403b/401k design

[austin3515]

IF you want a 403b for the exedcutive director and 401k for the employees, I assume the 401k must have immeidate eligiblity to satisfy universal availability, correct?

[Kevin C]

That's the way I read 1.403(b)-5(a)(4)(ii)(B). They must be eligible to defer in the 401(k) if you are excluding them from the 403(b).

That's an interesting design. Would you be willing to elaborate on the reason for this design?

[austin3515]

expemption frm the ADP test.

[movedon]

You got my curiosity up - why not just do a 403(b)?

[austin3515]

Because the 401k already exists.

[Guest TPSSalesgirl]

Is there any reason or what are the reasons that an employer would choose to merge a 401(k) Plan into a 403(b) Plan, as opposed to the norm that I have seen of terminating a 403(b) and rollong the assets into a 401(k) Plan? Can't figure out what reasons there would be for a non-for-profit to do this, except for if they were having discrimination testing issues. And doesn't this difference/advantagecgo away now anyway since 403(b)s, I beleive, also will now have to pass ADP and ACP tests for all PLan eayrs beginning after 12/31/2009? Am I right about this, or am I dreaming this? Any input on these issues would be greatly appreciated.

[Kevin C]

Unfortunately, you can not merge a 401(k) and a 403(b). That's why one plan is terminated and the balances rolled over to the other.

There is still no ADP test for deferrals in a 403(b). 403(b)'s have a universal availability requirement for deferrals instead of testing. The universal availability rules changed 1/1/2009, but they are still there. Testing requirements for employer contributions did not change. The match still needs an ACP test unless they are a church or public school.

The biggest 403(b) advantage that went away 1/1/09 was the exemption from the 5500 audit requirement. If the plan has to file as a large plan, they now have the same audit requirement that a 401(k) plan does. Audit fees have increased so much the last few years, they usually charge more for the audit than we do for the TPA work.