Top hat 457b & 403(b).

[Guest ely]

A tax exempt entity currently has a 403(b) plan. The sponsor would like to add a match, but only for some of the employees, but it would be quite expensive to pass ACP tests.

If we set up a top hat 457(b) plan for HCE matches, will that remove the need for ACP testing in the 403(b)? HCE's would still defer in 403(b).

Are there any problems with this combination?

[TLGeer]

A tax exempt entity currently has a 403(b) plan. The sponsor would like to add a match, but only for some of the employees, but it would be quite expensive to pass ACP tests.

If we set up a top hat 457(b) plan for HCE matches, will that remove the need for ACP testing in the 403(b)? HCE's would still defer in 403(b).

Are there any problems with this combination?

Yes, this would eliminate ACP testing. No, there are no problems.

Tom Geer

[QDROphile]

Has the sponsor thought about what it is trying to accomplish with the match? A match for top-hat employees only is not much in line with credible reasons for a match. Methinks that the sponsor accepts at some level of awareness that the sponsor is increasing compensation for the top-hat people. But why with a match? Surely the value of the employee (which warrants the greater compensation) is not directly related to the employee's propensity for savings. Why not just have employer contributions to the 457(b) plan at the amount the employer decides is appropriate for the raise the employer is giving? Or does the employer like the idea of an employee deciding the amount of the employee's raise, subject to the employee's ability to save?

[Guest ely]

Thanks for your comments.

The employment contract for one of the HCE's had specified that he would be given a match on his deferals. I think they originally thought they could max out some HCEs with a modest cost for employees in the 403(b). So while we have been talking about a match, I was hoping they would go for the simplification of a flat % in the 457(b).

[Guest PaulNJ]

is it possible to have only employer contributions in the 457b and not have employee deferrals . Can the contribution be formula driven or does it then have to become a 457f

[TLGeer]

is it possible to have only employer contributions in the 457b and not have employee deferrals . Can the contribution be formula driven or does it then have to become a 457f

It can be a formula. That can be a match, a percentage, a dollar amount or whatever they can think of. You can also just say the employer will decide how much each year.

Tom Geer