Patricia Neal Jensen

MBozek: Good list. with PJ2009 comments added. Very important to make this distinction. Adding a catchup contribution to a 457(b) sponsored by a 501(c)(3) Nonprofit (if the participants in the 457(b) are maxing out the 403(b)), will disqualify the 457(b). There is no remedy if this error is discovered after April 15 of the next year. I see way too many sponsors and advisors who have read some of the IRS' casual comments about catch ups for plans sponsored by government entities and then believe this applies to a 501(c)(3) sponsor. Andy H.. It is legal. "Why?" is the sort of question tax lawyers really don't care so much about! It is an advantage for a Nonprofit because the top people can get another 402(g) limit amount of tax deferred income. And since a 457(b) is not ERISA, there is no 5500 or annual filing and minimal administration (make sure the 402(g) limit not exceeded).

Legal and in the employer's control. It is not the employee's money (in spite of what the author of this letter thinks).

Agree with John Feldt. Further, allowing an age 50 Catch Up in a 457(b) sponsored by a 501(c)(3) org disqualifies the plan if it is not returned by the next April 15. No exceptions and no correction program now available. All the money in the plan is taxable. This plan is disqualified.

Good morning! We (QBI, a TPA firm with Ascensus) administer many of these plans. A common error in planning for this sort of thing is confusing the investments with the plan document. This plan, as you describe it, Albany, only has or needs one plan document (and consequently 1 5500 etc). This one plan will still have investments in the TIAA contracts (I agree: Most of these older contracts are controlled by the Participants.) It will have two kinds of investments. One will be the "legacy" investments in the TIAA annuity contracts and the other will be whatever your plan sponsor decides to use from this point forward (American funds? Principal? Empower??). You do not need or want two plans. You will need to restate the plan document so that it has liberal investment provisions and is not limited to the TIAA investments or administrative operation. We (at QBI) also try to persuade the plan sponsor that they should administratively "shut off" contributions to the TIAA investments (all new contributions after a specific date go to the new fund choices). The exception to this is loans out of the old, annuity contract investments. TIAA's loan rules on these old contracts are very different from the loan rules which you probably prefer on the new investments. You cannot control or change the loan rules written into the annuity contracts. I have language which I write into the SPD's and references for use in the Adoption Agreement (I use an FTW document) which will indicate that the rules applicable to the loans out of the TIAA contracts are TIAA's rules and that the Participant should contact TIAA for specifics. I am happy to share if you need my drafting as a sample. TIAA has improved its reporting on loans a great deal. Your client (and maybe you as well) will be able to get information regarding loans in default from TIAA (that used to worry us as an old TIAA plan loan default would not have been reported at the plan level). You can try to encourage Participants to transfer assets to the new investments. I have not seen this work. And you are absolutely correct: you will NOT be able to get terminated employees to transfer out of the TIAA assets. I don't know if this plan is close to "large plan" size, but if it is, you will want to research the rules concerning "counting" accounts belonging to terminated Participants. See FAB 2009-02 and FAB 2010-01. All comments or questions are welcome! PNJ

I am the Practice Leader for 403(b) for our firm. I like FTW. The documents work well for my clients and I think the Support people are the best (and the fastest) I have ever worked with. I can get answers to questions and advice about how to implement something in a document in less than 24 hours. PNJ

After 2009, a Non-ERISA plan which depends on an ERISA plan for an allocation rule causes the "Non-ERISA" plan to become ERISA. I would argue that you have two ERISA plans (instead of an ERISA and a Non-ERISA) and therefore, perhaps, (see Peter's comment) problems with the PS allocation. If the auditor tracks with the theory I am referencing, you also have problems with not filing a 5500 for the plan you thought was Non-ERISA. PNJ

Agree. The 3(16) can pick and choose, but the agreements should articulate this very specifically. Fiduciary Guidance lays this out correctly. FYI, our firm developed such a 3(16) model but terminated it after a couple of years. We are not a fulfillment house (and do not want to be) and the plan sponsors were altogether too enthusiastic about having us mail out notices etc. This "product" needed more staffing and training than we were set up to provide. We could see that we would not make money on this for a few years and decided that we were busy enough with the work we already are set up to do to take a chance on this working out profitably. Our clients did love it, though. Our model was very helpful to a plan sponsor with a lot of turnover in the HR and admin areas of its business. Hope this helps! PNJ

I agree with Bri.... How are you taking a pre-59.5 distribution? What plan provision? Legal theory? PNJ

I agree with jpod. Some old 403(b) plans using annuity contracts thought that they could not make employer contributions unless an employee enrolled (because of the annuity contract application rules). ERISA plans just do not work that way. The employer has to make the contribution and cause the vendor to open an account to receive it. If the vendor refuses (and we have had this happen), the responsibility is still on the plan sponsor to add a vendor which will accept these contributions. If there is a withdrawal provision which would work (in-service?), one might suggest to the reluctant employee that he or she withdraw the contribution from the plan and contribute it to the church. Or just make a "like" contribution to the Church and wait for a distribution option which will not cause a pre-mature distribution penalty. Sometimes employees in such situations think they are doing the church a favor by trying to refuse the contribution. It just does not work that way and I would talk the employee through the idea of contributing a like amount to make the church "whole."

My suggestion would be if possible, to use the Social Security Definition of Disability. It is an objective, third party standard.

Sounds to me like a good TPA is what you need. This situation and others regarding this Plan are not designed for resolution by people who are not specialists. Good luck!

Lou is correct. The Plan needs a Non-Elective option with single person group testing. If the participants they want to benefit are NHCE's, then you should be OK. If they are not, you will have to test and see where the deficiency lies and whether your client is willing to change the contribution to fix it.

1. Annual Notice Form is usually included in your document package. Ask your vendor. If you can't find one, let me know and I will help. 2. and 3. Our firm sends these out in the fall on calendar year plans along with all the other required notices. 4. For ease of administration, we recommend a mass distribution to all employees. Also, posting, etc. 5. Although it would be lovely to have executed acknowledgement of receipt of such notices, we usually use a "business standard" distribution. In other words, the notice is published on a specific date and emailed to all Participants (assuming they all have email addresses) and then note of this activity and the date it took place is made and retained. FINAL Comment: Don't forget all 403(b) plans have to be restated for PPA by March 31, 2020. PNJ UNIVERSAL AVAILABILITY NOTICE Charity X. 403(b) Plan This notice provides important information about your rights to defer compensation I Charity X. 403(b) Plan (the "Plan"). The Plan Administrator is: Charity X Address: 2021 Ventura Blvd Phone number: 818-297-7685 Am I eligible to make elective deferrals? You are eligible to make elective deferrals if you are employed b yCharity X. or any affiliate who has adopted the Plan. You can start making elective deferrals immediately upon your hire date. What are elective deferrals? Elective deferrals are contributions you may make out of your compensation to the Plan. You may contribute to the Plan on a pre-tax or after-tax basis. Pre-Tax contributions are made to the Plan out of your compensation before taxes. Your contributions are only taxed as compensation once you receive a distribution from the Plan. After-tax elective deferrals are known as Roth contributions. Roth contribution are made by you on an after-tax basis, but if certain requirements are met, a "qualified distribution" from your Roth contributions will not be taxed when you take them out of the Plan (see the Summary Plan Description for more information). There are no income limitations on who may make a Roth Contribution. Roth Contributions are made in the same manner as pre-tax elective deferrals. You must designate how much you would like to contribute on a pre-tax basis (normal 403(b) contribution) and how much you would like to contribute as an after-tax Roth Contribution. You are not required to make any Roth Contributions. You may designate all of your elective deferrals as pre-tax contributions. The sum of your Roth contributions and pre-tax elective deferrals may not exceed the annual limit on regular 403(b) contributions. Please note that Roth Contributions are not suitable for everyone. Please consult with your tax advisor before making any Roth Contributions to the Plan. What are the limits on elective deferrals? Federal law limits the amount you may elect to defer under this Plan and any other retirement plan permitting elective deferrals (including both other 403(b) and 401(k) plans). You are limited to contributing $19,000 (for 2019) during any calendar year. Your Plan may further limit the amount of your elective deferral. Please see your Summary Plan Description for further information. If you are age 50 or over, you may defer an additional amount, called a "catch-up contribution", of up to $6,000 (for 2019). The total amount that may be contributed to the Plan on your behalf in any year may not exceed the lesser of 100% of your compensation or $56,000 (for 2019). How do I make or change my deferral election? You may make or change your deferral election by returning a deferral election form to the plan administrator. Once I make a deferral election, how often can I change, stop, or re-start the election? You may change or re-start your deferral election once each pay period. You may stop your deferrals at any time. The plan administrator may establish additional rules you will need to follow when making your deferral election. Your deferral election is only effective for compensation you have not received yet. The plan administrator may also reduce or totally suspend your election if they determine that your election may cause the Plan to fail to satisfy any of the requirements of the Internal Revenue Code. Can I direct how my elective deferrals will be invested? Yes, you can direct how your elective deferrals will be invested from among the different investments offered under the Plan. You may make or change your investment elections by returning an investment election form to the plan administrator. Subject to any additional restrictions placed on investment timing by the actual investment, you may change your investment elections daily. If you do not make an investment election your account balances will be placed in investments selected by the plan administrator.

As Bill says, "pretty normal." These comments do assume, however, that the 403(b) was actually Non-ERISA. Simply not having employer contributions is not enough. It is an issue of employer control over the plan. I suggest either making it clear that you are not responsible for the status of the 403(b) or digging into it so that you are satisfied it is and has been actually Non-ERISA. The place to begin is what does the plan document say? Good that the two plans were "never coordinated." Coordination might have made the 403(b) ERISA. PNJ

Hello! I do think you would have to terminate the 401(a) and allow participants to take the cash or rollover, etc. Cannot merge a 401 plan and a 403(b) plan. (This rule makes little or no sense and may be legislative oversight??) And I definitely would not use the alleged Non-ERISA plan as the foundation plan for the ERISA 403(b). The multiple vendor accounts are a significant problem plus this plan make "harbor" several items which are not necessarily consistent with defensible administration.

The MEP (or MECP?) issue is a little confusing. I agree with QP_Guy above. If this is a Non-Electing Church with a 403(b) asking if the Successor Plan rule applies to it, I would say "yes." I did not find anything directly on point, but the intent of the Successor Plan Rule is to prevent a tax deferred plan from creating termination distributions so that employees can "cash out" and then immediately starting another plan to continue deferrals. It does apply to 403(b) and, because I think the focus is on the participant's access to the tax deferred funds, I don't think this rule changes because it is a church. Churches must follow IRS rules governing plans and I think this is one of them. My solution, however, would be to simply freeze plan # 1 and start plan # 2. Since these plans do not file 5500's, it would seem to be of little consequence.

Belgrath... the successor plan rules apply 403(b) to another 403(b). They do not apply 403(b) to 401(k) (or vice versa).

A 403(b) PLAN can have more than one investment/recordkeeper. Just add the new one and inform the participants that no more contributions will go to recordkeeper # 1. Sometimes the plan sponsor also does not allow loans from RK #1 (if their signature is required) and that encourages Participants to sign the paperwork and transfer the funds to RK #2. ( I have never seen a situation where "all" the account holders would have to sign. Most individual account packages would require a signature to transfer an account. So you will be able to transfer individual accounts as Participants see the reason to sign and do so.) I am assuming from the degree of control suggested that this is an ERISA 403(b) so whoever prepares the 5500 will need to include all the assets from both recordkeepers. Just keep the single plan format. No freezing and no "new" plan and no "terminated plan. Just two recordkeeper/ investments platforms.

I suggest she look to her lawyer if fault is to be found. (Smiling)

Luke Bailey... I think the confusion results from the TPA not understanding the rules about the language in the document. This match is not discretionary. It is written into the document.

Not sure where my response from yesterday went but, briefly: I suggest combining the desired features in an ERISA 403(b) and freezing the Non-ERISA Plan. Very brief responses to your questions: 1. No 2. No 3. Problems include discrimination testing for deferrals which they may not have experienced before and possible universal availability problems regarding non-union employees. ERISA 403(b) would work better. Patricia

Such contributions are tested so, as a practical matter, adding this provision for HCE use only (who else would do it???) is useless. It will fail testing.

Thanks! Our attorney says HSA = cash so the "open choice" which this client prefers to use (participant is told that they can choose how much of the money set aside for this goes to 403(b)) is CODA. We do not have HCE's in this plan so no testing concerns. Thanks again! Patricia

I agree. The bias is clearly in favor of ERISA.