Catch-Up Rules

[Guest Jeff Kropp]

At a recent Washington D.C. conference (Sept. 1999) on governmental benefit plans, IRS reps indicated that the catch up elections apply on an employer-by-employer basis. I believe that Bob Architect (the 403(B) guru for the Service) made the statement. That is the approach I am taking with regard to the two IRS 403(B) audits I am handling now for school district clients. Hope that helps.

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[Guest Bob Collins]

One of our governmental clients has told us that the IRS has announced that catch-up elections (415©(4)) are now on an employer basis rather than on a life-time election basis. Have you seen anything on this topic and if yes, what is the reference.

[Michael Devault]

The Tax Sheltered Annuity Examiniation Guidelines refers to this. Section 13.5.2.1 says, in relevant part, "Once made, the election is irrevocable. This means that no other special election may be made for any future year WITH THE SAME EMPLOYER (or and employer that is aggregated under section 415), although a participant may always rely on the general rule." (Emphasis was added.)

Although this is what the exam guidelines say, the Regulations still advise to the contrary, as does Publication 571. I would excercise caution in this area until the Regs and/or Pub 571 are/is changed.

Hope this helps.

[Ellie Lowder]

Have had a lot of discussions about the catch up elections with the IRS "guru" and the IRS had meetings with headquarters staffers about the meaning of irrevocability - they are pretty firm in their assertion that the options are employer specific. They assert that the regulations (which, as Michael said, dispute the employer specific position)were not drafted properly to reflect the "real" position. Also: we finally have assurances that that Pub. 571 will be completely revamped (it is poorly written says my source "soon"; written in a more easily understood way and with new versions issued more timely. Would be nice, eh?

[Carol V. Calhoun]

Just remember that "soon" in IRS time and geological time have similar meanings.

[Ellie Lowder]

I agree, Carol; however, they are "hot" on the issue because so many complaints have been lodged about the poor job on Pub. 571 (I have been among the complainers and I am persistent). They say they must get it done!

Maybe in our lifetime!

[Guest restonham]

Carol-

I'm also extremely confused by this area (not to mention the entire 403(B) contribution process). On page 6 of the Pub 571, it clearly says that, for church employees, you should treat all service with related

church organizations as service with one employer. On page 4, it talks about the increase for 15 year employees, including church employees. Since the definition of service with one employer appears

after the description of the increase for 15 year employees (which does not say anything about a single employer) wouldn't the second rule apply? Even later, under catch up elections, it doesn't specifically say you have to work for exactly the same organization - i.e. - you work for a methodist church for 10 years and catholic for 6 years. Where does it exclude this reasoning?? I placed a call to the IRS for a specific ruling, but, as you can imagine, they have to find someone who actually

understands all of this and call me back.

If the catch-up doesn't apply, then I assume, for exclusion from tax purposes, I am limited to $10,500 or 20% of includable compensation, whichever is less - or the 25% catch up rule which doesn't account for years??

Oh, and if it comes to asking my employer, when they reluctantly set up the 403(B) program, they made it very clear - "you're on your own - don't us anything." Is there any source of plain English explanations for the contribution limits??

Thank you.

[jlf]

Hopefully, the Service will take a fresh look at their General Information Letter of May 19,1995 which states that an early distribution triggering event under 403(B)(7)(A)(ii) and/or 403(b)11 must first be satisfied before salary reduction amounts may be afforded rollover treatment under section 403(B)8. This Letter is troublesome in light of the Statutory elimination (PL 102-318) of the specified rollover triggering events under 403(B)8, the rollover provision of section 403(B).

It appears from the Letter that the Service has made 403(B)(7)(A)(ii) and 403(B)(11) a rollover provision of section 403(B) in addition to an early distribution provision.