403(b), or maybe not

[John Feldt ERPA CPC QPA]

Can a 403(b) plan be established for a non-profit corporation under 501©(3), but only allow employer contributions (nonelectives) - thus allowing no salary deferrals? The employer has no other plan (no 457 etc). Is this a universal availability problem?

The reason for the question is because 415 compensation continues 5 years after separation and the director (a NHCE) would like to set up a plan to provide nonelective ER contributions (which would continue after separation), but they are not interested in allowing salary deferrals.

[Guest Matthew Gouaux]

The universal availability rule only applies to elective deferrals. Treasury Regulations Section 1.403(b)-5(b) says:

(b) Universal availability required for section 403(b) elective deferrals (1) General rule. Under section 403(b)(12)(A)(ii), all employees of the eligible employer must be permitted to have section 403(b) elective deferrals contributed on their behalf if any employee of the eligible employer may elect to have the organization make section 403(b) elective deferrals.

Thus, a 403(b) plan that does not permit elective deferrals could still provide for nonelective employer contributions.

[John Feldt ERPA CPC QPA]

Excellent, thanks!

[401 Chaos]

Just out of curiosity, how would the nonelective contributions work in this case. Would they simply be a fixed amount across the board for all? Trying to understand the goal and mechanics here for a 501©(3) that I think may be interested in something similar to this.

[Guest Tom:]

Such contributions could be fixed per-capita contributions or a uniform percentage of compensation. Note that contributions cannot exceed 100% of a participant's compensation, which includes deemed compensation for the 5-year period after ceasing to be an employee.

[John Feldt ERPA CPC QPA]

Each participant could be considered as a separate and distinct allocation group. And if all the employees are NHCEs, then it's a buffet for the employer.

edited for a typo.