New Plan - Issue regarding Proration of 415 Limit

[austin3515]

403b Plan effective 12/1/2013, with a pye of 12/31/2013. My concern is that the 415 limit would have to be prorated down to $4,250 plus catch-ups of $5,500. OK, I can generally avoid by making the plan effective 1/1/2013, but is that possible in a 403b plan (i.e., a retroactive effective date)?

[John Feldt ERPA CPC QPA]

Although somewhat rare, a 403(b) plan could be written such that it only has employer contributions - no deferrals. So, yes I think it is possible to have a January 1, 2013 effective date as long as your deferral effective date is current or prospective. Will your document allow for that?

[austin3515]

Believe it or not, I have a check box next to the deferral types, that I could uncheck and have no deferrals. Not sure what that would say on a diagnostic check, but it seems to me if deferrals were mandatory it would say so in the adoption agreement, and it appears not to.

[John Feldt ERPA CPC QPA]

Watch out for the SPD language if you have a system generated SPD. We had to do a lot of manual SPD modifications for a recent plan we did like this.

Also, the checkboxes on any current 403(b) plan are not like the checkboxes for a prototype DC plan or a vol sub DC plan formatted with an adoption agreement. Instead, all 403(b) plans are currently individually designed (even if it uses an adoption agreement and a basic document). No IRS agent has provided approval for the 403(b) language you are using right now. So you might not have the kind of restrictions listed in your adoption agreement like you usually see for a pre-approved adoption agreement. FWIW.

[Kevin C]

How does the document define the Limitation Year? Our 403(b) document's default provision for the Limitation Year is the 12 month period ending on the last day of the plan year when there is a short initial Plan Year.

Here is a prior discussion:

http://benefitslink.com/boards/index.php?/topic/53219-short-initial-year-limitations/?hl=%2Blimitation+%2Byear#entry231012