Grandfathered HCE gets bigger ER contribution

[katieinny]

A small college has sponsored a 403(b) plan for many years. The ER contribution was quite generous a few years back, but they have since amended the plan to reduce the employer's contribution percentage. When they did that amendment, they grandfathered everyone at the higher contribution percentage who were hired prior to X date. A few of those grandfathered employees are still working at the college. One of them is an HCE. There is another HCE getting the lower ER contribution.

Does the fact that one HCE (out of 35 participants) gets that higher grandfathered contribution amount blow everything up?

[John Feldt ERPA CPC QPA]

Who is the Employer? A government? Are they a church-controlled college? Or a non-profit?

Government plans and church plans are not tested for discrimination of employer contributions.

[katieinny]

Thanks for the reminder -- I think this would come under the heading of a church-controlled college, so maybe I'm stressing over nothing.

[katieinny]

Actually -- this plan is for a seminary. Does that make it a church plan?

[John Feldt ERPA CPC QPA]

Under §1.403(b)-2(b) Definitions:

(5) Church means a church as defined in section 3121(w)(3)(A) and a qualified church-controlled organization as defined in section 3121(w)(3)(B).

(6) Church-related organization means a church or a convention or association of churches, including an organization described in section 414(e)(3)(A).

From that, we look up IRC 3121(w)(3):

(A) For purposes of this subsection, the term "church" means a church, a convention or association of churches, or an elementary or secondary school which is controlled, operated, or principally supported by a church or by a convention or association of churches.

(B) For purposes of this subsection, the term "qualified church-controlled organization" means any church-controlled tax-exempt organization described in section 501©(3), other than an organization which --

(i) offers goods, services, or facilities for sale, other than on an incidental basis, to the general public, other than goods, services, or facilities which are sold at a nominal charge which is substantially less than the cost of providing such goods, services, or facilities; and

(ii) normally receives more than 25 percent of its support from either (I) governmental sources, or (II) receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in activities which are not unrelated trades or businesses, or both.

Then, under IRC 414(e)(3)(A)

A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.

Also, be sure to look at the Treasury Regulations: 1.414(e)(1).

This will get you started.

[John Feldt ERPA CPC QPA]

And don't forget to look at ERISA section 3(33)

[katieinny]

Good grief! I think that because students pay tuition to attend the seminary, we can't get by with calling it a church plan. Would have been nice, though. Thanks for putting in the sections.