Non-ERISA to ERISA 403(b)

[Guest cease]

Hello once again. Continuning to learn about these plans - if only I had more access to organizations that can utilize these plans!

My client offers a salary deferral only 403(b) plan to its employees. Progress is being made and the client is interested in adding a matching contribution. I understand that a formalized plan document will be needed and the matching contributions will be tested the same as matching contributions in a 401(k) plan.

Right now, the employee 403(b) accounts are all over the place. The client would like to set up a group account where the participant and employer contributions are grouped together. Is there anything an employer can do to round up the individual 403(b) accounts and bring them under one umbrella?

Hopefully you understand the gist of my question. Any and all thoughts would be appreciated. Thanks.

[ljr]

Your employer can set up a plan to hold the matching contributions which you are correct in saying must be tested.

I do not know if the existing 403(b) money can be rounded up as your employer wants to do. This may not be a good idea anyway because depending upon what people invested in there could be sometimes high costs to liquidate.

The employer could have all 403(b) employee contributions go into the plan they establish for the match on a going forward basis.

Caution: A good ERISA attorney is a must. There are no 403(b) prototype documents at this time. Note that the ERISA plan will have to file 5500's. There are costs that would be involved, but the 403(b) plan can be preferable to a 401(k) because you don't have to test the deferrals and some other advantages. Good luck!

[mbozek]

Cease: A 403(b) plan maintained by a 501©(3) NP must comply with ERISA. The employer can choose the funding program (annuities and/or mutual funds) for the employees to invest in under 404© rules. The employees can transfer the amounts in their salary deferral annuities to the employer sponsored plan via a tax free transfer (see Rev. Rul 90-24) but cannot be forced to do so because the annuities are individually owned. Salary deferral must be offerred to all employees who work at least 20 hrs a week except for students and union employees but the employer match can be offerred only to those employees in the eligible class who have met the age/year of service requirement. The match can be provided under a deferred vesting basis. Loans and hardship distributions are permitted. 5500s are a no brainer because no detailed reporting is required. All employees can defer up to 12k (14k for over 50) because there is no ADP testing and employees of some NP can defer an additional 3 k for 5 years. No IRS approval is needed for a 403(b) plan. The 403(b) plans I draft are simpler to administer than a 401(k) plan because it is not a qualified plan. The NP could also establish a 457(b) plan to permit the top hat employees to defer an additional 12k.

[GBurns]

cease

Re: "if only I had more access to organizations that can utilize these plans!"

Some of the 403(b) investment providers have some good material that might help you to learn more. Most of the users that I have seen really have nothing.

Shop around among the senior sales reps of a few of the companies for training material. In the past Northern Life (now Reliastar), National Western and TIAA-Cref had very good material. There was also a manual put out by a company that was taken over by National Life that had a very good manual that they gave out to clients regarding 403(b) compliance when the audits started back in the early 90's. The manual was given out by their national marketer which then was Annuity Specialists out of Waco, TX. ASI might still have copies. Most of the other manuals that are used for training and CE credits are not very good although I must point out that I am not familiar with nor have I heard anything on the book put out by Ellie Lowder who you could contact through this Forum at Benefitslink. INMHO, she is one of the few real "authorities", and probably could point you in the right direction for knowledge. You might also want to email a few of the posters to this Forum asking them what they use or would recommend. mbozek, tthurston, ScottyD and Joel Frank also come to mind as people who should have material.