403(b) Money Purchase Pension Plan?

[chris]

Tax exempt employer has a plan document or other plan information from TIAA-CREF describing the arrangement as a 403(b) Money Purchase Pension Plan under which employer contributes a mandatory 4%. Employer also has a separate 403(b) through TIAA-CREF under which the employees defer. I do not do much work with 403(b) plans, but I don't believe there is such an arrangement as a "403(b) Money Purchase Pension Plan". Can anyone comment on the same? I guess it's possible that somewhere down the line someone just put a name on it and that's what they called it, however, in reality it may just be a true 401(a) money purchase pension plan. Thanks for any help.

[austin3515]

I was presented with the same question today...

[Flyboyjohn]

This was a very common suggestion/strategy of TIAA-CREF. MPP absolutely no problem for a 403b eligible ER, just another 401a plan,

Hopefully they've been filing 5500s for the MPP and are probably taking the position that the deferral only plan is Non-ERISA but likely issues as to whether or not it is.

[austin3515]

But for example you cannot merge the "403b Money Purchase" into the 403b plan because of course the Plan is not at all a 403b plan - it is a 401a plan. Horrible name for a document, full of potential misinterpretations. Case in point, I am reviewing a 5500 for a plan using both code 2L and 2C, which I think we all agree is ridiculous. I have not seen the plan documents but it is TIAA - I strongly suspect someone unwary thought their "403b Money Purchase Plan" was a 403b plan and combined them. But we shall see!

Now, with respect to the ERISA/Non-ERISA issue, the DOL came out and said that in fact the 403b plan IS subject to ERISA if the deferrals in that 403b plan are matched in a different plan. Just google DOL advisory opinions on the topic and you should find it if you are interested.

[QDROphile]

There is not a conceptual problem with a 403(b) money purchase plan but it is unnecessary and either a discretionary employer contribution under 403(b) or a 401(a) plan will be less complex and restrictive. Just choose 4% contributions.

[austin3515]

So you're saying that a 403b plan can include a money purchase provision, and therefore be subject to j&s and all the other restrictions?

[jpod]

The issue as I understand it is this. If the 403(b) plan is an ERISA Title I plan, it is either subject to the Title I joint and survivor annuity rules or it's not subject to those rules. Only a "profit sharing plan" can escape those rules. There is no definition of "profit sharing plan" in Title I of ERISA, and nothing like the IRC provision added by TRA 86 that says a plan is a profit sharing plan simply by virtue of the fact that it says it is. I think TIAA-CREF and other 403(b) providers have taken the position that if the employer contributions are not discretionary, it can't be a profit sharing plan for purposes of Title I, and therefore they refer to it as a MPPP, and they believe it is subject to the J&S rules (and by the way TIAA-CREF and those other providers happen to be a convenient source for procuring annuities). In my experience, the employer contributions in most (almost all?) 403(b) plans that have employer contributions are not discretionary.

[austin3515]

From 401(a) (underlined/italics added by me):

(27) Determinations as to profit-sharing plans.—

(A) Contributions need not be based on profits.— The determination of whether the plan under which any contributions are made is a profit-sharing plan shall be made without regard to current or accumulated profits of the employer and without regard to whether the employer is a tax-exempt organization.

(B) Plan must designate type.— In the case of a plan which is intended to be a money purchase pension plan or a profit-sharing plan, a trust forming part of such plan shall not constitute a qualified trust under this subsection unless the plan designates such intent at such time and in such manner as the Secretary may prescribe.

So if you are either a MP or a profit sharing plan with the sole distinction being made by disclosure, then clearly a 403b plan could not be considered a money purchase plan. What would the legal basis be for allowing a 403b Money Purchase?

jpod, I am surprised to hear you say that there is no adequate definition of a profit sharing plan. 401a goes into great detail about what it is and it reads quite a bit different than 403(b). The logical purpose of the above paragraph (which I believe is what you're suggesting is from TRA 86) was so that anyone could look at that plan and know it was drafted correctly. Is there some other section of code providing some other means for a plan to be considered a money purchase plan?

[masteff]

My thought is that the name "403(b) MPP" was a marketing tool that someone didn't realize was a really bad idea because of the confusion it's now creating. I could see them marketing it this way to non-profits who have board members more familiar with MPPs than 403(b)s.

I would not assume it's a true 401(a) MPP until it's proven to be one. If you have the plan document and if you have list of the essential features of a 401(a) MPP, you could review the document and see if it truly contains those features. You could then compare against the features of a 403(b).

[jpod]

Austin, the provision you cited is in the IRC, and applies only to 401(a) plans, not 403(b) plans. And, there is no similar provision in Title I of ERISA.

[austin3515]

That's all well and good, but my cite clarifies how a 401a plan is considered a money purchase plan. How does a 403b plan obtain that distinction?

[jpod]

Austin, "money purchase" is just a name with no particular significance under Title I. The crux of the matter is that every Title I "pension benefit plan" (as defined in Title I), other than top-hat plans and a few other exceptions, is subject to the J&S rules, unless it is a "profit sharing plan." The difficulty is finding a basis for classifying a Title I plan as a "profit sharing plan" when the employer contributions are neither discretionary nor conditioned on profits. I think a non-discretionary 403(b) plan sponsor runs a great risk in dealing with a surviving spouse if the plan didn't comply with the spousal consent and other J&S rules during the participant's life.

[austin3515]

This is brand new to me, I have never heard of this before. I went to look at my basic plan doc from Corbel. It says J&S applies except that it does not apply to exempt participants. Exempt participants is defined as everyone, except for someone who has had a transfer from an ERISA 205 plan. 205(b) says:

(b) Applicable plans

(1) This section shall apply to—

(A) any defined benefit plan, NOT US

(B) any individual account plan which is subject to the funding standards of section 1082 of this title, and IS THIS A 403B PLAN?

© any participant under any other individual account plan unless— WOULD THIS NOT COVER A 403B PLAN?

(i) such plan provides that the participant’s nonforfeitable accrued benefit (reduced by any security interest held by the plan by reason of a loan outstanding to such participant) is payable in full, on the death of the participant, to the participant’s surviving spouse (or, if there is no surviving spouse or the surviving spouse consents in the manner required under subsection ©(2) of this section, to a designated beneficiary),

(ii) such participant does not elect the payment of benefits in the form of a life annuity, and

(iii) with respect to such participant, such plan is not a direct or indirect transferee (in a transfer after December 31, 1984) of a plan which is described in subparagraph (A) or (B) or to which this clause applied with respect to the participant.

Clause (iii) of subparagraph © shall apply only with respect to the transferred assets (and income therefrom) if the plan separately accounts for such assets and any income therefrom.

So I guess, a big question is, if you are saying a 403b with mandatory contribtions is really a money purchase plan, then what precisely pulls it into the minimum funding requirements? I went to 1082 (there was a link!) and it refers to defined benefit plans and to "money purchase plans". So I'm chasing my tail here a little bit - how exactly did the 403b plan get pulled into the money purchase world?

[masteff]

how exactly did the 403b plan get pulled into the money purchase world?

You're overthinking it... Suppose I called my rollover IRA the "masteff Money Purchase Pension Plan". Would the name make it a 401(a) MPP? No.

See my post above. You have to look into the document's guts to see if it contains the features of a 401(a) MPP before you declare it to be such.

I can find a dog with mange and call it a chupacabra, but it's still a dog with mange. (not to imply that 403(b) plans are dogs with mange ).

[austin3515]

But it's not a designation "in name only" as you suggest. It determines requirements such as J&S and minimum funding. A plan is either statutorily subject to minimum funding rules or it is not. Just because it quacks like a duck, as is the case it here, does not make it a duck. A mandatory contribution does not make a plan subject to the minimum funding rules. At least I don't see how that is possible.

[masteff]

But it's not a designation "in name only" as you suggest.

Define where else it's designated as an MPP, excluding the 5500 codes which are highly subject to human error.

And as I noted in my first post, have you examined the offending plan document to see if it contains the requisite language of an MPP?

[austin3515]

Define where else it's designated as an MPP, excluding the 5500 codes which are highly subject to human error.

The question is "can a 403b be designated as a MP plan" with the same implications as it has in a 401a plan - that is, subjecting it to minimum funding rules, j&s requirements, etc.? I haven't seen the basis for that yet.

And as I noted in my first post, have you examined the offending plan document to see if it contains the requisite language of an MPP?

I have not seen the plan document, I only know if it's existence. But that is ok because it is a conceptual question anyway.

[masteff]

To be "designated as an MP plan", by which I presume you're alluding to the language in 401(a)(27), would imply that the trust is qualified under 401(a) since I'm not seeing a direct or indirect cross-reference in 403(b) to (27) such that it would apply w/out being qualifed. (One consequence of which is the plan would need a determination letter.)

Internet searching is not revealing anything useful about "tiaa cref 403b money purchase pension".

I kinda wonder if it's not two plans being described in a combined summary.

http://www.bates.edu/prebuilt/hr/hr-retirement-plans-summary.pdf

http://www.hr.pitt.edu/sites/default/files/pitt_401_spd.pdf

[austin3515]

OK, it's settled. There is such a thing as a Money Purchase 403b plan, so says Derrin Watson. He indicated that the reason they existed was that pre-EGTRRA there were benefits to a MP Plan with respect to that awful maximum exclusion allowance thingamabobber. So to the extent that there was a 403b MP plan out there, if that plan were merged, J&S would apply to those balances (hence my reference to the 205 above in Corbel's 403b Basic plan document).

He also mentioned that he has never actually seen one in practice . Finally, he mentioned that in the IRS's plan termination guidelines for 403b plans, they do make reference to "403b Money Purchase Plans."

This was all according to a voicemail he left me so I did not get a chance to pepper him with all of the logistics. But that was not necessary because his affirmation of these things was enough for me. No offense intended to the rest of y'all.

[imchipbrown]

I worked on one of those TIAA/CREF Money Purchase Plans. The client company referred to it as the "(a)" plan, as opposed to the "(b)" plan which was a 403(b) with (k) and (m) features.

I remember my contact at TIAA/CREF was fairly knowledgeable, even producing an average benefits test to show the (k) and (m) passed coverage. David Raffin in No. Cal. Don't say you got his name from me

Lots of fellows, H-1Bs and interns in and out of those plans.

[nancy]

We are in the process of taking over a 403(b) Money Purchase Plan from TIAA-CREF.  Anyone know of a document vendor that might have this type of plan?