If a company sponsoring a 403(b) plan merges with a company with a 401(k) plan, when does the 403(b) plan have to expand coverage to cover the other company's employees?

[Guest JBeck]

If a company sponsoring a 403(b) plan merges with a company with a 401(k) plan, when does the 403(b) plan have to expand coverage to cover the other company's employees? Is there a 410(d)(6) rule for 403(b) coverage?

[GBurns]

Is the new merged entity even eligible to have either of a 403(b) or 401(k)? What is the status of the resulting company?? Who is the successor employer? Does the sponsoring employer of each plan still even exist? Does either or any of the Plan Documents etc allow for survival (transfer or otherwise) upon such a merger or do the PDs require termination of the Plans when the sponsor ceases to exist as the employer or otherwise?

[mbozek]

I am assuming that both entities are tax exempt employers. A 403(b) plan must be sponsored by an employer tax exempt under IRC 501©(3) whereas a 401(k) plan can be sponsored by any tax exempt employer. A 403(b) annuity plan can exclude participation by employees who are eligible to participate in a 401(k) or 457(b) plan. 403(b) plan assets cannot be merged with a 401(k) plan assets. If the entity which which exists after the merger is a 501©(3) TXO, the two plans can continue operation without changing the participation rules for each plan with one exception. The 403(b) annuity plan would have to offer salary reduction to any employee of a 501©(3) employer who would not be eligible to participate in the 401(k) plan, e.g., employees who do not have a year of service.

If the surviving entity is not a ©(3) employer, then only a 401(k) plan can be maintained.

[GBurns]

Most if not all public school districts are tax exempt employers, Are you saying that they can set up a 401(k)??? Or did you mean "some" rather than "any"?

Why would the entity that exists after the merger be able to continue plans that it does not/did not sponsor? I do not think that it is yet clear that the entity will qualify as a successor organization. What is the arrangement being made with the employees and unions etc?

[mbozek]

GB: under what section of IRC 501© does a public school gain tax exempt status? See IRC 403(b)(1) for description of entites that can sponsor a 403(b) plan.

[GBurns]

Public Schools are educational institutions under 501©(3). Public Schools also usually are either a political subdivision of a State, or an agency or instrumentality of a State or political subdivision.

IRC 403(b)(1) does not pertain to "entites that can sponsor a 403(b) plan. ", it pertains to "Taxability of beneficiary under annuity purchased by section 501©(3) organization or public school.-" Although it does give some indication and makes reference to 170(b) which section deals with charitable contributions.

What was your point?

Nothing has clarified that the surviving entity will be able to sponsor either a 403(b) or a 401(k).

You still did not answer the question that I asked re 401(k).

[mbozek]

GB: If you had read the IRC you would have noticed that public schools are not designated as tax exempt organizations under IRC 501© because state government entities are exempt from taxation under IRC 115. From your response it appears that you dont understand that public schools are a separate category of employer who can establish a 403(b) plan even though they are not TXOs.

[GBurns]

What does it matter what makes Public Schools tax exempt? The fact is that they are.

I questioned your statement that "whereas a 401(k) plan can be sponsored by any tax exempt employer". You still have not answered my question .. "Most if not all public school districts are tax exempt employers, Are you saying that they can set up a 401(k)??? Or did you mean "some" rather than "any"?. In my post of December 1 at 7:43 P.M. I never stated that Public Schools were exempt because of 501, that was raised later.

Trying to sidetrack the issue as to whether 501© is applicable to Public Schools is irrelevant. The fact is that you are wrong NOT every tax exempt employer can sponsor a 401(k).

Also none of your sidetracking or trying to prove an irrelevancy corrects your statement nor does it address the issues of the original post.

No one has questioned who can sponsor a 403(b) Plan, so I do not know why you have even raised the issue.

It also appears that you do not know who can sponsor 401(k) Plans. Read your posts.

[mbozek]

GB- The section of the tax code governing the non taxable status of the entity is important. Since public schools cannot be txos under IRC 501© they cannot sponsor a 401(k) plan. See IRC 401(k)(4)(B).

[GBurns]

Section 115 has nothing to do with the eligibility to sponsor a 403(b) plan. This is is the wording used by the IRS in numerous PLRs issued to public schools:

"Section 403(b)(1) of the Code provides for a limited exclusion from gross income with respect to amounts contributed for the purchase of an annuity contract, where the contract is purchased for an employee by an employer described in section 501©(3) which is exempt from tax under section 501(a), or for an employee who performs services for an educational organization described in section 170(b)(1)(A)(ii), by an employer which is a State, a political subdivision of a State, or an agency or instrumentality of any one or more of the foregoing, if all the conditions of section 403(b) are met."

As far as 401(k) plans go it is very well known that a public school cannot sponsor a new 401(k) plan. However, it was you who posted that "a 401(k) plan can be sponsored by any tax exempt employer". ALL I have pointed out is that you are once again incorrect.

Your reference to IRG 401(k)(4)(B) also shows that your statement "a 401(k) plan can be sponsored by any tax exempt employer" is even more inaccurate.

Let's get back to the original post.

[joel]

The Board of Education of the City of New York has made The 401(k) Plan of the City of New York (administered by the Deferred Compensation Board of the City of New York) available to its employees. How does this FACT fit into the points that have been made on this thread?

Joel L. Frank

[GBurns]

Joel

Your post points out the FACT that a Public School, regardless of what some experts say, can sponsor a 401(k).

However, it still remains that a public school cannot sponsor a NEW 401(k). Quite a few do have a 401(k) only because they sponsored it before the closing in 1986.

So regardless of what some experts say it is possible for a Public School to have a 401(k) as your post points out. But it is no longer possible to start a new one.

[mbozek]

401(k) plans established by govt entities pror to 5/6/86 were grandfathered by Congress. NYC had a grandfatherd plan for a small group of employees which was expanded to cover additional classes of employees in 2002.