501(c)3 employer wants to obtain $42K max. TSA along with a SEP?

[Lori H]

employer of 10 whose HCE will make around $250K wants to max out. would a TSA allowing him to defer $14k coupled with a discretionary SEP allowing him to receive the additional $28K be a viable option?

thanks

[mbozek]

Employer must make nondiscriminatorySEP contributions for all employees with service in 3 or last 5 yrs. Employer could provide a 100% matching contribution to the employee's salary reduction contribution and then offer a 457 plan to the HCE to allow another 14k deferral for a total deferral of 42k.

[QDROphile]

Has anyone analyzed whether or not the HCE's pay and apparent attitude toward compensation and resouces are appropriate under 501©(3)? Clue word: "inurement."

Big pay is not necessarily a problem, but it needs to be considered in terms of the organization and its activities. The 10 employee number caught my eye. This not a hospital CEO.

[wmyer]

Lori, if you take mbozek's advice, be careful with the match - 403(b) gets a free pass on ADP but not ACP, although there are plan design alternatives that could help with that. Depending on the HCE's age, you may want to consider a cross-tested plan design. mbozek's suggestion of a 457(b) for the tax exempt employer is definitely a good one that the organization should explore.

[Guest rubindj]

250 would not be unreasonable for a physician, a lot of whom work for 501©3's as well.

If you want to truley max out, I would suggest possibly some fo the following, depending on the HCE's length of service and age:

1) A traditional defined benefit pension (unlimited contribution, and if HCE is older with a long length of service, it works very well)

2) A VEBA. No vesting allowed, but contributions must be made for everyone based on salary/legth of service. Funds in the "account" of terminated employees can be rolled into remaining employees or used to reduce contributions.

Both of these have much higher administration costs, but can result in essentially unlimited contributions. They also both require that employees are included in the benefits; however, the benefits are structured around salary and length of service.

[Lori H]

employer will be receiving state grants to propose outdoor projects at various schools. plan to increase number of employees drastically after a few years(maximum of 500). no physicians. 457(b) coupled with 403(b) sounds like a good low cost plan.

[Lori Friedman]

Lori,

It might be a good idea to make sure that the employee has a full understanding of the 457(b) caveat -- all contributions and earning will be general assets of the organization, subject to creditors' claims, and can't be segregated into a trust. The individual may not have a problem with this issue, but he should certainly be aware of it.

Yours,

Another Lori

[could be me maybe not]

How old is the inured dude? How old are the others?

[GBurns]

Isn't the issue of "inurement" that QDRO initially brought up important?

It would seem that if this HCE does what is proposed, it would be an action that has significant personal benefit and no benefit or business purpose to the Organization, in addition to not having as great a relative benefit to the other employees, even if age can be used as a reason to increase the HCE share of the benefits.

[mbozek]

The only inurement that will be provided by the employer to the HCE will be the 14k matching contribution which will be about 6% of pay since the HCE will contribute 14k of his salary to the 403(b) plan and 14k to the 457 plan. The er could get an opinion from their accountant that the benefits and comp are not excess benefits under IRC 4958.

[Guest JurisPrude]

Is it possible to also get contributions to an employee after he/she stops working?

I.e. as an early retirement incentive, ABC College gets employee to accept

early retirement and stop working Sept. 1, 2005.

The college tops up so the entire $42,000 limit for 2005 is used.

In addition another $42,000 is placed in January 2, 2006 and finally

another smaller amount [to make the total addition payments equal to the lesser of $100,000 or one year's salary] is made on January 2, 2007.

Did I see this on this board?