Plan design modifications for 401(a)/403(b) plan sponsor : suggestions

[Alf]

I think that you are on the right track with the match, but there are still things to watch out for. If the match is made at the end of the year, it will be much less effective in increasing particpation because the employees will not recognize the benefit. Try and make sure that the match is allocated on a payroll period basis so that the employees really get to see the benefit immediately.

If it were a 401(k) plan, I would recommend the negative election approach (all of my clients are doing it), but I don't think that the IRS will let you do it for a 403(b)plan.

[Guest Kent Scrivener]

I am working with a 501©(3) org that currently sponsors a MPPP (with a 7.5% employer contribution; 2yr eligibility; 100% immed. vesting) and a voluntary 403(B) arrangement.

The plan sponsor wishes to 1) be able to better attract new employees and retain good employees; 2) incent more plan participants to save on their own (currently, only 10% of all eligible ees are deferring); 3) limit financial exposure to 7.5% of annual eligible payroll; 4) minimize nondiscrimination testing (there are no HCE's currently, but the exec director will be at $85k next year and he wishes to defer up to 402(g) limit).

We are seriously considering the following:

1) reducing the employer contribution in the MPPP to 4% or 5% for future employees and participants.

2) adding a safeharbor matching feature in the 403(B) thereby creating an ERISA 403(B) plan vs. arrangement

Does anyone have any suggestions as to how this plan sponsor can most efficiently and effectively achieve its objectives and what I need to watch out for in terms of ERISA, DOL, etc. guidelines/regulations?

Any assistance here would be greatly appreciated. Thanks.

------------------

[Guest Steve M]

If you are going to create an erisa 403(B) then you could bag the MPPP and make all of your non-salary reduction contributions consisting of matching and non-matching inside of the 403(B) arrangement. They are subject to tests as if it is a 401(a) plan under 403(B)(12). This might be easier than operating two erisa plans. Otherwise, keep the 403(B) as a salary deferral arrangment only and wrap around it with a 401(a) plan that does both the match and the non-matching discretionary employer contribution.