Merger of DC Plan into 403(b)

[Guest AEA]

Back to my county hospital . . .

Briely, the hospital has a defined contribution plan and a 403(b) deferral-only plan. The DC provides that the employer will only contribute to the it if an employee contributes to the 403(b) plan. The formula is as follows:

"For each Plan Year in which you authorize . . . a salary reduction contribution . . . under the Tax Deferred Annuity Plan equal to 3% of your compensation up to 33 1/3% of the SS TWB and 6% of your comp'n in excess of 33 1/3% of the SSTWB, your employer will make a contribution to the MPP . . . equal to 4% of your comp'n up to 33 1/3% of the SSTWB and 8% of your comp'n in excess of 33 1/3% of the SS TWB."

Any reason why I couldn't merge the DC plan into the 403(b) plan and provide the above as a matching contribution under the 403(b) plan? If I were to do this, any notice requirements to employees?

I am suggesting this option because the hospital currently maintains three plans: the DC, the 403(b), and a 457 plan. The paperwork (documents, SPDs, and amendments) are both confusing and costly.

Any thoughts??

[mbozek]

Merger of a qual plan with a 403(b) plan is not an option. However, the employer could terminate the Qual plan and allow employees to make a tax free rollover to the 403(b) plan. Future matching contributions could be made to the 403(b) plan. The employer should provide a 204(h) notice and a summary of material modifictions to the employees and file a 5310 with the IRS. the only reason for mataining a separate qual plan is that the contributions to the 403(b) plan are not aggregated with the Qual plan for 415 purposes. E,g., employee can have a allocation of up to $40,000 to each plan in 2003. Or employer could contribute up to 40k to mpp plan and employee could contribute as much as 17k to the 403(b) plan by salary reduction. In 2004 the max contribution to a 403(b) annuity will be 44k of which 19k can be by salary reduction. If the current MPP formula will result in an employee receiving more than 25k in 2004 then it would be advisable to keep the mpp.

[Guest AEA]

Thanks! I was hoping that the rulings cited for the no merger rule had been "overruled" by the relaxed rollover legislation. Hadn't seen anything official, but . . . .

[Guest AEA]

Am I correct that the employer could allow employees to roll the DC into the 403(b) plan but could not simply transfer these amounts?

[Guest lworthington]

mbozek

could you please review the limits between the 403b and the 401k\

the limits are not combined for a 401k and 403b for 415 purposes, but only for the 402g limits

please explain

thanks

[mbozek]

Since Employee is deemed to be in control of the 403(b) plan, contributions are not aggregated with employer contributions to a DC plan. See IRC 415(k)(4) and reg. 1.415-8(d). Only salary reducton contribions are aggregated under 402(g).