403(b) Set-up

[Guest RJF]

I'm an advisor to a non-profit who currently has a 403(b), employee contributions only with a mutual fund co. I believe the arrangement is done on an employee level whereby they simply fill out some forms. I believe you refer that to a non-ERISA 403(b)?

Now they want to add some Employer contributions, so here are my questions.

They are having a plan document drafted with all the provisions. Does that make this an ERISA plan now?

They want to add the employer money to the existing employee 403(b) accounts. Is that advisable?

If they do comingle the employer with the employee, does that become a problem. Like vesting issues and distributions. I think the employee would be able to liquidate the funds under current arrangement and that would be a problem if they are not vested.

Can anyone offer some suggestions with the above scenerio. Perhaps you have had this sitiuation already.

Thanks.

[Guest zdarskyj]

RJF,

If employer money is contributed to a 403(b) Plan then the company contributions would have to be tested for non-discrimination. A Form 5500 would also have to be filed every year. So, yes the plan is now an ERISA 403(b) Plan

Regarding the investments, you would have to ask the current mutual fund company if they can accomadate the second source of money in an individual's account (source 1- elective deferrals, source 2 - employer contributions). Some fund companies won't keep track of the different money types in individual custodial accounts.

As far as it being advisable, if the participants are happy with the investments why fix what isn't broken.

I hope this helps