We currently are engaged to perform a certified audit for a non-profit organization who sponsors a 401(k) plan. The client has inquired as to whether it would make sense to terminate the 401(k) plan and roll it into a client sponsored 403(b) plan, which is not subject to audit (the investments are in an annuity product, thus allowing limited reporting)

Obviously the audit would have to be performed on the 401(k) plan for the year in which it transfers to the 403(b) plan. Other than that, are there any potential pitfalls?

Thanks for any replies.

Only non profits that are tax exempt under IRC 501©(3) are eligible for a 403(b) plan. Other NP must establish a 401(k) plan for salary reduction. A 403(b) plan is cheaper to administer because it is not qualified, no ADP testing, no IRS approval is required, permits larger elective contributions for employees of certain nps and has simple 5500 filing. See IRS publicaton 571 for details. NP can also maintain 457 plan for top hat group to allow additional salary reduction of 12k in 2003. Distributions from terminated 401(k) plan can be rolled over to 403(b) plan. 403(b) plans are simple to install and require only board resolution.