenment. Were's John Simmons?

lippy Post #11

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Tom beat me to it. That's the Q&A I mentioned (although the footnote says Q&A 9 - don't

know if that's a typo or if that one addresses it, too).

Tom Poje Post #12

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it is #9, I mis-read the format of the spreadsheet

rcline46 Post #13

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Now I am really messed up! That is what I get for reading regulations.

It would seem that 403(b) employER contributions are separate from 401(a) employER

contributions when doing a 415 test within the same employer and it does not appear to

have changed with the final 403(b) regulations. What a deal!

That leaves the elective deferral. Now I am not sure the elective deferral is counted in the

415 limit for the 401(a) plan - is it real or is it Memorex? Is it an employEE or employER

contribution for this purpose? Or does it matter?

As I said to lippy before, I want clarity! The regs actually say in 415 what is included and

to some extent what is excluded, but the 403(b) contributions are not mentioned! Only in

Not for profit with 401(a) and 403(b) - BenefitsLink Message B... Page 4 of 6

http://benefitslink.com/boards/index.php?showtopic=44993 10/6/2011

Mar 18 2010, 03:23 PM

Mar 18 2010, 03:45 PM

« Next Oldest Cross-Tested Plans Next Newest »

the 403(b) regulations discussing 403(b) compliance and discrimination are the deferrals

mentioned. Does this mean they deferrals are excluded in checking 415 in 401(a) plans?

dmb Post #14

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QUOTE (rcline46 @ Mar 18 2010, 02:42 PM)

Now I am really messed up! That is what I get for reading regulations.

It would seem that 403(b) employER contributions are separate from 401(a) employER

contributions when doing a 415 test within the same employer and it does not appear to

have changed with the final 403(b) regulations. What a deal!

That leaves the elective deferral. Now I am not sure the elective deferral is counted in

the 415 limit for the 401(a) plan - is it real or is it Memorex? Is it an employEE or

employER contribution for this purpose? Or does it matter?

As I said to lippy before, I want clarity! The regs actually say in 415 what is included and

to some extent what is excluded, but the 403(b) contributions are not mentioned! Only

in the 403(b) regulations discussing 403(b) compliance and discrimination are the

deferrals mentioned. Does this mean they deferrals are excluded in checking 415 in 401

(a) plans?

FWIW, we have some not-for-profit organizations with the same setup, 403b for deferrals,

401a for employer contributions. After reviewing regs mentioned in this string, we came to

conclusion that 403b and 401a are treated as two separate entities for 415 as well as 410b

testing, so we think a participant can defer $16,500 in 403b and receive $49,000 in 401a.

Tom Poje Post #15

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you might want to check

http://benefitsattorney.com/modules.php?na...wpage&pid=1

she has posted this chart the last few years

as I understand it, other plans are counted when looking at the 401 Unless its a govt 401k)

but not when looking at the 403b

Enter Keywords Search Topic

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Ok maybe I should start over because I think I messed up the question - so under the 1.410(b)-6© exception I can exclude the 403b plan employees when testing the match and deferrals for coverage under the 401k plan. But I still have to pass coverage for the nonelective piece under the 401k plan without aggregating with the 403b because I am not allowed under the regs to use the 403b to help me pass coverage. So if my nonelective fails RPT, when I do the ABT does the match and nonelective percentages in the 403b plan come over as 0, or can I count the match?

And part 2, if I am doing 401(a)(4) on my nonelective in the 401k plan, can I use the match and nonelective benefit percentages in the 403b plan or are they still not permitted to be aggregated and they come in as 0 here too?

Thanks!

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I simply don't recall. I have the vaguest memories of a comment being made that it depends on whether you are looking at the 401k plan or the 403b plan, but I can't find my notes on that.

I looked back at 2008 Q and A and the comment not to include the deferrals was ASPPA comment and the IRS did not respond. 2009 was the same question and this time the IRS responded to include the deferrals, so I agree, it is very confusing. If I get a chance I'll try to see if I can find something more.

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