ERISA 403b paired with Non-ERISA 403b

403b Guru's of benefitslink, please help me out with this one.

Client is a 501c3 and Im looking at what I was told was a pretty simple 403b (plan 001).  Nothing exceptional stands out in the plan document, participants get a 3% non-elective on top of a 50% match up to 4% of comp.  The plan files a Form 5500 every year.

After speaking to the accountant, what happens in practice is throwing me off a bit.  

• Elective deferrals in excess of 4% of comp are actually deposited to a second 403b plan (lets call it plan 002).  I havent seen a plan document for this plan, and no 5500s have been filed.  It sounds like its a deferral only non-ERISA 403b.
• Both plans are with the same provider
• Plan 001 does not mention anything about deferrals in excess of 4% of comp being funded to a different plan

This doesn't seem right to me, I would expect that plan 001 would have to spell out that it will only accept elective deferrals up to 4%.  Am I missing something?

What is the point of splitting elective deferrals into two plans?

any insight would be greatly appreciated.

Nice! (1)  Is the organization eligible to have a non-ERISA Plan (government; church)? Plan 2 can't be a 457(b) plan -- your description says it is funded.

(2) Nonprofits often have strange ideas and use strange terminology. Is it possible that Plan 2 is not a separate plan, but just a separate set of accounts to hold the "excess" deferrals but labeled and talked about as a separate plan?

Thanks @QDROphile!  

The employer is a 501c3, so I believe they are eligible if the plan meets certain requirements like deferrals only, limited employer involvement, etc.

My first thought was that it was one plan but two "accounts" at the vendor, but the Form 5500 for plan 001 only reports deferrals up to the 4% that's matched, so that's the main reason I'm leaning towards two plans.

I have seen those arrangements over the years, but not recently as I don't consult in that space any more. I remember seeing it particularly in colleges and universities, where they had the ERISA plan with a mandatory employee deferral and a very generous match plus a non-ERISA plan that allowed voluntary deferrals beyond the rate of the mandatory deferrals. Although, as I remember, the investments/RK structure was often the same (TIAA-CREF and/or Fidelity) so there was some question as to whether those second voluntary plans were truly non-ERISA (especially if solely T-C or Fidelity). These arrangements may have been combined into single plans now because of all the new rules, as I noted, I'm not in this space any more.

The ERISA plan document should state the 4% deferral cap as should its forms, and there should be a "document" (at least items of documentation) for the non-ERISA plan.

On 11/13/2024 at 10:30 AM, CuseFan said:

Although, as I remember, the investments/RK structure was often the same (TIAA-CREF and/or Fidelity) so there was some question as to whether those second voluntary plans were truly non-ERISA (especially if solely T-C or Fidelity). These arrangements may have been combined into single plans now because of all the new rules, as I noted, I'm not in this space any more.

Thanks @CuseFan!  Yes that's what I'm concerned about as well, it appears that the employer involvement here is more than it should be for a deferral only non-ERISA plan...

On 11/13/2024 at 10:30 AM, CuseFan said:

The ERISA plan document should state the 4% deferral cap as should its forms, and there should be a "document" (at least items of documentation) for the non-ERISA plan.

Ive requested additional documents so hopefully I'll know more soon.