Combined 403(b) and 401(k)

[MarZDoates]

Is it possible for an employer (hosptial) to sponsor both a 403b and 401k at the same time? There is one HCE that will be severly limited in the 401(k) for deferrals. (I don't the think they want to add the safe harbor to the 401(k))

Would it be permissable to set up a 403(b) in addition to the 401(k) so that the HCE could put max out his deferral in the 403(b)? Additionally, if we set the 403(b) as a deferral only plan, can we avoid having to do the 5500?

Obviouisly I don't know much about 403(b)s. Any input would greatly be appreciated!

Thanks!

[TLGeer]

Generally, the answer is that deferral limits are personal. The only way to use a 403(b) to increase deferrals is if the 403(b) would have a higher deferral limit (which some do).

A 457 is purely additional, except as to catch-ups where there is some interaction between 457 and 414(v). Even then there is an additional amount for having a 457.

If you want a hard answer, you need to put out a lot more data. Even then, how you do it (i.e., maximize deferrals) is a judgment call, that should not be answered in this sort of a forum.

Tom Geer

[MARYMM]

Is it possible for an employer (hosptial) to sponsor both a 403b and 401k at the same time? There is one HCE that will be severly limited in the 401(k) for deferrals. (I don't the think they want to add the safe harbor to the 401(k))

Would it be permissable to set up a 403(b) in addition to the 401(k) so that the HCE could put max out his deferral in the 403(b)? Additionally, if we set the 403(b) as a deferral only plan, can we avoid having to do the 5500?

Obviouisly I don't know much about 403(b)s. Any input would greatly be appreciated!

Thanks!

It is possible to have both a 401(k) and a 403(b) but it may not help the HCE since his/her deferrals to both plans combined will be subject to the limit. However, there is a special additional catchup contribution of $3000 available in a 403(b) plan for employees who have 15 years service. See IRS Pub. 571 for details

I don't think you can avoid the 5500 since new 403(b) regs were issued.

[Guest mjb]

Is it possible for an employer (hosptial) to sponsor both a 403b and 401k at the same time? There is one HCE that will be severly limited in the 401(k) for deferrals. (I don't the think they want to add the safe harbor to the 401(k))

Would it be permissable to set up a 403(b) in addition to the 401(k) so that the HCE could put max out his deferral in the 403(b)? Additionally, if we set the 403(b) as a deferral only plan, can we avoid having to do the 5500?

Obviouisly I don't know much about 403(b)s. Any input would greatly be appreciated!

Thanks!

It is possible to have both a 401(k) and a 403(b) but it may not help the HCE since his/her deferrals to both plans combined will be subject to the limit. However, there is a special additional catchup contribution of $3000 available in a 403(b) plan for employees who have 15 years service. See IRS Pub. 571 for details

I don't think you can avoid the 5500 since new 403(b) regs were issued.

While contributions to 401k and 403b plan must be aggregated for the 15,500/20,500 limit, the 403b plan has an advantage for HCEs because it is not subject to ADP testing so the HCE can contribute the maximum deferral amount to the 403b plan regardless of whether any non HCE's participate. If the HCE has 15 years of service the deferral limit can be increased by 3,000.

Under a DOL regulation it is possible to establish a 403b plan that accepts only salary reduction contributions to be exempt from all ERISA requirements including 5500 filings.

A NP could also establish a 457 plan for the HCE which would allow an additional contribution of 15,500 above the limits for the 403b/401k plan which would permit a maximum deferral of 39,000 (23,500 +15,500).

[TLGeer]

Wow, what a question! The lack of an ADP test, as mentioned by mjb ties in with your remark that the hospital does not want to do a safe harbor. So the 403(b) plus 457 option mjb outlines should handle your stated needs.

To avoid offering the 403(b) too widely, you could look at (1) having the HCE excluded from the 401(k) plan, and (2) excluding participants in the 401(k) from the 403(b). Discrimination analysis of the 403(b) takes into account the 401(k), and the 401(k) participant exclusion is expressly allowed under the universal availability rules. I think it would be easier to do s single-participant 457 than to horse around with 403(b). A 457 not only can discriminate, it has to, so there are fewer issues. Of course, you lose the 403(b) catch-up, but you gain the 457 catch-up.