Patricia Neal Jensen

A Non-Electing QCCO (prospective client) needs a pre-approved 401(k) (not 403(b)) plan document. So far I have not found one. This is an existing plan using a 401(k) document and doing testing but not filing a 5500. Their vendor holding the assets wants them on a document with an IRS Letter. So 2 questions: 1. Anyone know of a Non-ERISA (Non-Electing) Church or QCCO document for 401(k) with an IRS Letter? 2. Suggestions on what to do instead? Have thought of freezing the 401(k) and starting a Non-Electing 403(b) for which I have a pre-approved document. Cannot merge the 2 documents but the 401(k) does not file 5500's so might be the best we can do? Thanks!

I also think first day of year 2.

In general, I would never favor a policy which causes my client to have a (fiduciary) responsibility for anything or anyone not working for him or her. My client is the plan sponsor so I perceive my "job" is to look out for him or her. Same reason I favor "cash out" rules. If legally possible, I want to get terminated people and their plan assets out of the plan.

We do use it and it can be done in the situation described. The "20 hour exclusion" can be selected as a "class exclusion" so such employees are not in the plan, period. The actual language in our document (F.T. Williams) reiterates the 1000 per year requirement. We ask for an annual census from clients which lists all employees and hours (or use a default hours selection in the document) so that at year end, we can review in light of the 1000 hour rule and enter any employee where required. Austin 3515... there is no ADP test in 403(b). We do recognize the inherent risk in using this rule but for many employers, it can be the difference between an audited plan and a plan not requiring an audit so big deal. Finally, where the 20 hour/ 1000 hour rule is not used, two tips: Print a "Decline Form" and insert it in the new hire package. Tell the employer that all employees must either enroll or decline. If executed properly, this is a safeguard against the audit question concerning whether or not the plan sponsor actually offered the plan to such employees. Second, we either charge a minimal amount for nonparticipating employees in a 403(b) (no ADP test.... what would we be doing with these employees which would require a fee?) or no charge, depending on the plan dynamics and overall revenue. If your TPA charges the same fee for all eligible employees regardless of these factors, I suggest looking for a TPA more experienced with 403(b) plans.

Belgrath.... last comment critical. "Paired with" makes us nervous because a Non-ERISA plan cannot be actually "paired with" anything or it will be ERISA. But "paired with" means something in the "other plan" references or requires an action in the Non-ERISA plan.

Reason for restatement is the IRS Letter. The plan sponsor will not have one if they don't restate.

No such thing as an S Corp NQDC plan. Larry Starr... exactly the point. Who else would such a plan be benefiting?

No such thing as an S Corp NQDC plan.

Your response makes sense, Doghouse, except for the fact of the legality. 403(b) plans have universal availability. There is no exception for "erroneous classification by employer!" We are having them remove this language.

I am looking at a TIAA 403(b) document which says : "If it is determined that your employer erroneously classified you as a non-Employee and you should have been treated as an Employee, you are not entitled to participate in the Plan." My reaction is that this cannot be right. Anyone else have a comment?

Good advice for the client to decide. With 401(k) and 403(b), our smaller clients (under 100 P's) generally do not go for the determination letter.

As you might have figured out, we do a lot of this and I am the Practice Leader. If you ever want to communicate with me directly: Patricia.Jensen@QBILLC.com Always glad to help. I have been helped by many over the years ... payback!

There can be two providers for a church plan. Could be two plans for that matter. No 5500's etc. Any permissible rollover is allowed. Not limited to conduit IRA's .

Not that it helps in this situation or any like it, but pooled accounts are a set up for problems like this. Although even in an individually allocated contract, you could have expenses suddenly jump if that much of the contract was paid out at once. Just to make this more entertaining, the 50% owner in question is undoubtedly a fiduciary to this plan. Jim241 better not be the only person worried about this.

Correct on all points. It is not effective yet and plans will have to be amended to incorporate the new rule when it is. (I am not looking forward to the latter!) And, finally, as has been pointed out by ETA ...LLC, the plan document prevails!

From IRS site: "If allowed by the terms of the plan, a 403(b) plan sponsor (employer) may terminate the plan and distribute accumulated benefits to the participants and beneficiaries on termination. To terminate a 403(b) plan, the plan sponsor must take the following steps: · Adopt a binding resolution: 1. establishing a plan termination date, 2. ceasing plan contributions, 3. fully vesting all benefits on the termination date, and 4. authorizing the distribution of all benefits as soon as administratively practicable after the termination date; · Generally, stop contributions by the sponsor or any related entity to any other 403(b) plan during the period that begins on the termination date and ends 12 months after all benefits have been distributed from the terminated plan (this requirement may be disregarded if at all times during the period beginning 12 months before the termination and ending 12 months after all benefits have been distributed, fewer than 2% of the employees who were eligible to participate in the terminated plan are eligible to participate in another 403(b) plan of the sponsor); · Notify all plan participants and beneficiaries about the plan’s termination; · Provide a 402(f) rollover notice to participants and beneficiaries; and · Distribute all plan assets within 12 months of the plan’s termination date to participants and beneficiaries in accordance with Rev. Rul. 2011-7. 403(b) plans subject to ERISA may have to comply with additional requirements."

Thanks!

You will end up with two plans and two 5500's etc. You cannot terminate a 403(b) and start another 403(b) (with the same participants) within 12 months. So if you start a new 403(b), how will you ever terminate the prior plan (no matter what the CDSC is) in light of the 12 month rule? Your idea that the plan sponsor can terminate a 403(b) just because it is an ERISA 403(b) is just not sound. If those are individual annuity contracts, the employer may not have the authority to terminate them. The provisions in the annuity contracts will not permit it.

Most important as frequently stated above: What does the plan say? Almost all plans address this situation. Most of our plans are drafted to permit ceasing a contribution (I agree.... there is no such thing as "suspending." ) anytime. Most are also drafted to permit restarting at any time but some plans do require that the participant reach an entry date (appears to be quarterly in this instance) to restart. Changing this requires a plan amendment because you will have to change whatever is in the plan now. The employer must follow whatever is written in the plan document!

New client with a plan document which is on a 403(b) Adoption Agreement and the plan's name is "403(b) DC Plan" but the plan only permits a nonelective employer contribution: no deferrals. Is this a 403(b) plan? (Why do I care? Because it is not a PPA document. If it is a 403(b), then I can restate now; if it is not a 403(b) but a DC plan, it is a problem.)

We use Millennium and Paychecks. I would get that obligation out of the plan and therefore not use chc93's technique.

Just thought of something to add: A wise attorney friend of mine has reminded me that without ERISA preemption, such plans are subject to state fiduciary laws in whatever state they are in. His summary of this problem is that there are still applicable fiduciary rules, we just don't know as much about them!

IRS has verbally said on a call that we should be using Prime plus 2% but I see Prime plus 1% used all the time. Make sure the rate is set of an individual loan.... in other words, no rate fluctuation once the loan is issued.

Motive is to get this client below the large plan filer count. If these accounts were in a group contract, we could use the cashout rules to get this money and, consequently these accounts, out of this plan and get the participant count down. The individual annuity contracts present a different problem.

Church plans are Not covered by ERISA in an entirely different way than a plan sponsored by a 501(c)(3) organization. It is possible for a 501(c)(3) to sponsor a non-ERISA plan but it is difficult and the way is cluttered with problems! They MUST follow a specific set of rules which are more complex than simply no employer contribution. "The Department of Labor (“DOL”) has provided guidance or safe harbors in two publications, Field Assistance Bulletin 2009-02 and Field Assistance Bulletin 2010-01 (summarized as follows): 1. Employees must participate in the 403(b) on a voluntary basis. 2. Only the employee or beneficiary can enforce rights under the annuity contract or custodial account. 3. The employer makes no contribution. 4. The employer receives no compensation except for a reasonable amount to cover expenses related to employer’s duties under the contracts. 5. The employer has only minimal involvement with the administration of the plan, e.g., limited to depositing employee contributions, allowing vendors to explain their products, and providing investment choices." It concerns me that you appear to have accepted someone else's opinion that these plans are Non-ERISA. I never permit a new client or advisor, etc. to determine that for me. It is too dangerous. If the plan is actually ERISA (plan sponsor making loan eligibility determinations, for example) and it is discovered on audit, that plan will be subject to fines and penalties for not filing 5500's etc. I try to avoid being the TPA in that situation! There is a Court case in Wisconsin where a "Non-ERISA plan" was sending in the employee contributions late and the DOL and the court determined that the delay in making the contributions was evidence of employer control over that plan and that control made the plan ERISA. Non-ERISA plans sponsored by a 501(3) are endangered. In our working life, I predict they will be gone. They are a challenge to maintain and I make sure a client which wants one is very aware of this risk.