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wiltony

Does Our Grandfathering Plan Violate Universal Availability?

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We plan to kill our 403(b) plan by directing any and all new participants to the state's defined contribution plan (in which we participate) but grandfathering our existing plan by maintaining any existing participant contributions (letting it die a slow death through attrition.)

 

Because our "grandfathered" 403(b) plan would allow existing participants to contribute, but not any new participants, does anyone think we might be violating Universal Availability?

 

 

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Guest Joel L Frank

I would terminate the 403(b). Then the employee-investor can effectuate a Direct Rollover of his/her distribution to the State's Define Contribution 457(b)/401(k) Plan. No one should want to continue to bleed on a voluntary basis--this is what will occur if you grandfather rather than terminate. Please post up your query to the experts on the message boards of: benefitslink.com.

 

Best,

Joel

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Thanks Joel, we'd like to do that, but it isn't politically feasible. This is the compromise we had to make to even get the ball rolling on the plan termination. Thanks for the reference, I'll check on benefitslink.com.

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Wiltony,

You are a smart man. In this bazaar 403b world, you need to pick fights that you have a smitten of a chance to win AND benefit colleagues.

We are slowly starving the 403b with the lower cost 457b plan. We are making progress, that's key, progress! Going on $50 million in assets from starting with zero just a few years ago with all of the obstacles.

Have a great day,

Steve

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Thanks Steve. I just wanted to close the loop on this. I checked out benefitslink.com and posted my question there, and got a good response. Here is the thread, if anyone is interested:

 

http://benefitslink.com/boards/index.php?/topic/53642-universal-availability-pseudo-plan-termination/

 

In short, Universal Availability is not violated because all employees have access to the state's 401(k) plan instead.

 

Now I just have to craft plan document language saying something like "everyone is excluded except those participating as of date" and I'm not sure how that's going to work!

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Another follow-up. I've come across Treasury Regulation 1.403(b)-10(a) which expressly permits what I'm trying to do!

 

From: http://www.irs.gov/pub/irs-tege/td9340.pdf#page=112

 

§1.403(b)-10 Miscellaneous provisions
(a) Plan terminations and frozen plans--(1)In general. An employer is permitted to amend its section 403(b) plan to eliminate future contributions for existing participants or to limit participation to existing participants and employees (to the extent consistent with §1.403(b)-5).

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Guest Joel L Frank

And that's why Carol told you that you are on solid ground. Self educating---what a great feeling!

 

Best,

 

Joel

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