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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The IRS has issued final regulations which permit Code Sec. 501(c)(3) tax-exempt organizations and governmental entities to exclude employees for purposes of testing whether or not their 401(k) or 401(m) plan satisfies the minimum coverage requirements of Code Sec. 410(b). The regulations allow a tax-exempt organization to continue to maintain both a 403(b) plan and a 401(k) plan without having to provide coverage for employees under both plans.
Prior to 1997, tax-exempt entities were prohibited under Code Sec. 401(k)(4)(B) from maintaining 401(k) plans. However, Code Sec. 501(c)(3) tax-exempt organizations were allowed to sponsor 403(b) plans to which employees could make salary reduction contributions. Effective beginning in 1997, the Small Business Job Protection Act of 1996 (SBJPA) amended Code Sec. 401(k)(4)(B) to authorize nongovernmental tax-exempt organizations to establish 401(k) plans for their employees. In testing a 401(k) or 401(m) plan for compliance with the minimum coverage requirements, Reg. §1.410(b)-6(g) authorized an employer to exclude employees who could not participate in the 401(k) or 401(m) plan under Code Sec. 401(k)(4)(B) prior to the SBJPA amendment. The exclusion applied only if more than 95% of the employees who were eligible to participate in the plan benefited under the plan for the plan year.
Proposed regulations issued in March 2004 (see CCH Pension Plan Guide ¶20,261D) further provided that Code Sec. 501(c)(3) organization employees who are eligible to make contributions under Code Sec. 403(b) via a salary reduction agreement may generally be treated as excludable with respect to a 401(k) plan or a 401(m) plan if: (1) no employee of a Code Sec. 501(c)(3) organization is eligible to participate in the 401(k) plan or 401(m) plan; and (2) at least 95% percent of the employees who are neither:
(a) employees of a Code Sec. 501(c)(3) organization, nor
(b) employees of a governmental entity who are precluded from being eligible employees under a 401(k) plan or 401(m) plan by reason of Code Sec. 401(k)(4)(B)(ii),
are eligible to participate in such 401(k) plan or 401(m) plan. The IRS has now finalized these provisions of the proposed regulations.
Furthermore, the final regulations retain the rule set forth in Reg. §1.410(b)-6(g), that employees of governmental entities, who are precluded from being eligible employees under a 401(k) plan by reason of Code Sec. 401(k)(4)(B)(ii), may be treated as excludable employees provided that more than 95% of the employer's employees who are not precluded from being eligible under Code Sec. 401(k)(4)(B)(ii) benefit under the plan for the plan year.
The final regulations generally apply to plan years beginning after December 31, 1996. However, for plan years beginning after December 31, 1996, but before January 1, 2007, a transitional rule allows an employer to determine excludable employees using the provisions of either the proposed or the final regulations.
For more information on this and related topics, consult the CCH Pension Plan Guide.
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