Patricia Neal Jensen

Thank you! Patricia

Plan Sponsor of 403(b) is a tax exempt org. They want to make very large employer non-elective contributions. The question is not about the individual limits that apply to participants. The question is "does the Sec 404 deductibility rule apply to a plan sponsor who does not have tax deductions?" PS... the Sponsor is actually a non-electing church. Would the answer be different than a 501(c)(3) org.? Thanks! PNJ

No. Once Eligible; always eligible. This rule is the same for the employer contributions to a 403(b).

Yes. There is no such rule. I suspect the author of this statement is confusing Non-ERISA plans with Non-Electing Church plans. They are different.

"Election" in this context is a written statement that the church plan elects ERISA. It cannot be accidental. I cannot imagine why a church would want to do this.

The other thing that occurred to me is that they may have taken the total required from an IRA or some other account. They do not have to take an RMD from a specific account if they have more than one.

The Controlled Group rules were the first thing that popped into my mind. Controlled group rules in 403(b) are about control of the respective Boards. In other words, if there is one Board of Directors for both, then this is a controlled group. If there are two Boards but the Board for # 1 controls who is on the Board for # 2, it is a controlled group. See the following: “Do the IRS’ controlled group rules apply to tax-exempt entities?” "Yes, certain entities that are exempt from tax under Internal Revenue Code Section (IRC §) 501(a) are subject to a subsection of the controlled group rules pursuant to Treasury Regulation 1.414(c)-5. The controlled group rules, in general, require that all employees of commonly controlled entities be treated as employees of a single entity for various retirement plan qualification purposes. For this purpose, common control exists between an exempt organization and another organization if at least 80 percent of the directors or trustees of one organization are either “representatives” of, or are directly or indirectly “controlled” by, the other organization. (Please note there are separate rules that apply to church and qualified church-controlled organizations.) A trustee or director is treated as a representative of another exempt organization if he or she also is a trustee, director, agent, or employee of the other exempt organization. A trustee or director is controlled by another organization if the other organization has the general power to remove such trustee or director and designate a new trustee or director." The Controlled group analysis is necessary but does not really solve your problem. What does the document say about who is eligible for this plan? If this is a controlled group, then, going forward, Employer #2 needs to also adopt this Plan and all employees need to be given notice that they are eligible to defer in this Plan. If this is a controlled group, and Employer # 2 has not been an adopter or given notice to its employees, remedies should be pursued for the missed opportunity that the employees of Employer # 2 have had. Once the Controlled group analysis is done, the problem and solutions are not unique to 403(b).

The requirement is not that the funds be deposited with the "new" recordkeeper but just that they not remain in the plan sponsor's bank account. I maintain my earlier position: the correct resolution to this problem was within the plan sponsor's control. I have done hundreds of these in my career. There is always a way that does not include the plan sponsor holding such assets beyond the time limit established.

As usual, Luke is "spot on!" I do a reasonable number of church plans and have not to date done a 403(b)(9). While I acknowledge the 'No required document" material cited, I always do documents. How else does one know what the rules are? And I work and live in litigious California so I think it is good housekeeping.

Awwww. You warm this old gal's heart.

Amen, Luke.

All correct. It can work as long as the ERISA plan does not contain ANY provision which is contingent on activity in the Non-ERISA Plan. A Non-Elective 401(a) plan (employer non-elective) could sit alongside a Non-ERISA deferral plan. A Matching 401 plan would cause the deferral plan to be ERISA. (The matching would depend on saving in the deferral plan.)

What does this mean: "The client converted the plan to an ERISA plan in 2009. " ? As I read it, you are telling us that this Plan became an ERISA plan in 2009. If somehow this is not what you meant (?), I suggest the client send Met Life a note telling them that the TDA Plan does not permit loans. Generally speaking, questions of fact, such as how old a participant is or does the plan contain a loan provision, can be answered without risking the Non-ERISA status. Your question is quite confusing so I am a little concerned that the facts are not clear. How many plans are there? What plan became ERISA in 2009? I also never believe a plan is Non-ERISA without examining all the facts in a situation. Why does the client think the TDA plan is or was Non-ERISA? This plan may already be ERISA for reasons that you are not even being told about. Be careful about this. If the DOL subsequently finds this plan to have been ERISA, they will seek penalties for 5500's not filed, etc. Do not put yourself in a position where the client could suggest that you told or reassured them that it was Non-ERISA.

Ask the life insurance companies your firm works with. They may provide a sample document to try to win your business.

Agree with Luke. The taxation etc of this payment is a current problem not an historic one. Put the agreement in writing now for this year etc. The amount allegedly owed for the past is too large for 457(b) (limit is $16, 500 this year) so you have the 457(f) and 409(A) rules and costs to cope with.

A lot of good ideas already articulated but I must add one comment: It was their "fault!" They are the fiduciary who chose the new vendor and should have made sure of the dates involved for the asset transfer.

Client/ fiduciary should push back on this. Too far too fast. They have to offer a paper statement or the fiduciary should find someone who will. See regulations on e-transmissions of notices and other documents. The vendor will argue that they are not a fiduciary. The real fiduciary action here is with the plan sponsor who permits this.

A small start up with employer stock in its plan? Oh my.

I am giving you sort of a "sideways" way to look at this: what is the point? I have several Non-Electing Church plans and, although there is a NRA, it really affects nothing.

As stated above, the answer is in the plan document.

1. Terminating a 403(b), although possible, is not easy. I suggest reading everything you can find on this subject before you begin. The biggest stumbling block is that all plan assets must be paid out within 12 months of the termination date or the termination will be retroactively disqualified (and you will have impermissible distributions by the 403(b) either spent or rolled over by the accounts which did distribute). Whether or not the plan sponsor can control asset distribution without participant consent is a material issue in these situations. You did not say how the 403(b) is invested, but individual annuity contracts would have to be distributed by the issuer and mutual funds, if this is a 403(b)(7), present another set of challenges. If this process is done incorrectly or without regard to proper timing, your client will have two ERISA plans and one will have made improper distributions in violation of the document and of the law. www.irs.gov/retirement-plans/irc-403b-tax-sheltered-annuity-plans-terminating-a-403b-plan; www.plansponsor.com/properly-terminating-a-403b-plan/ And now your client has traded "no deferral testing" for "annual deferral testing" in order to get a 6 month eligibility. Unless the census population makes this an audit or no audit situation, I think this plan of action is one the client will regret. 2. 401(k) will be 002 3. The 401(k) effective date would be whenever the plan can actually permit deferral contributions. Not January 1, 2018. The effective date of the 401(k) is not the "original effective date" of the 403(b). 4. The loan rollover issue is one which would be addressed in the respective documents. If the 403(b) plan document says that all loans are due and payable upon plan termination (which is what most would say), then they are due and payable, etc. I have not researched this for technical/ legal issues but would believe that the respective plan documents can or must deal with this. 5. The issues surrounding vesting of the match or other employer contribution in the 401(k) will be addressed in the Adoption Agreement for the 401(k) (or equivalent document). If service credit for vesting is to start with the 401(k) plan effective date, select the choices in the 401(k) document which say that. 6. Whether employees have to be otherwise eligible to make rollovers into the 401(k) is, again, a document issue. Most documents require a choice to be made and one of the choices is "all employees regardless of eligibility." 7. As indicated above, years of service credit for vesting will be determined by the choices you make as you prepare the 401(k) document. This issue is unrelated to whether or not an employee rolls over his or her 403(b) balance. All assets in the 403(b) will be 100% vested when this 403(b) plan is terminated, but this is not indicative of the vesting of new employer contributions into the 401(k). 8. Among the other issues this project presents is the PPA restatement of the 403(b) plan document. Although not due until March of 2020, the 403(b) document the client is using now may not have an IRS letter. Prudence would indicate a document restatement prior to the plan termination so that the 403(b), if later challenged, would have an IRS letter. 9. I am assuming that you and your client understand that you could easily have the 6 month eligibility for employer contributions in the 403(b) plan. Only the opportunity for employee deferrals has to be immediate. I suggest making a list of all the steps which will have to be taken to do this and another list of all the " pluses and minuses" and then sitting down and going over all of this carefully with your client. Adding the testing of deferrals to the administrative burden for a plan is a significant step, and the actions which must be taken when and if testing fails are sometimes a shock to employers. Unless this is the difference between an audited and an unaudited plan, I do not see what could be gained by this change which will make it worth all the work and the other hazards of its undertaking.

Luke Bailey is correct. If your description is accurate, this employer needs to fix its administration of this entire program.

"David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer: It is indeed true that church 401(a) and 401(k) plans can now be merged with 403(b) plans, with one major caveat. The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) added a new Code Section 414(z) that permits mergers of church 401(a) and 401(k) plans with 403(b) plans so long as the accrued benefit of each participant is a) the same or greater than it was prior to the merger and b) nonforfeitable after the merger. However, the Act directed the Secretary of the Treasury to issue rules as to how to complete such mergers, and Treasury has yet to issue such guidance. Without such guidance, churches that attempt to implement such mergers at the present time, though technically permitted by the PATH Act, run the risk of noncompliance with any future Internal Revenue Service (IRS) guidance that may be issued. Of course, as with any transaction of this magnitude, counsel with specific expertise in church plans should be consulted prior to taking any action. "

Carol... 414(z) of the PATH Act would seem to say that a 401(a) plan can be merged into a 403(b) plan. My question is whether or not "401(a)" for purposes of the PATH Act Sec 414(z) include a 401(k)? Thanks!

Pension Pro....We do have approved PPA documents for 403(b) for churches and QCCO's. Just not 401(k). Flyboy john.... actually not a bad idea. It will void the reliance to do that, however. That was the best our document provider came up with as well. Thanks for your thoughts and ideas!