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Governmental Housing Authority in a 403(b)

Guest Jim Jesikiewicz

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Guest Jim Jesikiewicz

I have been approached about a 403(b) plan in existence for a governmental agency that is not allowed to sponsor a plan of this type. The sponsor is neither a public educational institution and/or a certain nonprofit organization.

The sponsor is part of the U.S. Department of Housing and Urban Development that administers Federal aid to local housing agencies that manage the housing for low-income residents at rents they can afford.

Normally we see these type of sponsors in a Money Purchase plan since most (if not all) of the contributions are strictly employer related and we would utilize a 457 for any employee looking to subsidize their retirement further on a pretax basis.

I think the former administrator has even filed 5500's.

What would be the best mode of operation?

Should the plan be entered into some type Voluntary Correction Program to move the 403(b) into a 401(a)?

There is NO question they qualify as a governmental entity, should an application for a formal confirm still be filed with the DOL?

Thank you in advance for any feedback...

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Some consultants do not know that a 403(B) plan is available only to public schools and 501©(3) employers. I dont think this plan can be corrected in the 403(B) program because the er is not eligible for a 403(B) plan. I don t think plan is eligible for the VCP for qualified plans if it did not receive an initial determination letter.

Q- did the employees make salary reduction contributions? If not then consider recasting the arrangement as a qualified plan if the plan had a written document and met the requirements for govt plans or a 457(B) plan if the employees made salary reduction contributions. Nonconforming govt 457 plans can be corrected without penalty. Also the s/l for liability for back taxes by employees if the plan is not qualified under 401(a) or 457 is generally 3 years.

The best option may be to correct the plan prospectively and wait for the s/l on collecting taxes on prior years to expire since the IRS does not audit govt ret programs. Going to the IRS may open a can of worms if there is no IRS procedure to correct the mistake.

If the entity is maintained by a govt then it is automatically exempt from ERISA regardless of whether 5500s were filed. A govt organization can not elect to be subject to ERISA .

Note: If the sponsor is a fed govt agency then it could be eligible for the Fed govt Thrift plan.


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Are the individuals who are in charge of your client sure that the employer is not a 501©(3)? It may be involved somehow with the Federal Gov't in implementing gov't programs, but maybe it is a separately incorporated entity that has 501©(3) status.

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  • 1 month later...
Guest Jim Jesikiewicz

I apologize for the delay... I was waiting on some additional info before adding more commentary...

The plan contains a ee mandatory % in order to receive an er % contribution. 5500's were definitely filed.

The employer is definitely NOT a 501© corp... I have found numerous advisory opinions for other similar setups that determine that they are exempt from 5500 and... (ERISA Title I requirements).

mbozek = I got lost in your answer if mandatory contributions are made.. which they are... could you please clarify?

Thank you for your time...

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