Testing a 401(a) DB plan in aggregation with a 403(b) plan

[Guest astonewall]

The circumstances are this:

Non-profit organization has had a 403(b) plan arrangement since about 1998. It provides for elective deferrals, 100% match on the first 5% of deferrals and a 10% “basic” contribution to all non-excludable employees.

The organization wants to set up a new defined benefit plan qualified under 401(a) retroactively effective to 1/1/04. The plan is designed to be a non-safe harbor floor offset arrangement (the benefit formula is not uniform for all employees). The offset would be for benefits attributable to 403(b) basic contributions made on or after 1/1/04.

The question: Is it clearly permissible to aggregate the 403(b) plan and the 401(a) DB plan for purposes of satisfying 401(a)(4)? If so, can you provide any citations supporting this position?

The 401(a)(4) regs do not exclude 403(b) plans in the definition of plans to which it applies.

403(b)(12) indicates that such plans with employer contributions are subject to the requirements of 401(a)(4).

IRS Notice 89-23 V. (Definitions) B. (Aggregated 403(b) Annuity Programs) provides that

“In addition, an employer may decide, in testing its aggregated 403(b) annuity program to include any one or more of the employer's plans described in section 401(a), annuity plans described in 403(a), governmental plans described in section 414(d) and church plans described in section 414(e) to which the employer contributes, to the extent that any such plan covers the employer's employees, so long as each plan that the employer decides to include in the program satisfies sections 410(b) and 401(a)(4). A plan that satisfies sections 410(b) and 401(a)(4) only when considered together with one or more comparable plans may be included in an employer's aggregated 403(b) annuity program only if the employer also includes the comparable plans such plan relied on in satisfying sections 410(b) and 401(a)(4) in the aggregated 403(b) annuity program.”

This seems to indicate that if the TSA plan is not passing the non-discrimination requirements, it may be permissibly aggregated with one (or more) 401(a) plans to pass providing that the 401(a) plan(s) pass 401(a)(4) and 410(b) on their own.

Extending this logic in reverse, it seems logical that a 401(a) plan could be permissibly aggregated with a 403(b) program provided the 403(b) program would pass the non-discriminatory coverage and benefits/contributions tests on its own.

[AndyH]

I think that your analysis is correct except your last paragraph. I think this is a one way street. The 401(a) plan may not aggregate the 410(b) plan for purposes of satisfying 401(a). I don't have time at the moment for a cite, but I'm sure someone else can.

[david rigby]

Is this it? IRS Reg. 1.410(b)-7(f)).

[AndyH]

"PLAN" is defined in 1.401(a)(4)-12:

"Plan means a plan within the meaning of section 1.410(b)-7(a) and (b), after application of the mandatory disaggregation rules of section 1.410(b)-7© and the permissive aggregation rules of section 1.410(b)-7(d)."

And 1.410(b)-7(a) "sets forth a definition of plan within the meaning of section 401(a) and 403(a). Then certain mandatory disaggregation and permissive aggregation rules are applied. The result is a definition of plan that applies for purposes of 410(b) and 401(a)(4)."

It would seem clear to me that a "plan" which can possibly be aggregated to satisfy 401(a)(4) or 410(b) must therefore fall under either 401(a) or 403(a) ("qualified annuity plan"-whatever that is), NOT 403(b).

pax, my version of 410(b) does not have a 7(f). Is that a typo? Or am I missing something?

[david rigby]

IRC 410 does not have a subsection (f), but the regulation cite above is correct.

[AndyH]

Wow. My version, reprinted by BNA, did not have an (f). Otherwise it is identical including the footnotes. Scary.

Yes, that is right on point. I could have used that before! Thanks.

[Guest astonewall]

Andy, I believe I agree with your citation, though not necessarily the conclusion that it is a one-way street. I was so focused on looking for exceptions in 1.410(b) -7© and (d) that I didn't look closely enough at -7(a). This clearly does not bring in 403(b) plans. So I do think (now) that the existing 401(a)(4) regs do not bring in 403(b) plans explicitly, thereby providing any solid basis for doing so.

However, given the text of IRC Section 403(b)(12) - which takes you to 401(a)(4) "as if such plan were described in Section 401(a)" - and IRS Notice 89-23 plus the new proposed regs for 403(b) plans, which indicate a strong direction towards breaking down the barriers between these plans, I guess I do not conclude that it isn't do-able. It seems that it just hasn't been formally considered (that I can see) and provided for.

My thanks for your comments. They were helpful.

By the way, I think the reference to -7(f) is not in IRC Section 410(b) but in the regs. But I do not believe that is relevent here since the definition of plan covered by the regs at 1.401(a)(4) does not reference this portion of the 410(b) regs, only -7(a), (b), © and (d).

[AndyH]

I wasn't clear. My (BNA) version of the regulation 1.410(b) does not have an (f). Maybe whoever wrote the 401(a)(4) definition was working with the same BNA reprint .