Qualified Plans for
Tax- Exempt Employers
New York Society of Association
Executives
Finance & Management Institute
January 18, 2012
Presented by
Harvey M. Katz, Esq.
212-878-7976
hkatz@foxrothschild.com
Presentation Title
© 2011 Fox Rothschild
Plan Options – Best Design?
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457(b) Plan
401(a) Defined Benefit Plan
403(b) Plan (Non ERISA)
403(b) Plan (ERISA Covered)
401(k) Plan
Presentation Title
© 2011 Fox Rothschild
457(b) Plans – HCEs Only!
 Discriminatory by design
 Limited to “select group of management or highly
compensated”
 Annual contributions limited to separate $17,000
(indexed)
 Catch-up contributions - $17,000 within 3 years of
retirement age
 No loans
 Must be unfunded
 No rollovers to other types of plans
Presentation Title
© 2011 Fox Rothschild
Common Attributes
- 403(b) / 401(k) / 401(a)
 Tax-qualified – Earnings accumulate tax free,
taxed to participants only upon distribution
 Eligibility requirements – All common law
employees
 Vesting Requirements – Similar, generally,
100% after 2 years or 20% per year starting in
2nd or 3rd year.
 Waiting periods – Generally, age 21 and 1 year
of service
 Loans permitted
Presentation Title
© 2011 Fox Rothschild
Common Attributes
- 403(b) / 401(k) / 401(a)
 Compensation limits – Generally $250,000 annually
 Early distribution tax, if paid for other than death,
disability, separation from service after age 55
 Minimum distribution requirements at 70 ½
 Funded plan – Held in trust or annuities
 Portability – Generally permitted, via rollover or direct
transfer
 Non-discrimination rules - Similar coverage,
participation and non-discrimination rules.
Presentation Title
© 2011 Fox Rothschild
401(a) Defined Benefit –
A Dinosaur?
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Actuarially determined contributions
Annual minimum funding requirements
PBGC filing required
Potential for unfunded liabilities with balance
sheet impact
 Cannot be terminated without permission of
PBGC if underfunded
 Most private sector DB plans have been
terminated
Presentation Title
© 2011 Fox Rothschild
Care and Feeding of
Underfunded DB Plans
 Cannot be terminated without cash infusion
 Freeze DB plans as an alternative
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Hard vs. Soft Freeze
Watch assets with “back-end” fees
Purchase annuities
Watch Interest rates
Distress termination if employer is in financial
difficulty
Presentation Title
© 2011 Fox Rothschild
403(b) Plans –Two Flavors
 ERISA stands for Employee Retirement
Income Security Act of 1974
 If minimal employer involvement in plan, then
no ERISA coverage
 Traditionally withholding and paying over
contributions to a 403(b) provider is insufficient
to trigger ERISA coverage
 Performance of required coverage testing and
writing a plan document will not trigger ERISA
coverage
Presentation Title
© 2011 Fox Rothschild
Non-ERISA 403(b) Alternative for Smaller Employers
 Non-ERISA 403(b) plans are relatively easy to
establish and maintain
 No fiduciary responsibilities under Federal law
 Fewer reporting and disclosure obligations -
No annual 5500 filing
No Summary Plan Description required
No fee disclosure
 No significant coverage testing, only Universal
Availability Rule
Presentation Title
© 2011 Fox Rothschild
Why an ERISA 403(b)?
It’s All About Control
 Employer matching or discretionary
contributions
 Exercise of discretion
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plan-to-plan transfers
processing distributions
hardship determination
qualified domestic relations orders
participant loans
 Control of Investment Choices
Presentation Title
© 2011 Fox Rothschild
401(k) vs. ERISA 403(b) –
Service and Fees are Key Factors
 401(k) Plans are far more prevalent
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More available providers
More competitive fees
More compliance-oriented providers
 Availability of a catch-up contribution in
403(b) is not an important factor
 Fiduciary obligation to examine fees
Presentation Title
© 2011 Fox Rothschild
Universal Availability vs. ADP
 ADP - Actual Deferral Percentage
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Contributions of highly compensated limited based
upon level of rank and file contributions
 Universal Availability – Virtually all employees
must be covered
 Employers with need to exclude groups of
employees should opt for 401(k)
 Employers who need to maximize highlycompensated deferrals should opt for 403(b)
Presentation Title
© 2011 Fox Rothschild
Contact Information
Harvey M. Katz, Esq.
100 Park Avenue
New York, NY 10017
212.878.7976
hkatz@foxrothschild.com
Questions are welcomed!
Presentation Title
© 2011 Fox Rothschild