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CWilson

New To Administering 403(b) Plans

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I work for a TPA firm that just accepted a client who has a 403(b) plan and appointed me as the administrator. Since I am unfamiliar with the administration of 403(b) plans, being predominantly a 401(k) administrator, I'm unfamiliar with the rules governing 403(b) plans and could use some help. The client runs a private school. The plan is governed by two (2) separate plan documents, the first for the TDA portion (employee contributions) and the second for the employer contributions. The employer matches 100% of deferrals up to 5% of pay. My understanding from reading the latest version of the 403(b) answer book is that an ADP test does not need to be performed, but an ACP test does need to be performed. Am I correct in my understanding? Thank you for help.

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Guest Chuck Yanikoski

We do only a little bit of work in non-discrimination testing, so I don't claim to be an expert on this subject. Your case seems fairly clear, though.

 

In general, 403(b) non-discrimination testing is much less arduous than that for 401(k) plans. Although all 403(b) plans are subject to universal availability rules, plans sponsored by government entities (including public school districts) are subject to no other non-discrimination testing; churches and church-related organizations are also not subject, unless they elect to be.

 

Other organizations (such as private, non-church schools) are potentially subject to testing, but only if they offer employer contributions.

 

As you say, even those with employer contributions do not have any ADP testing (one reason that the once-expected big migration from 403(b) to 401(k) plans never happened). There ARE minimum eligibility rules (which do not cause a problem unless you are trying to restrict participation). And there is, as you also say, an ACP test. But there is a an ACP safe harbor, which your plan seems to meet since you match 100% of deferrals up to the first 5% of compensation.

 

 

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Guest Chuck Yanikoski

Sorry. By "we" I meant Still River Retirement Planning Software, Inc., of which I am founder and president. "We" do a lot of work with 403(b) compliance, and some with 457 compliance and other stuff relating to retirement plans and retirement plannings. As such, we need to maintain a certain level of expertise in some of these areas. We don't build administration systems, though, which is where one would normally find non-discrimination testing, so our level of knowedge in this area is less dependable.

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There are some "safe harbors" described in Internal Revenue Notice 89-23 that most plans use in the absence of specific guidance from the IRS.

Unless the safe harbors are used, the plan can satisfy the non-discrimination requirements under "a reasonable, good faith interpretation standard" of the Code. Because this is kind of vague, plans that I've seen gravitate towards the safe harbors.

 

I suggest that you take a close look at Notice 89-23 and try to find a way to use the safe harbors.

 

Hope this helps.

 

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