403b/401a combined plan

[Guest dgflautt]

I have a sponsor client who maintains a 403b/401a combined plan. The 401a component houses the employer match and annual fixed profit sharing and the 403b employee deferrals. The plan is currently record kept as one plan with segregated money type to carve out the 401a/403b portions of the plan. The 401a portion is in place I believe since participants active in one of my clients sponsored Defind Benefit Plans may not receive employer allocations and 403b plans require universal availability. The plan has assets totaling 12 million and 1050 participants.

I have some questions for the forum relating to this "hybrid" setup?

1. How common is 403b/401a combined plan arrangement?

2. Names of providers out there that would operate a plan like this as a 403b/401a combined plan (plan located in Midwest)?

3. Any other information you might wish to share regarding your experience with similar plans.

Thanks for your input.

David

[mbozek]

It is highly unusual to have a 403(b) plan combined with a 401(a) plan in the same document. I thought the IRS discouraged such a practice. Which makes me ask -Does this plan have a favorable determination letter?

The better practice is to separate the two plans into separate documents with separate funds.

I dont know of any providers that would administer a combined plan

Q2- are the same funding vehicles (mutual funds or annuity contracts) used to receive contributions for both the qualfied plan and the 403(b) plan?

I dont understand the reference to universal eligiblity. A 403(b) plan can be administered for all eligible employees in a separate document from the qualfied plan.

Your cleint needs to get processonal tax advice.

[E as in ERISA]

I've never seen them legally as one plan -- but I've seen them administered almost as if they were. They might do that from a recordkeeping standpoint to get them on one statement. Mostly in the healthcare arena -- using an insurance company for both the 403(b) and the 401(a) being a money purchase pension plan with the match. And I think that some of the persons dealing with them actually thought they were one plan and referred to them that way even though they weren't legally.

[E as in ERISA]

I've even seen them covered under one "trust" document -- very questionably so.

[Lori Friedman]

It's extremely common for a 403(b) arrangement to exist in tandem with a qualified plan. This is how an employer can maintain the non-ERISA characteristics of the 403(b) arrangement yet still provide retirement plan contributions for its employees -- make the employer contributions to a separate, parallel 401(a) plan.

But...I've never seen the two plans created by one document. That would be mixing the "apples and oranges" of a qualified plan and another type of arrangement that exists under different law.

As for a common trust document...how could this happen, when 403(b)'s don't use trusts?