Anyone want to consult on alternatives for government plans?

[Guest Doug Johnston]

Anyone want to consult?

We have a client that is a subdivision of a medium size city government. The City and the subdivision sponsor the Virginia Retirement System DB pension plan, with employer pick-up of employee contributions. They also sponsor a 457 plan funded by employee deferrals only. They now want to sponsor some type of plan that would provide matching contributions by the City. We have discussed that the City is not eligible for 401(k) or SIMPLE IRA, they don't like the opportunities afforded by the 457 plan, and a 403(B) plan would apparently only be an alternative to (not in addition to) the 457 plan since the contribution limits are coordinated.

Bottom line, the client is convinced there is a solution and is not entirely confident in our ability to advise in this area. Does anyone have any ideas or want to contact me to set up a conference call, etc. Client is willing and able to pay for "better" advice! 304-325-8157

[Everett Moreland]

403(B) is not available to a city. What does the City want to match? Contributions to the 457 plan? If so, the City could contribute the matching contributions to a DC plan. The City's matching contributions to a DC plan would not count toward the 457 limit.

[Guest Doug Johnston]

They really want to offer something in addition to (or as an alternative to) the 457 plan. We have discussed a 401(a) plan to receive matching contributions for the 457 plan, but they really aren't excited about the 457 plan because of funding issues. They perceive the 457 plan to be unfunded - City assets rather than employee/trust assets.

How would you test a DC plan with a match formula tied to the 457 plan (ACP test, general test?)

[Everett Moreland]

The assets in the 457 plan are required to be held in trust; they cannot be City assets. The ACP test does not apply to the City's plans.

[Everett Moreland]

The general test does not apply either.

[Guest]

Do they have any options available to them through the Virginia Retirement System which would achieve their goals? If not, they will need to determine if the Virginia statutes allow them to create a "qualified" pension plan outside of the state system. If they can, I believe the best option they have is to consider adding a DC plan. If not, I agree that a 457 is their best option and that a 403(B) is not an option.

[Guest Kathleen Meagher]

How would your client feel about a DC plan with mandatory employee contributions that are picked up on a pre-tax salary reduction basis by the employer? These contributions could be matched with "regular" employer contributions.

It's not as flexible as a true deferral plan, because the employees can't change their contributions, although they can be given an irrevocable "in or out" election. I know of one gov't plan that lets employees elect among several levels of picked-up contributions--e.g., 5%, 10%, 15%--but once the employee makes the election, that's it.

For more flexibility, it seems that a DC plan for matches to the 457 contributions is the best solution.

[Guest ronc]

These suggestions are all pretty accurate. We have faced the same concerns. We are a hospital authority in your state capital that has VRS, and for a couple of years have had our own 401(a)DCP, and a 457 plan for which we match contributions and then deposit into the 401(a). This seems to be the latest concept for governmental entities that wish to set up some matching component. Even the Commonwealth of VA is developing a plan. Email me at rcroy@mcvh-vcu.edu and I'll be glad to share our experience.

[Guest Ralph Amadio]

We have been providing formula driven and percentage of pay driven plans for years in CA. I've done several hundred. Most are 401(a)DB enhancements over and above the State and Teachers Retirement Systems for various groups of employees with special circumstances. Incidentally our actuaries are in your back yard in VA. Local law of course prevails. If you would like to contact me, e-mail me @ http://www.publicagencyretirement.com through info@publicagencyretirement.com