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Separate 415 testing for 403(b) programs


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The problem is that I.R.C. § 415(e)(5) is the source of the rule that a 403(B) plan is not to be treated as a plan of the employer which actually sponsors it, but only of any business controlled by the participant. Although you are right that the first part of that rule is not explicit (since the statute by its terms mentions only the second part), it is the only part of 415 which could be construed to cause a 403(B) plan sponsored by an employer not to be treated as a plan of that employer for purposes of I.R.C. § 415(f), which calls for all plans of an employer to be combined in applying the 415 limits.

The question may soon be moot, however. TRA '99 would have corrected the problem. While of course TRA '99 was vetoed (isn't that an annual tradition by now?), the general expectation seems to be that the pension plan provisions will eventually turn up in whatever tax bill is passed.

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Employee benefits legal resource site

[This message has been edited by CVCalhoun (edited 10-08-1999).]

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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The 1999 third edition of the 403(B) Answer Book seems to say that, unless technical corrections are made, when Code 415(e) is repealed effective with the limitation year beginning in 2000, then 403(B) programs no longer have separate 415 limits. This conclusion would apply to 415© limits too.

I find that a little hard to believe because Code Section 415(e)(5) states the exception when a 403(B) is aggregated with employer-sponsored plans, and is not the source of the general rule that 403(B)'s are considered sponsored by the participant, not the employer.

Has anyone looked at this issue? What are your thoughts on it?

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  • 1 month later...
Guest Jim Brennan

It appears that the tax bill is going to be an election issue and will not be settled any time soon. Does this mean that the 403(B) plan will be treated as an employer plan for 415 aggregation purposes as of 1/1/00.

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Well, high level representatives of the IRS have stated in speeches and the like that they will continue the disaggregation of 403(B) plans with 401(a) plans, just as if 415(e) were still in place. Their theory is that the disaggregation is still in the regulations, so they will continue to rely on the regulations in the absence of a statute. Practitioners are scratching their heads at what gives the IRS authority to continue a regulation after the enabling statute is repealed. However, as a practical matter, looks like you don't need to worry about aggregation as of 1/1/2000.

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Employee benefits legal resource site

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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No expert I, but that sounds to me like an IRS transition. Perhaps we should just be thankful.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Pax, I agree. Regardless of how dubious the legal theory may be, as a practical matter it makes sense. It would seem silly to have to begin a whole bunch of new testing now, only to backtrack when a bill later passes which makes the disaggregation retroactive. Moreover, I can't imagine who would question IRS' decision to apply more lenience than the statute might seem to allow. For right now, I'm just glad not to be sending out a bunch of letters to clients telling them they have to do something new in the next month. (Happy Chanukah, merry Christmas, happy New Year, and have you done your new 415 testing?)

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Employee benefits legal resource site

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Adds a whole new layer to legal research. We can now cite the Q&As the ABA does--even though theoretically we can't cite private letter rulings.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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I am somewhat unclear on this issue, and would appreciate some clarification.

As I understand the current status, based on IRS Publication 571, there is a unique connection between a professor's university 403(B) contribution and any contribution the professor can make to a separate plan based on self-employed income. In essence, the two sources of income are combined and the two contributions are combined to determine if 415 limits are exceed. (If I am misunderstanding this, please correct me.)

What I am gathering from this conversation is that this would disappear with the repeal of 415(e) as of year 2000. Correct?

Thank you.

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Currently, if the professor has a separate business (either his/her own corporation, or a sole proprietorship), the professor's 403(B) plan from the university is combined with the plan of the professor's business in applying the aggregate limits. However, the professor's 403(B) plan from the university is not combined with any contributions on the professor's behalf to a 401(a) plan maintained by the university.

However, this rule is based on Internal Revenue Code § 415(e). With the repeal of Code § 415(e), effective in 2000, the question is whether the university would now have to aggregate 401(a) plans and 403(B) plans, in applying the limits, to the extent that they covered the same professor.

Theoretically, the answer would appear to be yes. However, the top people at the IRS in charge of these issues are saying that the answer is no. Even if they are wrong, it is hard to see who would challenge their applying a more liberal rule than the statute would seem to require. Thus, we can expect that at least for now, the university does not have to begin aggregating its 401(a) and 403(B) plans in applying the limits.

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Employee benefits legal resource site

[This message has been edited by CVCalhoun (edited 12-03-1999).]

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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