Non-ERISA 403(b) question

[Guest Statler]

I am new into the 403(b) world and just wanted to see if I had understood the rules correctly. For a non-ERISA 403(b) plan, as long as they meet the Universal availability requirement for deferrals, they can have whatever age and service requirements for employer contribution and match? They are not bound by the 21/1 or 21/2 with 100% vesting. Also not bound by the 1000hrs for a year of service and 500 hrs for break in service. Also, can anybody recommend any really good reference books on 403(b) and 457 plans? Thanks

[J Simmons]

The only 403b's I deal with are employee-contribution only. So I won't comment about the age and service eligibility part of your post.

As for books, I've heard some go on about the Kristi Cook and Ellie Lowder book on 403b's. You can find out more about that book and others on 403b's here

[Guest Sieve]

Statler (you didn't own a hotel in Detroit, did you? ) --

Employer contributions to a 403(b) plan have to meet non-discrimination (IRC Section 401(a)(4)) and minimum coverage (IRC Section 410(b)) requirements just like a qualified plan does. So, an age/service eligibility requirement that has the effect of discriminating in favor of HCEs udner those Code provisions would violate that rule. (See IRC Section 403(b)(12) and Treas. Reg. Section 1.403(b)-5(a).)

[Kevin C]

If there are employer contributions, your 403(b) is subject to ERISA. The ERISA exemption is for deferral only plans that meet certain requirements. See FAB 2007-02.

[J Simmons]

403b plans of public schools are also exempt from ERISA, even if they have ER contributions.

[Kevin C]

Oops! I was only thinking of one particular exemption. Non-electing Church 403(b)'s with employer contributions would also be exempt from ERISA.

[Guest Statler]

No hotel, just a fan of obscure Muppets characters. This is a governmental plan and I was having trouble wrapping my brain around it for some reason. Thanks for all of your helpful information!

[John Feldt ERPA CPC QPA]

If it's a governmental plan, then the employer contributions are not subject to the Federal statutory eligiblity requirements that apply to qualified plans and the employer contributions are not subject to nondiscrimination testing.

[Guest Sieve]

As J4 says, the only "non-discrimination" type rule that applies to a governmental 403(b) plan is the universal availability rule. ERISA doesn't apply, nor do the regs' non-disrimination rules (IRC Sections 401(a)(4) & 410(b).

This stuff is clear as mud, ain't it . . .???

[John Feldt ERPA CPC QPA]

Actually, the 401(a)(17) compensation limit also applies. . .

[Guest Sieve]

Yes it does. Makes it even more clear as mud! (I hate to think how this would all flush out if there were no First Amendment so that the governmental plan were also a church plan . . . !! My head hurts . . . Is it Friday yet?)

[Guest BruceC]

As J4 says, the only "non-discrimination" type rule that applies to a governmental 403(b) plan is the universal availability rule. ERISA doesn't apply, nor do the regs' non-disrimination rules (IRC Sections 401(a)(4) & 410(b).

This stuff is clear as mud, ain't it . . .???

So for clarification....

An 'ERISA' 403(b) plan = a 'Title I' Plan? And this applies to all 501©(3) 403(b) plans that have an employer contribution. If so, then like a QRP, a 403(b) Title I plans must

1. Meet the 'Front end' average % contribution or average % of benefits test....or the minimum 70% NHCE participation safe harbor?

2. ACP non-discrimination testing or 3% non-elective ER contribution safe harbor with 100% immediate vesting?

3. Meet annual top-heavy testing unless it uses the #2 safe harbor?

If so, what happens if the Non-Profit organization fails the qualification testing? Are the contributions withdrawan or treated as W2 income to the employees receiving the ER contribution?

And in determining the non-excludable employees for performing these tests, would it also be done like a QRP....using the 4 statutory exclusions of <21, <1 year svc, foreign nationals and pre-existing plan coverage (usually through collective bargaining)?

BruceM

[Guest B2Randolph]

403(b) plans, period, are not subject to Top Heavy.

ERISA covered 403(b) plans are subject to ACP (not ADP), 410(b) Coverage, 401(a)(4) Non-Discrimination tests, 415, 402(g) with special exclusion allowance catchup, 401(a)(17) and 414(s).

Church (unless they specifically elect ERISA) and governmental 403(b) plans are always exempt from ERISA rules.

For a governmental plan, that means they are subject to 415, 402(g), 401(a)(17) but there are special rules for 401(a)(17) limits for plans in effect prior to 7/1/1993.

Church plans are more complex and may be subject to certain tests. If a true church under 3121(w) they are only subject to 415 and 402(g). If not 3121(w) church, they are subject to 401(a)(4), 401(a)(17) ACP, Pre-ERISA 410(b), 415 and 402(g).

More than 90% of our business is 403(b), with hundreds of ERISA covered plans.

If you are just getting into this market, beware - they are very different that qualified plans. Don't assume anything.

Becky