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Public School plan - union employees

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So, a situation has been brought up where a public school has a 403(b) plan, elective deferral only. They utilize the 20 hour exclusion (which I'm sure they are botching, but that's a separate item). The PLAN does not exclude any compensation from elective deferrals. On the other hand, the collective bargaining agreement states that elective deferrals will not be withheld from "Summer paychecks." I'm paraphrasing here, because I have no documentation on this - only a phone call from the school's business office.

Assuming this is correct, how could one reconcile this? Could the collective bargaining agreement be deemed to be  an "election" by all members to stop deferrals for Summer pay, and to restart them again when school resumes in the Fall? Failing that, or some similar interpretation, it seems like an operational violation (which has apparently been going on for anywhere from 10 to 25 years).

Going forward, since they didn't restate their document, could this "piece" of compensation simply be excluded for purposes of elective deferrals, without violating the universal availability requirement? I'm not sure that 1.403(b)-5(b)(2) prohibits such an exclusion, but it also seems as though it could be read that it DOES prohibit such an exclusion. Sort of a gray facts an circumstances issue.

Has anyone ever dealt with this issue?

As an ancillary issue, has anyone ever seen a situation where the collective bargaining agreement prohibits union members from deferring in the plan? What happens then - you apparently have a legal collective bargaining agreement that is presumably enforceable, yet this is a plan disqualification issue? 

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Does the “written plan” for the § 403(b) plan refer to the collective-bargaining agreement or collective-discussion document so that the other document is a part of the § 403(b) plan?


If there is a defect, a sound resolution would call for coordination about tax law and labor-relations law.  If the public-schools employer does not use the same law firm for both, the employer should want the firms to collaborate.


If you’re a service provider on this situation, consider asking the school business officer to instruct the law firms to receive information from you.  (That’s if your contact wants to deal with the weakness.)  Without your help, lawyers who lack practical experience with payroll and retirement plan administration might render advice that doesn’t meet the employer’s fully considered needs.


Consider also that the employer might prefer not to get into this.  While doing what’s needed to protect your work, try to avoid unnecessary writings that could make it easier for a State or local government auditor or an IRS examiner to spot a defect.  Even if the problem is obviously not your fault, your firm might be blamed or punished.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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Is it possible that they plan ahead for this? meaning that they calculate the benefits for the whole year but then divide them by the school year paychecks only, leaving the "summer paychecks" to have no benefits withheld. 

Not trying to confuse the issue but perhaps there is a simpler explanation.


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You probably have a plan document violation so need VCP, but it's a slam dunk. The fix is to retroactively amend to say that plan document incorporates provisions of CB regarding compensation eligible for deferrals. I could be wrong, but I think they'll give you that easily.

I don't think you're violating universal coverage. Everyone's covered, except maybe employees who work > 20 hrs per week during the summer, and only work during the summer (assuming they're in the union). But I think you could treat them as < 20 hrs per week under 1.403(b)-5(b)(3)(iii)(B).

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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