R.G.

ERISA or NonErisa Plan

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We have come across a prospect who currently has a 401(k) plan with an employer match equal to 50% on the first 4% deferred.  They also have a 403(b) plan that they said is used for deferrals of HCEs that want to defer more than 4%.  They do this to avoid/limit failure of the ADP test.  They are treating the 403(b) as a Non-Erisa plan.  This doesn't seem right to me and was hoping to get others' opinions. 

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They may well be a non-ERISA plan, but that doesn't exempt them from the universal availability rule of Internal Revenue Code section 403(b)(12), which would preclude a plan that allows for deferrals and doesn't allow everyone to make such deferrals.  The only way I can see this working is if everyone is allowed to make deferrals, but that only HCEs want to because those are the only people whose contributions are limited by the ADP test.  Or if everyone other than the executives (including those who would normally be excludible from a 401(k) plan) is eligible for the 401(k) plan.

That being said, I'm assuming from the fact that they have a 401(k) plan that they are not a governmental plan.  In that situation, the only way they could have a non-ERISA plan would be pursuant to 29 CFR § 2510.3-2(f), which provides that certain deferral-only 403(b) plans with minimal employer involvement are exempt from ERISA.

 

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Employees who are eligible to defer under a 401(k) Plan of the Employer can be excluded from a 403(b) under 1.403(b)-5(b)(4)(ii)(B).  Does the 403(b) plan use this exclusion? If so, what are the eligibility requirements for the 401(k)?  

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