Government plans and 401(a)

[drakecohen]

As part of the accountant's audit report for the New Jersey state pension plans:

http://www.state.nj.us/treasury/pensions/p...ioncombined.pdf

on page 20 there's this:

"Income Tax Status

Based on a May 2007 declaration of an outside tax council retained by the Attorney General of the State of

New Jersey, the five pension funds/systems (TPAF, PERS, PFRS, JRS, and SPRS) comply with the qualification

requirements of Section 401(a) of the Internal Revenue Code."

Apparently complying with 401(a) is important enough for a government plan to note in the audit report.

The problem is that the plans do not comply with at least three sections of 401(a):

401(a)(16) - maximum benefits - Lots of 47 year old cops retiring with benefits over 415 limits.

401(a)(17) - maximum salary - Lots of school superintendents making over $245,000.

401(a)(29) - Obviously minimum funding requirements are not satisfied under PPA

Would this mean that New Jersey's plan is not qualified and whatever has been set aside is taxable to plan participants?

[J Simmons]

The problem is that the plans do not comply with at least three sections of 401(a):

401(a)(16) - maximum benefits - Lots of 47 year old cops retiring with benefits over 415 limits.

401(a)(17) - maximum salary - Lots of school superintendents making over $245,000.

401(a)(29) - Obviously minimum funding requirements are not satisfied under PPA

How do you know they are non-compliant? For example, a superintendent may make over $245,000 a year, but that is not proof that the plans in question take into consideration earnings over the $245,000 cap. So what is your proof of these three propositions?

[drakecohen]

How do you know they are non-compliant? For example, a superintendent may make over $245,000 a year, but that is not proof that the plans in question take into consideration earnings over the $245,000 cap. So what is your proof of these three propositions?

The salary is debunked. I checked the handbooks and they do limit salary to $245,000.

Government plans are also exempt from 412.

However, I don't see any exception for 415 and in NJ a cop retiring with a final one-year salary of $150,000 at age

47 (not unusual) would have a benefit of $97,500 which would exceed 415.

[J Simmons]

How do you know they are non-compliant? For example, a superintendent may make over $245,000 a year, but that is not proof that the plans in question take into consideration earnings over the $245,000 cap. So what is your proof of these three propositions?

The salary is debunked. I checked the handbooks and they do limit salary to $245,000.

Government plans are also exempt from 412.

However, I don't see any exception for 415 and in NJ a cop retiring with a final one-year salary of $150,000 at age

47 (not unusual) would have a benefit of $97,500 which would exceed 415.

Not being an actuary, and not having the actuarial reports to review, I could not really say.

[jpod]

Isn't the 415 early payment reduction waived for qualified firefighters and police?

[Guest Sieve]

How about IRC Sections 415(b)(2)(G) & (H) & (I) and 415(b)(10) & (11).

[drakecohen]

Isn't the 415 early payment reduction waived for qualified firefighters and police?

It is - also Indian tribes. I'm thinking teachers, then.

[david rigby]

By reference, certain sections of 401(a) are not relevant to governmental plans, unless required by state law.

For example, 401(a)(3) references compliance with 410, but 410© exempts governmental plans.

Another example, 401(a)(29) references compliance with 412 / 436, but 412(e) exempts governmental plans.

Note that the ERISA exemption for governmental plans generally requires compliance with the IRC as it existed the day before ERISA was enacted. IMHO, the IRS wants nothing to do with policing plans of state and local governments.