W-2 Retirement Plan Box
Posted 25 June 2001 - 02:41 PM
Our main defined benefit plan specifies participation at the entry date following attainment of age 21, and one year of Eligibility Service (where one year of eligibility service is an employment anniversary with 1000 hours of service). It excludes union employees,but not temporary or seasonal employees.
Up through 1999, our interpretation had been that if they did not work enough hours to meet the eligibility criteria, then the Pension Box would not be checked.
All the guidance that we have found says that someone who has met the age and service requirements and an entry date, but who has not met the hours requirement should be coded as a Pension Plan (or Retirement Plan for 2001) participant. Tax Management for example says" Even a participant who accrues no benefit because he or she has not completed the required number of hourswill be considered an active participant."
We have a group of employees who work for us and other similar employers on a "substitute" basis. They might only work one day in a given year, or many more days, but probably not 1000 hours.
They claim that even if they receive 8 or 10 W-2's for a given year, we are the only ones that are checking the Pension Plan box on the form.
Continuing to check the Pension Plan box will interfere with our ability to hire and retain these people.
Anyone with comments/clarifications?
Posted 25 June 2001 - 03:15 PM
By the way, a lot of trouble can come with "probably".
Posted 25 June 2001 - 03:29 PM
All the guidance defines active participant. So it says that an employee is considered an active participant unless they are excluded by the eligibility provisions. Examples of eligibility provisions are age, years of service, and classification of employment.
It seems to me that you are applying the common sense approach, which does not seem to apply in this situation.
Posted 25 June 2001 - 03:29 PM
Posted 25 June 2001 - 03:37 PM
I have attached the following from the pension answer book:
An active participant in a defined benefit plan (see Q 2:3) is an individual who participates or meets the eligibility requirements for participation at any time during the plan year ending with or within the individual’s taxable year. Thus, an individual is an active participant if the individual is eligible but declines to participate or fails to complete the minimum period of service or to make an employee contribution necessary to accrue a benefit. However, an individual who elects pursuant to the plan not to participate will be considered to be ineligible for participation for the period to which the election applies; but, in the case of a defined benefit plan, such an election is effective no earlier than the first plan year commencing after the date of the election. An individual is not an active participant if the employer has frozen benefit accruals (unless prefreeze benefit accruals increase as compensation increases). An individual who accrues no additional benefits in a plan year ending with or within the individual’s taxable year by reason of attaining a specified age is not an active participant by reason of participation in the plan. [Treas Reg § 1.219-2(B); Prop Reg § 1.219-2(f)(1); Wartes, 65 TCM 2058 (1993); Ann 91-11, 1991-4 IRB 80; Notice 88-131, 1988-2 CB 546; Notice 87-16, 1987-1 CB 446; Ltr Rul 8948008]
Posted 25 June 2001 - 03:39 PM
Received an allocation or made a contribution is indeed the DC version of the rules. But this is a defined benefit issue.
And the opinion came from our esteemed ERISA counsel, who can be counted on to give us a strict if somewhat conservative interpretation of any rules.
Posted 25 June 2001 - 03:52 PM
Posted 25 June 2001 - 07:13 PM
Posted 25 June 2001 - 08:03 PM
Note the Tax Management article cited references "even a participant who accrues .....".
The people you've described are not participants, so that statement is irrelevant.
Based upon the presented data, these people should not have the box checked.
If these people once work the necessary hours, they remain active participants even if they never do so again. That's what the article says, and it is a true statement.
Posted 26 June 2001 - 10:04 AM
The most 'on-point' reference that I have is from BNA's Payroll Guide, where it says "Under a defined benefit plan, any individual who is not excluded from participating under the eligibility provisions of the plan is considered an active participant. The individual is considered active even if mandatory contributions have not been made,the minimum service for benefit accrual for the year has not been met, or no benefits have vested."
Posted 26 June 2001 - 10:09 AM
Posted 26 June 2001 - 10:09 AM
Posted 26 June 2001 - 05:54 PM
Read Q&A C3. It cross-references Notice 87-14. Sorry, I could not find a copy; I'll continue to look.
In addition, there is a reference in the instructions to IRS Publication 590. http://ftp.fedworld....rs-pdf/p590.pdf
Note that this publication is focused on IRAs, and includes comments on who can make a deductible contribution to an IRA. Relevant comments begin at the bottom of page 8. From page 9:
"If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. This rule applies even if you:
• Declined to participate in the plan,
• Did not make a required contribution, or
• Did not perform the minimum service required to accrue a benefit for the year."
I do not know how to justify that last bullet, except that perhaps it means you are already a participant but worked less than the required hours (probably 1000) this year.
I am also unsure about the comment above "the plan year that ends within your tax year". For example, if I am a participant on 10/1/99 (beginning of plan year) and terminate employment on 12/31/99, I am a participant in the "plan year that ends within my 2000 tax year", but I never participated during my 2000 tax year.
Have I missed something?
Posted 26 June 2001 - 08:57 PM
I'll bow out of this discussion, with the opinion that if somebody ain't a participant, he/she ain't an active participant for purposes of Form W-2/IRA limits, with the correct exceptions of (thanks to pax' info):
1. Failure to participate due to failure to make mandatory employee contributions (now an archaic issue)
2. Failure to participate due to some phony (for this purpose) waiver.
But, just one opinion, in closing. The box shouldn't be checked for the always under 1,000 hour crowd based upon the info you've provided.
Posted 27 June 2001 - 01:33 PM
We produce 80,000+ W-2's per year, and have employees in 35 corporate qualified plans and probably nearly 100 multiemployer plans, each with different eligibility criteria. Keeping it all straight is a nightmare.
I'm not yet sure what we will be doing for calendar 2001.