Current employer allows employees to contribute to their former employers' 403(b)s?

[mariemonroe]

I have a client (a public school) which sponsors a 401(k) plan. Client has just told me that although it does not have a 403(b) plan, it does allow its employees to contribute to a 403(b) that they had prior to becoming employees of Client.

Is this permissible?

[J Simmons]

I think the reality is your client does have a de facto 403b plan that is limiting participation to those that came to the employment with a 403b annuity or mutual fund-only account. I also think that this poses problems for your client with regards to the universal availability requirement. Your client needs to bring its de facto 403b plan into compliance with the new regs by 1/1/2009, and correct the universal availability problem. The IRS is promising to have a VCP route for 403b corrections in place soon.

[mariemonroe]

I think the reality is your client does have a de facto 403b plan that is limiting participation to those that came to the employment with a 403b annuity or mutual fund-only account. I also think that this poses problems for your client with regards to the universal availability requirement. Your client needs to bring its de facto 403b plan into compliance with the new regs by 1/1/2009, and correct the universal availability problem. The IRS is promising to have a VCP route for 403b corrections in place soon.

Thanks. That is what I thought (sigh).

[mariemonroe]

If this client wants to terminate its "plan", does it need to go ahead and adopt a plan document which authorizes the plan termination?

[Guest mjb]

If this client wants to terminate its "plan", does it need to go ahead and adopt a plan document which authorizes the plan termination?

Did the SD adopt a 401k plan? public employers have not been allowed to adopt 401k plans since June of 1986. Only 401k plans adopted before that date are valid.

[mariemonroe]

If this client wants to terminate its "plan", does it need to go ahead and adopt a plan document which authorizes the plan termination?

Did the SD adopt a 401k plan? public employers have not been allowed to adopt 401k plans since June of 1986. Only 401k plans adopted before that date are valid.

I'm not sure I understand the question. This is a college with a 401(k) plan which has also been letting certain employees (upon request) continue to defer salary to a 403(b). The college didn't realize this practice essentially meant it was sponsoring a 403(b) plan. It thought it was just being flexible with employees who came to the college with annuity contracts from previous employers that they wanted to continue to defer salary towards. Now the college wants to stop this practice as it never intended to be a 403(b) sponsor.

My question is - if they want to terminate their 403(b) "plan" - do they need to adopt a plan document which authorizes the termination. From what I have read in the final 403(b) regs - the plan document must authorize the termination.

[Guest mjb]

If this client wants to terminate its "plan", does it need to go ahead and adopt a plan document which authorizes the plan termination?

Did the SD adopt a 401k plan? public employers have not been allowed to adopt 401k plans since June of 1986. Only 401k plans adopted before that date are valid.

I'm not sure I understand the question. This is a college with a 401(k) plan which has also been letting certain employees (upon request) continue to defer salary to a 403(b). The college didn't realize this practice essentially meant it was sponsoring a 403(b) plan. It thought it was just being flexible with employees who came to the college with annuity contracts from previous employers that they wanted to continue to defer salary towards. Now the college wants to stop this practice as it never intended to be a 403(b) sponsor.

My question is - if they want to terminate their 403(b) "plan" - do they need to adopt a plan document which authorizes the termination. From what I have read in the final 403(b) regs - the plan document must authorize the termination.

In your initial post you referred to the client as a "public school". Public schools in my mind refers to K12 entities, e.g., school districts, not public colleges. IRC 401(k)(4)(b) prohibts adoption of a 401k plan by a government entity after June 1986. Is the college a government entity, i.e, a state college or community college that is an agency or instrumentality of of a state or local government or is it a non profit college that is exempt from taxation under IRC 501©(3)? Did the college adopt the 401k plan prior to June 1986?

[Guest Sieve]

And, mariemonroe, although the college may not be "sponsoring" the 403(b) plan in an ERISA sense, and may not have ERISA obligations as a consequence, it nevertheless would still have a "plan" which, pursuant to the new regs., must meet certain requirements as of 1/1/09 (including a plan document)--even though it still may continue NOT to be covered by ERISA, and even though it is/becomes terminated/frozen.

And, then there's the issue about the 401(k) plan. Is this, perhaps, a government "pick-up" plan (IRC Section 414(h)), which works much like a 401(k) plan, rather than a true 401(k) plan?

[J Simmons]

On a related note, in one state anyway (Idaho), a single agency of the state government had a pre-1986 401k plan. The IRS ruled earlier this decade that such grandfathered 401k plan could be extended to (a) all agencies of the Idaho state government, and (b) all separate local governments that participate in the state's PERS (a DB plan), provided that the state conditioned a separate, local government's participation in the grandfathered 401k plan on its participation in the state's PERS.

It seems that while in 1986, Congress wanted to steer governmental employers into 457b and 403b plans and away from 401ks, the IRS has expansively interpreted the grandfathered 401k plans.

[Guest mjb]

On a related note, in one state anyway (Idaho), a single agency of the state government had a pre-1986 401k plan. The IRS ruled earlier this decade that such grandfathered 401k plan could be extended to (a) all agencies of the Idaho state government, and (b) all separate local governments that participate in the state's PERS (a DB plan), provided that the state conditioned a separate, local government's participation in the grandfathered 401k plan on its participation in the state's PERS.

It seems that while in 1986, Congress wanted to steer governmental employers into 457b and 403b plans and away from 401ks, the IRS has expansively interpreted the grandfathered 401k plans.

All 250,000 NYC employees are eligibile to participate in a 401k plan as well as a 457b plan because an obscure city agency adopted a 401k plan prior to June 1986 and the City later adopted it for use by all of its agencies and instrumentalities.

[joel]

On a related note, in one state anyway (Idaho), a single agency of the state government had a pre-1986 401k plan. The IRS ruled earlier this decade that such grandfathered 401k plan could be extended to (a) all agencies of the Idaho state government, and (b) all separate local governments that participate in the state's PERS (a DB plan), provided that the state conditioned a separate, local government's participation in the grandfathered 401k plan on its participation in the state's PERS.

It seems that while in 1986, Congress wanted to steer governmental employers into 457b and 403b plans and away from 401ks, the IRS has expansively interpreted the grandfathered 401k plans.

All 250,000 NYC employees are eligibile to participate in a 401k plan as well as a 457b plan because an obscure city agency adopted a 401k plan prior to June 1986 and the City later adopted it for use by all of its agencies and instrumentalities.

Prior to the Mayor Bloomberg era NYC teachers were excluded. Now this group of employees can choose from three plans: A 403(b) offered by the Teachers' Retirement System of the City of New and a 457(b) and 401(k) offered by the Deferred Compensation Plan of the City of New York. The Deferred Compensation Plan also offers a Roth 401(k) and a Tradtional and Roth IRA program.

The State of New York offers just a 457(b) to state employees AND allows local governmental entities like school districts to opt into this no-load program.

NO PUBLIC EMPLOYER IN THE STATE SHOULD SPONSOR A COMMISSIONED BASED SALARY REDUCTION RETIREMENT SAVINGS PLAN!

Joel L. Frank

Pension Columnist

The Chief-Civil Service Leader

277 Broadway

New York, NY 10007

732-536-9472

[joel]

On a related note, in one state anyway (Idaho), a single agency of the state government had a pre-1986 401k plan. The IRS ruled earlier this decade that such grandfathered 401k plan could be extended to (a) all agencies of the Idaho state government, and (b) all separate local governments that participate in the state's PERS (a DB plan), provided that the state conditioned a separate, local government's participation in the grandfathered 401k plan on its participation in the state's PERS.

It seems that while in 1986, Congress wanted to steer governmental employers into 457b and 403b plans and away from 401ks, the IRS has expansively interpreted the grandfathered 401k plans.

All 250,000 NYC employees are eligibile to participate in a 401k plan as well as a 457b plan because an obscure city agency adopted a 401k plan prior to June 1986 and the City later adopted it for use by all of its agencies and instrumentalities.

mjb: I am attempting to identify the city agency you refer to. Can you help?

Thanks,

Joel