OKC73134

Govt Hospital with a 501(c)3 subsidiary

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Have a new client that is a Governmental Hospital in the state of Texas.    Presently has a 403(b) plan and moving to a 457 Govt Plan.    Under the Hospital umbrella they have a subsidiary that is a 501(c)3 organization (with a separate EIN#) and would be considered part of a control group.   Currently those employees are all participating in the same 403(b) plan, however, the 501(c)3 entity is not listed on the present adoption agreement.   I have reviewed the Advisory Opinion 2003-16A and Section 501(r) Compliance.    Could they be considered an agency or instrumentality of the Hospital and be included in the 457 Govt Plan under same document?

  

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How is a governmental hospital maintaining a 403(b) plan in the first place?  The only employers permitted to have 403(b) plans are 501(c)(3) organizations and public schools.  Rev. Rul. 69-545, 1969-2 C.B. 117 permits a municipal hospital to apply for 501(c)(3) status, but if it has not done so, it would be ineligible to maintain a 403(b) plan.  If this is the case, you'll need to do a VCP submission to fix the situation.

If the parent is eligible to maintain a 403(b) plan, but the written plan document is defective in not naming the related 501(c)(3), you might consider amending the plan to be a pre-approved plan. Rev. Proc. 2017–18 allows you to fix most problems, other than the complete absence of a written plan document, by adopting a pre-approved plan before March 31, 2020.

As far as the related 501(c)(3) being an agency or instrumentality, that is certainly possible, depending on the relationship of the parties.  You might check out the Advance Notice of Proposed Rulemaking on Determination of Governmental Plan Status to determine whether the 501(c)(3) is likely also to be treated as governmental.

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Thank You Carol.     The Hospital is also currently a 501(c)(3).     They have been looking at various legal options to cease that status.

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Why would they want to cease that status?  As a governmental plan, they don't need to file Forms 990, which is typically the most onerous part of being a 501(c)(3).  Do they have potential UBIT issues?

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