How Controlled Group rules apply to 403(b) plans

[Guest GB07]

In the preamble to the 403(b) regs, there is a statement that the 414© rules apply to plans referenced in section 414(b), ©, (m), (o), and (t), such as plans qualified under section 401(a) or 403(a), as well as section 403(b) plans.

I cannot find any provision in Code section 414 that applies the controlled group rules to 403(b) plans directly. Am I missing something? It seems that the 403(b) regs apply the definition of "severance from employment" on a controlled group basis, but it was my understanding that the controlled group rules do not apply for 403(b) purposes except through the indirect application of another Code section listed in 414 (e.g., the nondiscrimination rules).

Any thoughts on this would be greatly appreciated!

[Guest Sieve]

IRC Sections 414(b) & © only apply when referenced--they are not self-applicable. And, they are referenced in the 403(b) regs: 1.403(b) -4(b)(1) [iRC Section 415], -5(a)(4) [non-discrimination requirements of IRC Sections 401(a)(4), 401(a)(17), 401(m) & 410(b)], and -10(a) [plan terminations].

But this may be what you're looking for . . . Also issued with the final 403(b) regs were rules relating to determining the existence of a controlled group when one member is a tax-exempt entity: 1.414©-5.

[Guest GB07]

IRC Sections 414(b) & © only apply when referenced--they are not self-applicable. And, they are referenced in the 403(b) regs: 1.403(b) -4(b)(1) [iRC Section 415], -5(a)(4) [non-discrimination requirements of IRC Sections 401(a)(4), 401(a)(17), 401(m) & 410(b)], and -10(a) [plan terminations].

But this may be what you're looking for . . . Also issued with the final 403(b) regs were rules relating to determining the existence of a controlled group when one member is a tax-exempt entity: 1.414©-5.

That is what I was thinking. So because the distribution rules in 403(b) do not refer to 414(b) or ©, does that mean that the determination of whether a "severance from employment" has occurred is made only with respect to the employer maintaining the plan (i.e., if a participant leaves one tax-exempt entity to go work for another tax-exempt member of its controlled group, there would still be a severance from employment because that rule does not refer to 414)? The reason I am confused is because the wording in 1.403(b)-6(h) seems to apply the controlled group rules in this situation, but I can't understand how the 414 rules are applicable.

[Guest Sieve]

The reg you point to does not mention 414 because it uses only a partiall controlled group rule--i.e., a severance from employment occurs if an employee moves to another employer if that other employer is not tax-exempt and therefore is not eligible to maintain a 403(b) Plan (even if that entity is a member of the same controlled group as the employer from which the employee terminated employment), but there is no severance of employment if the move is to another 501©(3) within the controlled group or to another public school in the same state.

So, it's not using a pure controlled group analysis, but clearly is utilizing the controlled group determination rules of Treas. Reg. Section 1.414©-5. Why 414 isn't mentioned, I don't know--maybe someone else has that insight.