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December 17th, 2019
Information & Insights for the 403(b) Community
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Difference Between Investment in Annuity and Annuity Distribution
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“I have just been contacted be an employee who is retiring who wishes to initiate the process of ‘annuitizing’ her benefit when she retires. I am relatively new to working with our 403(b) plan and am confused, as our 403(b) plan only offers annuity investments. Isn’t an annuity automatic?” 
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Timing for Coverage and General Nondiscrimination Testing
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“I work for an Employee Retirement Income Security Act (ERISA) 403(b) plan sponsor who provides an employer base contribution that falls outside the safe harbors and is thus subject to the 410(b) coverage and 401(a)(4) general nondiscrimination tests each year. However, we recently transitioned to a new recordkeeper who has stated that we do not need to complete such testing annually, only once every three years. That would be excellent news, because the data collection process is burdensome on our end. Is our recordkeeper correct?”
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Vesting Rules for Governmental and Church Plans
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“I read in a past Ask the Experts column that special pre-ERISA vesting rules apply to governmental and church retirement plans, but the Experts did not state what those rules are. Can the Experts elaborate?”
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Must 403(b)s Adopt a Pre-Approved Plan Document?
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“Our 403(b) plan recordkeeper wishes for us to adopt their preapproved retirement plan document. However I am quite happy with our individually designed 403(b) plan document that was prepared by our outside retirement plan counsel. Do I have to use the recordkeeper’s document now or can I stick with the attorney-prepared document that I have?”
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Including Rollover Balances for Auto Cashouts
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“Our plan automatically cashes out small balances under $5,000, with rollovers to an IRA for balances between $1,000 and $5,000. We recently had a participant terminate employment with a $3,000 account balance, but an additional $15,000 in rollover assets. Should we automatically cash out her account balance, or not?”
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What Plan Types Count for Elective Deferral Limits?
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“I know from a prior Ask the Experts column that we must be very careful when onboarding new employees to our 403(b) plan that they have not made any 401(k) or 403(b) elective deferrals to plans of their prior employer, since those would count against what they could defer to our plan in the same calendar year. Are there any other types of plans that would limit the employee’s elective deferrals as well?”
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Can Split Plans Be Combined for Nondiscrimination Testing?
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“I work with a 403(b) ERISA plan sponsor that, to avoid the large plan audit requirement, is splitting its plan into two separate plans. Plan provisions will be exactly the same for the two split plans as for the existing plan. Since the plans have provisions that are identical, can nondiscrimination testing be performed as if the plans were a single plan?”
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