Testing 401(k) and 403(b) plans/aggregation

[Guest Maxwell]

An employer maintains both a 401(k) plan and a recently acquired 403(B) plan (acquired entity). What are the aggregation rules for testing these plans? Mandatory? Permissive? Cites? Thank you very much...

Maxwell

[Carol V. Calhoun]

Are we talking about 403(B) and/or 401(k) plans that also have employer contributions, or employee-deferral-only plans? The rules are complicated enough that I'd like at least to narrow down what we are talking about before trying to describe the rules.

[Guest Maxwell]

Say for starters it is only employee money...in the 401(k), only money contributed by the employee; same for the 403(B)...

I've a feeling by your reply that it could be very different if employer-contributions are involved...

Thanks...mxwl

[MWeddell]

For elective deferrals, a.k.a. employee pre-tax contributions, with relatively few exceptions all employees of the "employer" (defined in a broad sense to include related entities) must be eligible to make 403(B) deferrals. One of the most important exceptions to this universal coverage requirement is that those eligible for a 401(k) plan do not have to be eligible to make 403(B) deferrals.

For the 401(k) plan, if you've got a situation where all the not-for-profit employees are eligible for a 403(B) plan and all the employeees working for for-profit entities within the controlled group are eligible for the 401(k) plan, then there's a special coverage testing rule reinstated by EGTRRA which says the 401(k) plan passes coverage testing. (I'm obviously greatly simplifying things here.) Other than that, the 403(B) deferrals don't affect the 401(k) plan's discrimination testing. In particular, the ADP test for the 401(k) plan is unaffected by the 403(B) deferrals.

I agree with Carol that a different explanation is needed for employer matching and employer nonmatching contributions. I'm also assuming that we're not talking about employee after-tax contributions.