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Making ER contrib to new 401k plan?

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I've got a non-profit that is terminating their 403b plan effective 12/31/20 (and is going to be able to pay everyone out) and starting up a new 401k plan effective 1/1/21 because they are getting close to the audit threshold and need to put in eligibility requirements (even the 20 hours/week is problematic).  They are impatient about the 2020 employer contribution, though - the question asked is if that can be made to the 401k plan so that they can pay out the current accounts now instead of waiting for them to get us census, etc. which could mean the distributions won't happen until mid-2021.  Which isn't a problem legally, except that it incurs plan-level fees that they are trying to avoid.

My immediate response was "no"... but is there anything I'm overlooking?  Thanks.

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25 minutes ago, Mr Bagwell said:

I don't see how either.


FYI.... Pretty sure you don't get to merge a 403b to a 401k.

Agreed. I wasn't meaning to imply they could merge. Just pointing out that we've done what they want to do in a situation where the plans could merge.

William C. Presson, ERPA, QPA, QKA
C 205.994.4070
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  • david rigby changed the title to Making ER contrib to new 401k plan?

Is there a discretionary nature to the ER contribution?  Will the 401(a) plan exist prior to FYE?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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I am not sure how the  facts play out here.  If the contribution being made to the 403(b) is a non-elective/profit sharing contribution or match, it can be made to a 401(a) plan that exists to receive it for 2020. 

How about this sceario...  Amend the employer contirbutin out of the terminating 403(b) for 2020.  Set up a 401(a) plan in 2020 to accept the Employer contribution for 2020.  Merge the 401(a) plan into the new plan or make the new 401(a) plan effective 1/1/2020 as to employer contributions.

I admit to being somehat confused about these facts.  Perhaps I am missing something. 

I don't thnk you can merge a 403(b) plan into a 401(a) plan.  It would still considered distribution from the 403(b) plan.

Hope tihs is helpful and doesn't stir the muddy water.

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We are talking about an employer nonelective contribution, right?  It is not exactly clear from the narrative.  I agree about the "no merger."   I also think you are too late to amend out an employer contribution to the 403(b), if it is not discretionary.  Employees may already have the "service" which would make the ER contribution to the 403(b) an obligation for 2020.  Can you remove this from the 403(b) and put the liability in another plan?  Don't know the answer to that.  Probably some custom drafting if this works at all.

What about postponing the 403(b) termination until March 30 (or some date like that when they can get you the census etc necessary for the employer contribution calculation)?  Start the 401(k) 01-01-2021 as planned.  All 2021 contributions would then go in the 401(k).  You would end up with a "short year" in 2021 for the 403(b) but there should not be any activity in that plan (from 01-01-2021 to 03-01-2021) except for the employer contribution and the payouts.

Probably a statement of the obvious, but they started this too late.  Anyone would need more than 3 weeks to get all of this done!

Patricia Neal Jensen, JD

Vice President and Nonprofit Practice Leader

|Future Plan, an Ascensus Company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@futureplan.com

P 949-325-6727

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