Non-profit entity and for profit entity--403(b) and 401(k)

[Guest DLevine]

I have a non-profit entity and a for-profit entity that are considered under common control. If the non-profit entity employees are participating in a 403(B) and the for-profit entity employees are participating in a 401(k), do I need to consider the non-profit employees in any of the testing (401(k),401(m), or 410(B)) of the 401(k) plan?

Thanks in advance.

[E as in ERISA]

In doing the 401(k) testing for the for-profit entity, you have to consider the nonprofit employees . In the cases I have seen, the nonprofits are large hospitals, etc. with a few small for-profit subs. Most of the HCEs are employed at the nonprofit, so its typically not a problem passing testing.

In doing the 403(B) testing for the nonprofit to determine whether the elective deferral feature is discriminatory, you can typically exclude the employees who are given an opportunity to defer under a 401(k) . See 403(B)(12).

Are there employer contributions?

[Guest DLevine]

In my situation it appears as if most of the HCEs are employed at the for-profit entity, that is why I was wondering if it was possible to have them in the k plan and keep the other employees in the 403(B). Does the k plan count the 403(B) plan participants as covered for purposes of 410(B)?

I don't believe there is an employer contribution--but if there is, I think you're saying that all employees must be included in any necessary discrimination testing. True?

I appreciate your insight.

[jpod]

How are the 2 entities under "common control?"

In my view, the only way a nonprofit and a for-profit can be under common control is if the nonprofit owns 80% or more of the for-profit. I realize that there was a GCM issued several years ago that took a much expansive approach, but that GCM is just plain wrong.

If you're talking about an affiliated service group situation, that my be a horse of a different color.

If they are under common control, or members of an affiliated service group, unfortunately you will have to treat the employees of both entities as employed by a single entity for purposes of testing the 401(k) plan under Section 410(B).

[mbozek]

It is better to put the HCEs into the 403(B) plan which has no ADP testing. Each HCE can put in 12k plus 2k if over 50. Also if the er is an eligible er defined in IRC 402(g)(8), ees with 15 yrs of svc can contribute an additional 3k for up to 5 years. If the 401(K) plan has no hces then it automatically passes the ADP test and the non hces in the 401(k) plan do not have to be offerred the opportunity to participate in the 403(B) plan. The HCEs will have to perform substantial service for the np for the salary they are paid.

[jpod]

Very interesting. Unfortunately, there's a slight problem with that approach: employees of a for-profit cannot participate in a 403(B).

[jpod]

Sorry, MBozek; I missed your last sentence.