Multiple Employer and 403(b) plan

[Guest Serena]

Can a 403(b) plan have a multiple employer arrangement pursuant to Code Section 413©? The regs under 1.413(3)(iv) discuss the qualificiation of a section 413© plan at any relevant time under section 401(a), 403(a) or 405(a) but not 403(b).

Perhaps the final LRM and prototype program will give direction. I did not see this issue addressed in the 403b regs either.

Any ideas would be appreciated.

[Guest TBick]

We've researched this issue fairly extensively (really means we talked to everyone we know in the industry including some "high profile" ERISA attorneys) and the basic conclusion that everyone seemed to agree upon is it probably can be done, but no one had experience.

[TLGeer]

Can a 403(b) plan have a multiple employer arrangement pursuant to Code Section 413©? The regs under 1.413(3)(iv) discuss the qualificiation of a section 413© plan at any relevant time under section 401(a), 403(a) or 405(a) but not 403(b).

Perhaps the final LRM and prototype program will give direction. I did not see this issue addressed in the 403b regs either.

Any ideas would be appreciated.

Section 413© applies poorly to 403(b) plans. At best, and assuming it applies to 403(b) plans at all, 413© would only allow, and require, applying the exclusive benefit rule, coverage testing and vesting as if all employers were a single employer. Given that most of the issues under 403(b) aren't addressed at all, how would you, for example, go about applying the universal availability rule? How would you determine what the "plan" is in separating the treatment of transfers within a plan among approved investment vehicles and transfers out of the plan within the meaning of 403(b) but within a plan within the meaning of 413©? If, say, forfeitures are allocated across employer lines, the protection in 413© from the exclusive benefit rule only applies to 401(a), not 403(b), so the "plan" would in any event have to calculate and allocate forfeitures separately.

The entire conceptual framework of 403(b) is different from that for qualified plans. Essentially, 403(b) is about "contracts" purchased by one employer. In fact, the term "plan" under the 403(b) regulations is primarily concerned with the plan document. The requirement for a plan document doesn't make them like qualified plans, and my view is that 413© does not apply in any useful or even intelligible way.

The alternative is to create a plan document that treats the lines between employers as creating separate plans under 403(b). If the plan(s) are funded with a retirement income account, this can be done by gently jumping through a few hoops, as I am helping a client do now. Other non-ERISA plans may, repeat may, be able to share investment arrangements if this is done very carefully. If the plan(s) will be subject to ERISA, the reporting requirements and SAR are going to be a problem that neither 413© nor combining investments can solve.

So, what are you business goals? What kinds of employers will be involved? Are you looking to aggregate investments, to file only one Form 5500, or what other objectives are you seeking?

Tom Geer

[Guest Serena]

Thanks Tom, there are more issues than we want to deal with. The issue came up in reviewing a proposed 403b prototype/VS plan. Was not sure if MEP language should be in there. I think not, at least not under the same terms as 413© for qualified plans.