non-profit has a 401k, wants to start a 403b

[Santo Gold]

Do you think this will fly? A non-profit currently sponsors a 401k PSP. They are having trouble with the 401(k) test. Should they consider amending the 401(k) provision out of the plan (making it a PS only plan), then start a non-ERISA 403(b) that accepts only 403(b) contributions? This would solve the 401(k) test, correct?

Thanks

[K2retire]

Most non-profits don't pay well enough to have any HCEs, so the fact that this one is having a problem implies that they are both relatively large and have poor participation. Would adding a match help persuade NHCEs to defer? If so, problem solved. If not, adding a safe harbor match should be relatively inexpensive and solve the problem.

Administering both a PSP and a 403(b) sounds expensive incredibly time consuming to me.

[jw721]

Most non-profits don't pay well enough to have any HCEs, so the fact that this one is having a problem implies that they are both relatively large and have poor participation. Would adding a match help persuade NHCEs to defer? If so, problem solved. If not, adding a safe harbor match should be relatively inexpensive and solve the problem.

Administering both a PSP and a 403(b) sounds expensive incredibly time consuming to me.

What about adding a nonelective contribution source to the 403(b) plan and freezing or terming the 401(k) plan? Fees could be prohibitive to this option but it may end up being less expensive than a SH contribution. Some sponsors don't like matching for people who have terminated either which is what happens with SH contributions.