Patricia Neal Jensen

Not speaking to the merger question at this time, but why not have Church B adopt Church A's 403(b) plan and terminate the church B 401(k)? Eliminates the 5500 and puts both on one document. At least freeze the 401(k) and have Church B adopt Church A's church plan. Kepp it simple, etc.

I realize this is "after the fact" advice, but if this match is in participant accounts and statements have been issued, benefits paid, etc., I would tell the client that it cannot be removed. That, in my opinion is not what "discretionary" means. If I am drafting the document, I require the client to align payroll matching with an annual decision for the following year and a true, "we don't know what we are doing yet" match with a year end deposit and allocation. All it would take is for one disgruntled participant to take a "before and after" set of statements from the removed/discretionary example to the DOL and the resulting difficulties would make this discussion seem benign.

LOL!

I agree with Carol (of course). Employer should not touch this. Also think jpod raises a good point.

I am writing in 2018 so I suspect TIAA has improved, but I am having no difficulty with TIAA entertaining: 1. keeping a Non-ERISA plan separate from the ERISA plan (the ones I am working on have followed a very clean protocol concerning no employer decision making or involvement in the Non-ERISA plans.... my only concern has been investment diversity (another topic for another day) or 2. freezing the Non-ERISA plan so that all contributions go into the ERISA plan (usually called "DC" plan), or 3. merging the two plans, or 4. Using our plan document in the restatement for whatever the client and I want to do. TIAA constantly confuses the terms "plan" with "contract." There is nothing wrong with having two contracts (or more) funding one plan. The 6 digit numbers TIAA uses are contract numbers. TIAA will set up both contracts to fund the DC plan (merger) so I think this moots the whole asset distribution issue, and this set up will retain all or most of the features of the SRA Contracts. Lippy's "silliness" remark indicates to me a lack of knowledge about or disdain for annuity contracts. Finally, my experience with the good TIAA conversion consultants is the they, too, believe the safest course of action today is to use one of the above techniques to "get rid of" the Non-ERISA plans. It is just too difficult to be sure the client has consistently avoided all the ways a Non-ERISA plan can inadvertently become ERISA (see the Wisconsin late deposit = ERISA case). I still have a few clients who want to maintain the Non-ERISA plans and TIAA and I do our best to set them on the right track and warn them of the potential dangers.

The answer is "no." When I have a minute, I will look up the citation, but it is not permissible to use tax exempt payments as compensation in a plan. Also, why the concern over who is an HCE? These plans are not ERISA (or should not be). For what purpose would you need to have an HCE determination? "Recently, the IRS has issued a long-awaited private letter ruling that directly addresses the question. Priv. Ltr. Rul. 200121794 (June 7, 2001). This ruling holds that a minister’s tax-free housing allowance may not be treated as compensation under the alternative definitions of compensation permitted by Treasury Regulation sections 1.415-2(d)(11)(i) and (ii). The reasoning used by the IRS is interesting. First, the IRS concluded that excludible compensation like housing allowance does not constitute section 3401(a) wages in the first instance, while the special rule for clergy in section 3401(a)(9) only “excludes from wages taxable compensation paid to a minister . . . .” (emphasis added). Next, the IRS wrote a short treatise explaining why housing allowance does not have to be reported as wages under sections 6041(d) or 6051(a)(3), thus deflecting any argument that those reporting requirements provide a basis for treating housing allowance as compensation under Treasury Regulation section 1.415-2(d)(11)(i)."

Another aspect of the "TIAA 2 plans situation" where one is ERISA and the other Non-ERISA: I think my client and TIAA are following all the rules for one of the plans to be a Non-ERISA Safe Harbor plan. And I do not think the two plans (at least in my situation) are "conjoined" in any way. My final concern is the investments in the Non-ERISA plan. They are all TIAA. The DOL has said... "Q16: Must a "safe harbor arrangement" under 29 CFR 2510.3-2(f) offer participants a reasonable choice of both 403(b) providers and investment products? Yes. To meet the terms of the safe harbor, the arrangement generally must offer a choice of more than one 403(b) contractor and more than one investment product." I am concerned that the "Non-ERISA plan" invested in TIAA annuity contracts which offer only TIAA investment choices fails the "more than one 403(b) contractor" part of this rule or possibly both the "more than one contractor" and the "more than one investment product" parts. Am I over thinking this? My client really wants to keep the Non-ERISA plan as it is invested in a TIAA Traditional contract which is not sold anymore and has very desirable characteristics. Thanks!

I have generally advised clients to avoid this as it can be seen as increasingly precarious to make assumptions about the required things to avoid in order to maintain Non-ERISA status (Wisconsin case in which the DOL maintained that late deposits of deferrals indicated sponsor control which made a plan which the sponsor thought was Non-ERISA, ERISA), but I am now working on a situation in which the client may really want to maintain the alleged Non-ERISA plan side by side with the ERISA plan (TIAA plans). My concern remains the investments. I have understood that investment "choice" meant more than one fund family and the old TIAA TDA contracts do not provide for this. By the way, the discussion and facts above miss the point of using the "old" pairing technique prior to 2012: The Non-ERISA plan was for 403(b) deferrals so if the sponsor had over 100 employees and they were all eligible: still no 5500 and no audit. The ERISA plan did not permit deferrals and was actually 401(a). This only works when the ERISA plan used a 1 year (or similar) eligiblity and consequently reduced the number of eligibles to fewer than 100: 5500 but no audit. The DOL essentially said "nice try, but no go!" and made the entire thing ERISA.

Simply filing 5500 does not make the plan ERISA. Issue resolved with assistance of a friendly attorney. Thanks PNJ

Once eligible; always eligible. If s/he was eligible when s/he left, s/he is eligible at rehire.

It is sort of a statement of the obvious to say I agree with Carol, but I do! I do not put hardship withdrawals or loans or disability into Non-ERISA documents for fear of putting the sponsor in a compromised situation with a vendor which does not know how these rules work. Non-ERISA plan are not required to file 5500's, regardless of asset size.

Thank you. The sponsor is a 501(c )(3) so more difficult analysis than if it was government or a non-electing church. It is employee contribution only and has met all the other requirements of the Safe Harbor. Thanks for all the responses. We are now pondering the issue of writing a letter to the DOL, etc. PNJ

I have a client who came to us with a Non-ERISA plan and appeared to meet all the requirements to remain Non-ERISA. They just told me they filed a 5500 for 2016. Has this filing damaged their argument that this plan is Non-ERISA? THank you. Patricia Neal Jensen

NO. The law prescribes how to handle this. Retroactively manipulating the payroll is not one of the options.

Matching Safe Harbor is an easy and amazing solution to this problem. Re owners "generosity" is irrelevant. When I was in my first tax course in law school, a student raised his hand and complained, "But Professor Ward, that is not fair!" Professor Ward drew himself up to his full height and replied, "Son, fairness has nothing to do with the Internal Revenue Code." Besides, a "straight 25%" match is biased in favor of Highly Compensated people. It is not particularly fair or generous.

$44,000 is the includible compensation. The only excluded item was correctly noted as the housing allowance.