403(b) & 401(k) Co-Existence/Impact

[JAY21]

I've tried to glean what I can from searches within this forum, but would appreciate a confirmation or rebuttal on the following. "401(k) and 403(b) plans apparently can co-exist in certain non-profit organizations but with only one employee deferral limit (14k for 2005). Other than the one deferral limit, is there any other aggregation between these two plans in any other area ? (e.g., does 415 limits only apply to the 401k plan since the 403(b) isn't a qualified plan) Presumably discrimination testing applies to each plan separately if at all for the 403(b). Thx.

[Ron Snyder]

The coordination rules are under IRC section 402(g).

[Guest Yanikoski]

The deferral limit is a per-PERSON limit, so as you say, both plans are aggregated for that purpose. They would also be aggregated if they were offered by different employers!

The $42,000 Section 415 limit on total contributions is aggregated or not according to who controls the plans. Since 401(k) plans are controlled by the sponsor and 403(b) plans are, by definition, controlled by the employee, each plan has a separate $40,000 limit -- except in the rare case where the employee controls the employer, in which case both plans would be controlled by the same party and therefore would have to be aggregated under Section 415. By the same logic, if a person participated in 403(b) plans offered by two unrelated employers, contributions to those plans would have to be aggregated under the $42,000 limit because both plans are deemed to be controlled by the employee -- but if two different employers had 401(k) plans, those contributions would NOT be aggregated because, of course, they are controlled by two different parties.

[WDIK]

Since 401(k) plans are controlled by the sponsor and 403(b) plans are, by definition, controlled by the employee, each plan has a separate $40,000 limit -- except in the rare case where the employee controls the employer, in which case both plans would be controlled by the same party and therefore would have to be aggregated under Section 415.

That's easy for you to say.