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Kind of a convoluted question, and I don't have full information available. 1.403(b)-5(b)(4)(ii)(B) provides that you can exclude employees who are eligible under a 401(k) plan of the employer. (my emphasis) The Employer sponsors a 403(b) plan which excludes union employees. Now, the union employees can defer into a 401(k) plan. I don't yet have information here, but I don't have much contact with union plans. I'm not sure if the employer is technically the plan sponsor, or if the union is the plan sponsor.

Does it really even matter? If the employees are eligible to defer into the 401(k) plan, doesn't the employer have to be a "participating employer" in the union plan in order to even submit deferrals on behalf of the employees? 

Also, what happens if a collective bargaining agreement excludes union employees, but there ISN'T a 401(k) Plan? This would seem to require e change in the CBA, or the 403(b) plan is in violation of the universal availability requirements. Anyone ever seen such a situation? This question is theoretical, as thankfully I haven't (yet) encountered this.

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12 hours ago, Belgarath said:

Does it really even matter? If the employees are eligible to defer into the 401(k) plan, doesn't the employer have to be a "participating employer" in the union plan in order to even submit deferrals on behalf of the employees? 

Belgarath, I am only going to give you moral support here, but it would seem to me you could exclude. "Of" is a little elastic, not like "sponsored exclusively by." Also, I think a favorable answer to your question is implied by IRC 413(b)(3), in that how can the plan be for the exclusive benefit of the employer's employees if it is not a plan of (at least partially) the employer?

 

12 hours ago, Belgarath said:

Also, what happens if a collective bargaining agreement excludes union employees, but there ISN'T a 401(k) Plan? This would seem to require e change in the CBA, or the 403(b) plan is in violation of the universal availability requirements. Anyone ever seen such a situation? This question is theoretical, as thankfully I haven't (yet) encountered this.

I have never encountered this before either, or thought about it, but it looks like the reg does not give you a way out, and it probably can't because the Code does not contain a union exception either. 

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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  • 3 weeks later...

I'm looking at this issue now too.  Seems odd that there's no IRS guidance addressing whether "of the employer" contemplates a union plan to which the employer remits contributions since the 2004 proposed regulations effectively eliminated the exclusion for collectively bargained employees that had been provided under Notice 89-23.  Have you thought any more about this, Belgarath?

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I haven't really, but my inclination is that as long as they can elect to be covered under the 401(k), then not to worry about it. If there isn't a 401(k) and the CBA excludes them from the 403(b), I think there's a problem. Turns out that the 403(b) plan document allows the union employees to CHOOSE whether to participate in the employer's 403(b) plan, or the union 401(k) plan, so they aren't excluded under the 403(b) plan after all.

But, if questionable, I'd tell them to get an opinion from their ERISA attorney.

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