Terminating employer in multiple employer 403(b)(9)

[KaJay]

Q: Do the final regs around terminating a 403(b), in which the sponsoring employer must "Generally, stop contributions...to any other 403(b) plan during the period that begins on the termination date and ends 12 months after all benefits have been distributed from the terminated plan" apply to an employer terminating its relationship with a 403(b)(9) church plan?

 

[QP_Guy]

Seems to me that we have to precisely understand what is happening.  Is this a termination of a church's participation in a Multiple Employer Church Plan?  If so, the only way I've heard to terminate that participation is via spin off to a new plan, and then terminate.

Once the Participating Employer has spun off and become the Sponsor of its own plan, then there may be no need to terminate it.  

But if there is a need to terminate it, then the successor plan rule will apply.

[Patricia Neal Jensen]

The MEP (or MECP?) issue is a little confusing.  I agree with QP_Guy above.  

If this is a Non-Electing Church with a 403(b) asking if the Successor Plan rule applies to it, I would say "yes."  I did not find anything directly on point, but the intent of the Successor Plan Rule is to prevent a tax deferred plan from creating  termination distributions so that employees can "cash out" and then immediately starting another plan to continue deferrals.  It does apply to 403(b) and, because I think the focus is on the participant's access to the tax deferred  funds, I don't think this rule changes because it is a church.  Churches must follow IRS rules governing plans and I think this is one of them.

My solution, however, would be to simply freeze plan # 1 and start plan # 2.  Since these plans do not file 5500's,  it would seem to be of little consequence.

[KaJay]

Thank you for your responses. Here's a bit more clarification:  The church (steeple) is currently participating in "Denomination A's 403(b)(9) plan" [non-electing]. The steeple has requested to terminate Denomination A's services and start a new 403(b)(9) with Denomination B [non-electing].

My assumption is that upon terminating A's 403(b)(9) plan, the steeple is prohibited from contributing to B's 403(b)(9) plan for 12 months post distribution. Is that right?

[QP_Guy]

I don't think that's a necessary result.  As Patricia notes (Hi Patricia!!), participation can be "frozen" in plan #1 and begun in plan #2.  Done.

Maybe there's a felt need to move money away from Denomination A.  Then the spin off approach would be used, and your steeple will have its own plan.

Then the steeple can participate in Denomination B's plan and leave its own plan frozen for a year.  Then terminate the spin off plan after a year and there's no successor plan rule.

Or, the steeple can inquire as to the merging of the now standalone steeple plan into Denomination B's plan.

In any event, avoiding the successor plan rule shouldn't be hard.

[KaJay]

Ok. Is the language the steeple uses when contacting A important? Meaning, does the steeple need to tell A they are "freezing contributions to A as of mm/dd/yy" rather than they are "terminating the relationship with A as of mm/dd/yy"?

The word "terminating" is creating the alarm regarding the successor rule so to speak...

[QP_Guy]

There are a number of ways to handle the Denomination A plan.  Formal freezing would be the best approach. 

The participants need to know which plan they are in and when.