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401(k)athryn

401(a) Plan & non-ERISA 403(b) Plan

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We have a potential client with the following plans:

1) ERISA 403(b) Plan covering non-union employees.  This plan excludes union employees by way of the following employee exclusion - " Employees who are eligible to participate in a plan of the Employer offering a qualified cash or deferred election under Code section 401(k) or a contract described in Code section 403(b)." 

2) non-ERISA 403(b) Plan covering union employees (deferral only, limited employer involvement).  Multiple vendor options.

3) 401(a) Plan covering union employees (employer contributions). One vendor option.

Questions -

  1. Would employer contributions to a 401(a) plan for the union employees eliminate the ERISA exemption for the union 403(b) Plan?  I see nothing indicating that employer contributions to another plan would impact non-ERISA status, but if anyone has info stating otherwise, please share.
  2. Is there any reason the 401(a) plan would not be subject to ERISA? I would not think so, but I am searching for a 5500 on the DOL website and don't see one (gulp).
  3. Since I believe that the 401(a) Plan is subject to ERISA, I feel like they could easily stop allowing deferrals to the non-ERISA 403(b) and make them available in the 401(a) plan.  It would not eliminate the non-ERISA 403(b), which would be near impossible to terminate, but would at least allow them to restrict where new deferrals are going to simplify the contribution submission process, rather than sending to three different investment providers each pay period.  I don't see any downside to this.  Do you?

 

Thanks!

 

 

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Not sure where my response from yesterday went but, briefly:

I suggest combining the desired features in an ERISA 403(b) and freezing the Non-ERISA Plan.

Very brief responses to your questions:

1. No

2. No

3. Problems include discrimination testing for deferrals which they may not have experienced before and possible universal availability problems regarding non-union employees.  ERISA 403(b) would work better.

 

Patricia

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Luke Bailey - yes, it is a non-governmental 501(c)(3).

Patricia - Thank you!  You suggest starting an ERISA 403(b) and having the employee and employer contributions in that plan.  The non-ERISA 403(b) plan would freeze.  Are you saying that the 401(a) would terminate or transfer to ERISA 403(b)?

Another option presented to me was to add employer contributions to the non-ERISA 403(b) Plan, which would make it an ERISA plan.  We would restate the plan document.  The problem with this option is that the accounts in the non-ERISA 403(b) Plan are in multiple vendors and the plan sposnor does not receive financial statements.  Not sure that we could get the info needed to accurately report on the plans assets to file a 5500.  This certainly makes me like your idea of a new ERISA 403(b) Plan much better than adding employer contributions to the existing non-ERISA 403(b).

 

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Hello!   I do think you would have to terminate the 401(a) and allow participants to take the cash or rollover, etc.  Cannot merge a 401 plan and a 403(b) plan.  (This rule makes little or no sense and may be legislative oversight??)

And I definitely would not use the alleged Non-ERISA plan as the foundation plan for the ERISA 403(b).  The multiple vendor accounts are a significant problem plus this plan make "harbor" several items which are not necessarily consistent with defensible administration.

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