Not for profit with 401(a) and 403(b)

[rcline46]

Not for profit has a deferral only 403(b) and a 401(a) with 'varying' contributions by person. Since 2002 even Not for Profits have had to pass discrimination testing. Oh by the way - we are taking the plans over for the 6/30/2010 year....

As I read 415, we aggregate the 403(b) deferral with the 401(a) contribution to test maximum annual additions. Indications are this was 'overlooked' in the past so I am asking for confirmation on this point first.

Since the 401(a) contributions are such that they cannot make any safe harbor formula, and they cannot pass general testing on a contributions basis, I now go to cross testing. IF (that is a big IF because I do not know the results yet) each rate group does not pass 70%, I will need to perform the Average Benefits Test. If I have to do the ABP, then again I include the deferrals into the 403(b) plan, correct?

My thoughts are yes and yes, but I am willing to listen to rebuttals.

[movedon]

I don't think 403(b) deferrals are ever included in any nondiscrimination test, including the average benefits test.

[rcline46]

I guess technically 415 is not a discrimination test, only a compliance test. SO you do agree it is in the 415 test?

[movedon]

Sorry, I missed that part of the original post. IIRC, a 403(b) account is considered individually owned for 415 purposes, so the 403(b) plan contributions and the 401(a) plan contributions of the non-profit would not be combined for 415 purposes (i.e., separate limits for the two plans). However, if an employee of the non-profit owns a business of his own (at least 50%, I think), then any qualified plan sponsored by that business would share a 415 limit with the 403(b) account. Keep researching - I'm not 100% sure of my memory on this.

Of course, the individual had one 402(g) limit.

[rcline46]

When the plans are sponsored by the same employer, I don't think 415 would allow $49,000 in the 401(a) plan PLUS $16,500 in the 403(b) PLUS any match or non-elective contributions in the 403(b).

[Bird]

Yes, I think deferrals are in the 415 test, not in the rate group test, and in the ABT.

[movedon]

Re ABT, check out Reg. 1.403(b)-5(a)(2) and the ERISA Outline Book, footnote 138 on page 1B.498 (2009 ed.)

Re 415, look at Reg. 1.403(b)-4(b), Code Section 415(k)(4) and EOB p. 1B.512 (2009 ed.)

[rcline46]

lippy, did I tell you I HATE REGLATIONS!!!

1.403(b)-4(b) does not seem to be relevant as I am not testing the 403(b), the test is in the 401(a), and the 415(k)(4) is not relevant as there is only 1 organization involved.

What little I can glean, is that the 403(b) deferrals ARE included in the 401(a) 415 test. Actually it would seem there is only one 415 test which is not related to plan type. Would be nice see something that says that, but my search skills on the BNA site don't seem to match the way they present stuff.

As for the references for ABP - not testing 403(b), but I see deferrals are not included in the discrimination testing for 403(b).

There EOB references - don't have the 2009 EOB, have 2008 and page numbers don't seem to line up.

[Tom Poje]

Question 10 from the 2008 ASPPA Conference:

If matching or nonelective contributions to a §403(b) plan are used in the average benefits percentage test to satisfy the IRC §410(b) coverage requirements, are the §403(b) deferrals included in the average benefit percentage calculation as well?

You should exclude salary deferrals from ABT test. See Treas. Reg. §1.403(b)-5.

[movedon]

The 415 bit is on pp. 1.899-900 of the 2008 EOB.

The ABT footnote is not in there - it was added in the 2009 book. Come to think of it, I first met this issue before the 2009 books were out, and I recall the older books weren't very helpful. I did some research elsewhere and determined that while the issue was unclear, the case that 403(b) deferrals are never included in a 410(b) or 401(a)(4) test was more convincing. Then the 2009 books came out with the footnote that supports that position. The footnote refers to an IRS comment at the 2008 ASPA conference.

If I can find my research and it's not copyrighted material, I'll post it. Won't be today though because I have some very urgent business to tend (yeah, I have to get to the liquor store and back before basketball starts). Maybe one of the real 403(b) experts (i.e., not me) on these boards will chime in with some enlightenment. Were's John Simmons?

[movedon]

Tom beat me to it. That's the Q&A I mentioned (although the footnote says Q&A 9 - don't know if that's a typo or if that one addresses it, too).

[Tom Poje]

it is #9, I mis-read the format of the spreadsheet

[rcline46]

Now I am really messed up! That is what I get for reading regulations.

It would seem that 403(b) employER contributions are separate from 401(a) employER contributions when doing a 415 test within the same employer and it does not appear to have changed with the final 403(b) regulations. What a deal!

That leaves the elective deferral. Now I am not sure the elective deferral is counted in the 415 limit for the 401(a) plan - is it real or is it Memorex? Is it an employEE or employER contribution for this purpose? Or does it matter?

As I said to lippy before, I want clarity! The regs actually say in 415 what is included and to some extent what is excluded, but the 403(b) contributions are not mentioned! Only in the 403(b) regulations discussing 403(b) compliance and discrimination are the deferrals mentioned. Does this mean they deferrals are excluded in checking 415 in 401(a) plans?

[dmb]

Now I am really messed up! That is what I get for reading regulations.

It would seem that 403(b) employER contributions are separate from 401(a) employER contributions when doing a 415 test within the same employer and it does not appear to have changed with the final 403(b) regulations. What a deal!

That leaves the elective deferral. Now I am not sure the elective deferral is counted in the 415 limit for the 401(a) plan - is it real or is it Memorex? Is it an employEE or employER contribution for this purpose? Or does it matter?

As I said to lippy before, I want clarity! The regs actually say in 415 what is included and to some extent what is excluded, but the 403(b) contributions are not mentioned! Only in the 403(b) regulations discussing 403(b) compliance and discrimination are the deferrals mentioned. Does this mean they deferrals are excluded in checking 415 in 401(a) plans?

FWIW, we have some not-for-profit organizations with the same setup, 403b for deferrals, 401a for employer contributions. After reviewing regs mentioned in this string, we came to conclusion that 403b and 401a are treated as two separate entities for 415 as well as 410b testing, so we think a participant can defer $16,500 in 403b and receive $49,000 in 401a.

[Tom Poje]

you might want to check

http://benefitsattorney.com/modules.php?na...wpage&pid=1

she has posted this chart the last few years

as I understand it, other plans are counted when looking at the 401 Unless its a govt 401k) but not when looking at the 403b

[rcline46]

I looked at the chart and poor Ms. Calhoun is as guilty as everyone else! On the line where other plans are discussed, for 401(a) (or k) she says other 'qualified' plans are combined. But for goverment 401(k) she SPECIFICALLY mentions 403(b) and 457(b).

Now I know that a 403(b) plan is not a Qualified Plan (special meaning). Should could have specifically excluded 403(b) and 457(b) plans and did not. If her use of 'qualified' plan has the meaning given in 401(k) documents, then maybe she does not have to mention 403(b). But then should could have used the term under the 403(b) column to exclude qualified plans but did not.

With apologies to Carol who has been a great help to all in the pension community - CLARITY and CONSISTENCY please! (I know - consistency is the hobgoblin of small minds)

[mbozek]

I looked at the chart and poor Ms. Calhoun is as guilty as everyone else! On the line where other plans are discussed, for 401(a) (or k) she says other 'qualified' plans are combined. But for goverment 401(k) she SPECIFICALLY mentions 403(b) and 457(b).

Now I know that a 403(b) plan is not a Qualified Plan (special meaning). Should could have specifically excluded 403(b) and 457(b) plans and did not. If her use of 'qualified' plan has the meaning given in 401(k) documents, then maybe she does not have to mention 403(b). But then should could have used the term under the 403(b) column to exclude qualified plans but did not.

With apologies to Carol who has been a great help to all in the pension community - CLARITY and CONSISTENCY please! (I know - consistency is the hobgoblin of small minds)

Could you please define the question that you need answered?

[rcline46]

mbozek - there were two questions in the original post, both of which were answered -

1. when checking the 415 limit for a 401(a) plan, do you include elective contributions from a 403(b) plan? The answer is no with the exception of separate entity owners with a 401(a).

2. If necessary to run an ABP for a 401(a) plan due to cross testing, are elective deferrals (or any other contributions) to a 403(b) required to be included? The answer is no.

My problem is/was that with all of the references provided, not one specifically state the answers above. The answers are inferred by lack of inclusion. For example, under th 403(b) regulations, for testing non-discrimination it specifically excludes deferrals to 403(b) plans, and specifically excludes non-403(b) plans. Corresponding language does not exist in the 401(a) regulations to exclude non-401(a) plans. Note that 401(a) plans INCLUDE deferrals in testing while 403(b) plans exclude deferrals.

The wonderful result is that a participant in a 403(b) gets a 401(a) 415 limit, a 415(b) 415 limit plus a 457 limit! $114,500 in all! (plus relevant catch ups if eligible)

[movedon]

One note of clarification - I think contributions to the 403(b) plan other than elective deferrals would be included in the ABT.

[Bird]

consistency is the hobgoblin of small minds

There's nothing wrong with consistency! (Especially in our business.) The full quote is:

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. (Emerson)

My emphasis on "foolish"; maybe I'm small-minded for making that distinction but, well, there it is...

BTW, I stand corrected on including 403(b) deferrals in the ABT; thanks for an enlightening question/discussion.

[Belgarath]

Rcline - as to a reference for your #1, take a look at 1.415(f)-1(f)(1) and(2).

As to #2, I haven't had a chance to look, but I'll give it a shot if I can dig my way up to where I can at least see the bottom of my desk.

[movedon]

That's the cite - thank you Belgarath.

[Belgarath]

I got curious, as this is an interesting post, so I decided to ignore the pile for a few minutes. As to # 2, I can't add anything to the citations already provided.

[TLGeer]

Agreed. The employee is treated as the employer under the 403(b). Unless the employer is 50% controlled by the employee, the limits are additive. The employee can get a full 415 limit under each.

Note also that the 457 limitations are additive.

The various catch-ups are better coordinated.

[movedon]

Correction to my post # 19 above - I just learned (re-learned?) that no contributions (not just deferrals) on behalf of an employee to a 403(b) plan are considered in the ABT for a 401(a) qualified plan when testing the 401(a) plan for coverage (1.410(b)-7(f)). I would assume that extends to the use of ABT under 401(a)(4) testing as well.

On the other hand, if you're ABT testing the 403(b) plan, you may (or must? I'm not sure which, but I like the sound of may) consider the 401(a). But you still don't include the 403(b) deferrals in the ABT.

[TLGeer]

Correction to my post # 19 above - I just learned (re-learned?) that no contributions (not just deferrals) on behalf of an employee to a 403(b) plan are considered in the ABT for a 401(a) qualified plan when testing the 401(a) plan for coverage (1.410(b)-7(f)). I would assume that extends to the use of ABT under 401(a)(4) testing as well.

On the other hand, if you're ABT testing the 403(b) plan, you may (or must? I'm not sure which, but I like the sound of may) consider the 401(a). But you still don't include the 403(b) deferrals in the ABT.

First, thanks to lippy for finding the reference. For the life of me, I couldn't find it. I kept looking at 403(b) and 401(a)(4), because I forgot how badly designed the 401(a)(4)/410(b) regulations are.

I feel the need to make a clarification. I doubt it matters here, but there is a potential issue that depends on what type of 403(b) is involved.

1.410(b)-7(f) says:

"(f) Section 403(b) plans. In determining whether a plan satisfies section 410(b), a plan subject to section 403(b)(12)(A)(i) is disregarded. However, in determining whether a plan subject to section 403(b)(12)(A)(i) satisfied section 410(b), plans that are not subject to section 403(b)(12)(A)(i) may be taken into account."

By its terms, this (1) excludes most 403(b) plans from the qualified plan testing, but (2) takes the 403(b) into account if the sponsor is a 403(b)(12)(B) church. If the plan is a "governmental plan (within the meaning of section 414(d)) maintained by a State or local government or political subdivision thereof (or agency or instrumentality thereof)" under 403(b)(12)©, it is only partially subject to 403(b)(12)A)(i), so the application of 1.410(b)-7(f) is a little unclear. However, the precise wording of 403(b)(12)© does not make 403(b)(12)(A)(i) inapplicable, so governmental plans should be taken into account. The result is certainly bizarre, but bizarre is not surprising when the seams between 401(a) and 403(b) (and/or 457(b)) are at issue.

Given that, there is no reason in the regs. to distinguish salary reduction contributions under a church's plan or governmental plan from employer contributions when applying the general nondiscrimination test. If the plan is taken into account, they should be treated the same as salary reduction contributions under 401(k).

Note that 403(b)(1)(D) does not require that the plan be a church plan under the general tax or ERISA rules, while the governmental plan rule at 403(b)(1)© requires governmental plan status under 414. However, if my inference that the non-profit here is not a church or a State or local government or political subdivision thereof (or agency or instrumentality thereof) is right, none of this gobbledygook matters to you.

One last comment. Yes, if you are testing the 403(b), taking the 401(a) into account is elective. If a one-plan test doesn't work, do a two-plan test.