Patricia Neal Jensen

The plan sponsor is a 501(c)(3) org and can sponsor a 403(b)... Either ERISA or Non-ERISA. The CalSavers program requires the employer to have a plan for exemption. CalSavers is an IRA so I think a Non-ERISA plan would satisfy the exemption, but CalSavers is a little vague about this. Any knowledge or opinions on this subject? Thanks Patricia Neal Jensen, JD, VP FuturePlan

CuseFan is exactly correct!

I agree with you both. It is required to look at the hours worked at the end of each plan year. If an employee has worked 1000 or more hours in the preceding year, he or she is eligible in the year following. And, of course, once eligible, always eligible. There are many articles etc cautioning against the use of the "20 hour" rule. It is a compliance trap. Also, in the IRS audit documents I have read, the focus is on 1000 hours. I would not divide 1000 hours by 52.

We/ I always advise against this. It is a sure-fire way to discourage participation by the people a 401(k) needs most when trying to pass ADP and ACP (if applicable) tests. Who would voluntarily participate in a plan where 20% went for fees? PNJ

Fun to read; almost always learn something; feel helpful when I can participate in responding to someone's problem or question! Patricia

Haven't done one for several years, but don't Davis Bacon plans allocate contributions in this manner? PNJ

I agree with all comments. I would not, however, jump to recommending a Non-ERISA 403(b). (Flyboyjohn) They are much more challenging than many plan sponsors think. The law does not favor them and it is easy for the employer to make a mistake that makes the plan ERISA. I attempted to attach a decent Word doc that reviews the rules which must be followed. I would suggest an ERISA 403(b). Still no top heavy and no deferral testing and in the "modern world," there are plenty of quality investment options. They would have to file a 5500, though, and if they would be a large plan filer, the audit can be expensive. Good discussion! PNJ Non-ERISA 403(b) Requirements.docx

Perhaps you are not arguing about this but simply seeking information, but I would never argue on this issue. In my experience, a plan document request means a lawyer is somewhere in the background. My suggestion would be to promptly supply the requested document(s) and have a friendly conversation about what is really going on in this situation. Comments, accompanying the document, such as "Is there something about the plan or its operation that we can clarify/ assist with?" "Is there a problem that needs attention?" may elicit a response that will enable you to solve a problem before it festers and grown into a legal situation for the plan sponsor or a firing situation for the TPA.

I don't have a cite handy but when we have done this, we have always required some logic to the split. Maybe function or site? I think it is a little aggressive to just divide employees down the middle and declare one group eligible for Plan A and the other group eligible for Plan B. Also, we have always split the assets (our plans are participant directed with specific assets belonging to specific Participants). How will you or the TPA or vendor produce statements for the Participants in Plan B if they have assets in Plan A? There is a 2019 Article in Plan Sponsor (b)lines on this topic. Also see Mike Preston's post in July of 2010 on this site. Finally, there apparently was a discussion at an ASPPA meeting in 2000 where the DOL discussed issues of avoidance and evasion. I would do this carefully with some reasons other than avoiding the audit.

Carol V. Calhoun (BenefitsAttorney.com) has published some excellent pieces including a chart, updated in 2020: benefitsattorney.com/charts/plancomparison/ PNJ

From the Federal Register with regard to Reg's proposed in 2019: Income attributable to 403(b) elective deferrals ineligible for hardship distribution due to failure of the law to amend Sec 403(b)(11); QNEC's and QMAC's in a 403(b) custodial account are ineligible for hardship distribution. However, the FTW plan document for a 2021 restatement we worked with specifies: "Hardship NOTE: Safe Harbor Contributions, Qualified Non-Elective Contributions, Matching Contributions held in a custodial account, and Non-Elective Contributions held in a custodial account are not eligible for hardship withdrawals." Check your document very carefully.

When I was doing more training in the early days of 401(k), we used to say that the Participant carries the 402(g) limit "on his/ her back." Trying to stress that this is a calendar year limit which applies to the Participant. (Ignoring for the moment that the plan document may have language concerning notification and distribution of excess.) As noted above, the Plan's Year is irrelevant to this particular item.

Many smaller DC plans only use the plan sponsor's EIN.

Another suggestion: Charge these terminated Participants an annual administration fee and make sure to tell them and remind them of this. This is legal and motivates them to roll the money over or just take the distribution.

Annual additions 415 deadline 15th day of the 10th month. IRC Sec. 1.415(c)-1(b)(6)(i)(B).

Everything in this makes sense except for the timing of the notice to Participants: "... within 60 days following the date the discretionary match is made to the plan." Why would the notice come after the match is contributed? Wouldn't it make more sense to have the notice precede the match? Thanks! Patricia

The most significant caution I would add is that the plan sponsor cannot be involved in this transaction. Any decisions made by the plan sponsor could cause this plan to lose its non-ERISA status and become subject to ERISA. It is wise never to put loans in a non-ERISA plan. 29 C.F.R. Sec. 2510.3-2(f) My other suggestion would be to carefully read the plan document language concerning loans and the annuity contract, if there is one.

See irs.gov/retirement-plans/401k-plan-fix-it guide-you-did-not-use-the-plans-definition-of-compensation-correctly-for-all-deferrals-and-allocations.

I could be wrong, but I know of no application of Compensation which is not limited to the 401(a)(17) limit. Look at your plan document's definition. See irs.gov/retirement-plans/401k-plan-fix-it guide-you-did-not-use-the-plans-definition-of-compensation-correctly-for-all-deferrals-and-allocations. PNJ

Of "Compensation" as defined by the Plan Document.

As several have helpfully pointed out, it is a recordkeeping issue not a "rule." Unless that TPA has an operating rule that says they don't price for or want to do the extra work that may be involved.

Austin 3515: This is common with TIAA and other insurance companies which historically issued individual contracts. This is not about Non-ERISA plans. There are many such contracts and the exemption in 2009-02 can be very valuable to a plan sponsor potentially facing a large plan filing and the accompanying audit In FAB 2010-01, Q1, the IRS makes it clear that factual reporting, such as employment status is permitted. What is not permitted is information which is discretionary, such as eligibility for loans, hardships or advance approval of eligibility for a distribution.

I suggest careful review of FAB 2009-02 and 2010-01. In many situations, it is more important to be able to exclude such contracts from 5500 reporting. I would not advise a plan sponsor for whom this was a priority to "Sign off on distributions." If this sign off is viewed as a "consent to eligibility for a distribution," no relief will be available from the 5500 reporting requirement. This presumes, of course, that there are no post-2009 contributions or other activities with regard to these accounts. PNJ

Yes, you can. It may have to be tested but as has been previously pointed out, it will probably pass. As for your document, it may support it being written into the document. You could also explore naming the classes in the document and then having the document indicate that the match formula itself is discretionary and then writing the details into a Board Resolution. The issue you may face with a 403(b) is that almost everyone will be eligible for deferrals but may not sign up to make them. One can have a lot of nondeferring participants in a 403(b) and if they don't defer, they won't receive matching and, consequently, will be "0's" in testing. I would explore using a waiting period for the matching. It may give you a better result as the plan sponsor will be then less likely to end up with a lot of newly hired low paid individuals who are not deferring. Most documents today permit a "bifurcated" eligibility in 403(b) (Immediate for deferral but a service requirement, like a year wait, to be eligible for matching) . Finally, I would not count on lower paid (or any!) employees figuring this out for themselves. An advisor or someone good in HR should focus on communicating with low paid workers whenever they become eligible for matching. Have meetings; show illustrations, etc. Good luck! Looks like the sponsor is trying to do a good thing. PNJ

We do a lot of work with TIAA. (We are an Ascensus FuturePlan TPA in Los Angeles (formerly QBI)) You need a TPA like us that works with them. I think from your note that you are talking to bundled recordkeepers. They don't have the capability or the desire to recordkeep split funded plans. The loans you are talking about are contract loans. It is not a matter of TIAA cooperating or not. The procedures and security for such loans are written into the annuity contracts. TIAA cannot just "decide" to do something that is different than the language in the individual contract. Most of our TIAA work is 403(b) but I do not think this would be different from a procedural point of view. I am assuming it is permissible on this site to give you our phone number. It is 949-325-6727 if you wish to discuss.