DB plan combined with 403(b) in 2002

[Belgarath]

Employer has 403(B) plan to which employer contributions are made. Wants to install a DB plan for 2002 as well.

Current rule is that, in general, the 403(B) plan is not aggregated with the DB plan for 415 limits (1.415-8(d)(1)). However, one of the specific exceptions to this under 1.415-8(d)(2) is where the

403(B) participant made the so-called "C" election under

415©(4)©, to use the Section 415 limitations, rather than the exclusion allowance calculation.

With the passage of EGTRRA and the unlamented demise of the MEA, it would seem logical that this is tantamount to the "C" election being made, and that the 403(B) plan will now be aggregated with the DB for the 415 limits. Do you read Section 632 of EGTRRA to get to this result? It seems to me that it does, but I'd sure appreciate any opinions on this issue. Thanks!

[MGB]

I do not understand your analysis. Although the election makes the 403(B) an employer-provided defined contribution plan for 415, there is no longer a 415(e). So, the 403(B) should have no effect on the defined benefit plan and vice versa, even though it is an employer-provided DC benefit.

If the employer wants to have a DC plan in addition to the 403(B) plan, that is a different matter. However, absent an actual C election, they should still not be aggregated and the 403(B) should be considered under the control of the employee. I originally thought EGTRRA changed this (as I wrote in our Legislative Information Bulletin issued soon after EGTRRA), but have since come to the conclusion that they are still considered separate from the employer.

[Belgarath]

Thanks for the response. I should have provided more information, however. The DB plan will have a contribution far in excess of the 25% limitation to a DC plan. So if the 403(B) plan is aggregated as a DC plan with the DB plan, then the DB contribution would be fully deductible, and the contribution to the 403(B) would not. Although 415(e) has gone away, the deduction limitations have not. So you still have the 25%, or DB cost if greater, as a maximum deduction.

So I guess I'm basically asking if the 403(B) plan will be treated as any other DC plan, or will it still enjoy the non-aggregation that it did before? Thanks again.

[QDROphile]

What employer eligible for a 403(B) plan is a taxpayer?

[Belgarath]

Yes, I'm laughing at myself over this one. You're right, the deductibility issue isn't an issue in this situation. I'm unused to dealing with non-profits. And as I think about it, I agree with MGB - even though a "C" election isn't going to be possible since it will no longer exist, you have a regulation saying the 403(B) and the qualified plan aren't aggregated unless a "C" election is made. So for now, a 403(B) and the DC plan would appear to have separate 415 limits.

Seems like this is an unintended result of EGTRRA. Any feelings as to whether IRS will change the regs on this?