501(c)(3) possible changing to municipality (gov. agency)

[Guest John Stoffel]

A 501©(3) hospital is considering changing to a municipality for many reasons, UBIT being one. If the 501©(3) starts up a 401(k) plan, what happens to the plan if subsequently the hospital becomes part of a government agency? What are the potential pitfalls and options for the retirement plan.

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John A. Stoffel, CPA

[Guest CVCalhoun]

I'd say that this is a quite timely topic. I understand that ERISA Advisory Opinion 99-07A has just been issued, and treats a plan as being a governmental plan even if it covers some people in their capacity as former governmental employees. I'm wondering whether, by analogy, the hospital might be able at least to retain the 401(k) plan for those employees who joined before conversion to governmental status? Unfortunately, I have not yet been able to obtain a copy of the advisory opinion, since it is not yet up on the Department of Labor's site. But watch this space!

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Employee benefits legal resource site

[QDROphile]

But the IRS has hinted that it does not follow a de minimus rule when a plan has nongovenrnmental participants.

[Guest CVCalhoun]

Ah, yes, one of many areas in which the relevant agencies have not quite gotten their act together!

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Employee benefits legal resource site

[Guest CVCalhoun]

For anyone who is interested, after a little harrassment on my part, the Department of Labor now has Advisory Opinion 99-07a up on its site. (You can click on the link to see it.) As previously discussed, the Advisory Opinion held that a plan which is otherwise a governmental plan will not be excluded from such status by reason of including a de minimis number of nongovernmental employees. Of course, that is only the DOL's opinion; there is reason to believe that IRS may not agree.

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Employee benefits legal resource site