group annuity & individual in 1 plan?

[Guest DLA]

I have a plan that has contributed equally for all employees, no match required, 100% vested, into individual annuity contracts. EE's may contribute as well. We have been told that this is not permissable, and that a new "group" plan must be installed. Also, a lot of "buzz"about reporting issues, testing, 404 compliance etc is being "tossed" around, causing confussion and concern. FYI, we use both fixed and variable options to satisfy 404 selection needs, and employee suitabilty needs.

If it is not the case, does the individual contract plan creat problems with 5500 or other reporting/compliance issues?

If this is the case, can we have the two side by side, whereas the employees who wish may continue personal contributions into their own, old plan?

Thank you!

[Ellie Lowder]

Dan, most 403(b) plans are funded with individual annuity contracts, or individual custodial accounts. This is not an issue for the filing of the 5500 because there is no financial data required (e.g., very abbreviated reporting, according to the instructions for the 5500); no schedules; no independent audits. The requirement for summary annual reports is the challenge since there is usually no trustee. However, as discussed in chapter 4 of The 403(b) & 457(b) Primer Plus, "the authors are unaware of any 403(b) plan that has been fined or penalized by ...DOL for failing to satisfy the SAR requirement". The authors (of which I am one) go on to say "In fact, any inquiries are usually satisfied" when it is explained that "plan assets are directly owned by the participant and the participant receives statements directly from the product or investment providers." You should check with your own counsel on that issue before deciding whether to make any change.

In terms of nondiscrimination testing for non-elective contributions (assuming that you are a non-governmental employer or non-church/QCCO employer that has not affirmatively elected ERISA coverage), the key question is whether you have an HCE. Do you have an employee or employees that earned $90k or more last year? Additionally, even if you do, your post indicates you are making equal contributions for all eligible employees (not matching; not graded according to service, etc.), thus, I can't see that discrimination in contributions is an issue.

Incidentally, this responds to your initial query and your e-mail directly to me. Hope it helps.

[Guest DLA]

Thank you Ellie;

On the matter of side by side group and individual plans; whereas the ER would fund the group plan only (including all qualified EE's), along with voluntary monies should EE so desire, or the EE could continue contributions to their existing, personal and individual plans... are there complications in this arrangement which are unique?

Thank you.