Employer contributions to 403(b)

[Guest HappyBunny]

I audit a profit sharing plan sponsored by a not-for-profit org. Employee salary reduction contributions are made to a 403(b). The Plan Sponsor is considering terminating the Profit Sharing plan and making contributions to the 403(b). I am aware of the the Title I requirements that will be triggered should we allocate employer contributions (either match or non-elective) to the 403(b). I am also aware of the 415 issue but this is not as much a consideration as this not-for-profit would never have the $$ to max. I understand that we can use permitted disparity in the allocation. Can they use a cross-tested formula?

Also, I would think that we could still impose the two years of service requirement on the non-elective contribution's eligibility. (100% vesting will apply). Do you agree?

[MWeddell]

You can use a cross-tested formula. Code Section 403(b)(12) will apply the 401(a)(4) rules to the employer nonelective nonmatching portion of the 403(b) plan, which would include the cross-testing rules (and the comparability regulations). There also are some additional testing rules from IRS Notice 89-23, but I doubt that they'll help a cross-tested plan and that notice will no longer apply once the 403(b) regulations are finalized.

You can still use the two years of eligibility rule (with 100% vested) as far as I know.

[Guest HappyBunny]

Thank you very much.