Is this a Match or a PS Contribution?

[austin3515]

I'm a 401(k) guy, so excuse my ignorance if this is a basic question!!

Looking at a 403(b) Plan which seems to indicate that the employee must contribute 5% of pay in order to receive the 9.5% of pay contribution provided under the Plan.

Specific Question

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1) Is this a match or a profit sharing contribution?

2) What else do we need to know about this sort of a contribution? Is this some sort of a 403(b) safe harbor, or do I need to worry about coverage issues?

[Guest taxesquire]

1) I think the 9.5% would be a match, but it's a strange one! There are no profit sharing contributions in a 403(b) - they are called "employer contributions"

2) there are certain nondiscrimination rules that apply. I think the match will be tested just as if it was made to a 401k plan. The employee deferral just eneds to satisfy the universal availability rule - can everyone defer? are there opportunities to change the rate of deferral? etc

[rcline46]

It looks like a 'mandatory contribution' to me. Employee must contribute POST-TAX to receive the employer contribution. Check the rules to see if the ee contribution is pre-tax or post-tax.

[austin3515]

Definitely voluntary and definitely pre-tax.

[rcline46]

Since a 403(b) is NOT a qualified plan, we cannot just extend QP knowledge. I would suggest reviewing the proposed (soon to be final) 403(b) regulations to see if this type of match is mentioned. You have an increasing match based on increasing deferral levels.

[John Feldt ERPA CPC QPA]

We also came across a 5% deferral requirement for a 403(b) plan for a propect (now a client). This situation is probably different than yours. The plan language looked like it was mandatory, but upon discussion, the client was only allowing employees to defer into the 403(b) plan if they deferred at least 5% of pay.

I believe that provision could violate the universal availability requirements (the deferral minimum being high enough so some employees just cannot afford the deferral - maybe). And without spending the time to look this up again, my memory seems to recall that the 403(b) rules allow you to establish something like a $200 annual deferral minimum, so the 5% minimum deferral violated that as well.

Any match in a 403(b) plan must be tested (the usual ACP test), unless it's a nonelecting church plan (or church school plan) or somehow exempt from those usual rules. If you have no HCEs, then the only problems would be the universal availability and the requirement of an annual minimum being above the $200.

But, being a DB guy, what could I really know about this? (So, take the above comments with caution).