Guest matt2800 Posted April 16, 2012 Share Posted April 16, 2012 I have not seen any limit on the interest rate that can be used to calculate earnings for participants in a deferral only/nonelective 457(b) plan for tax exempt employers. The 457 regs do say that reasonable actuarial assumptions must be used if the eligible plan is a DB plan but the regs are silent with regard to a DC plan. Assuming contributions are 100% vested, what is to stop someone from using an interest rate of 100% as a way to circumvent the contribution limits? I am aware that a 457(f) plan allows you to avoid the limits imposed by eligible plans. Link to comment Share on other sites More sharing options...
Guest LeeNunn Posted April 16, 2012 Share Posted April 16, 2012 457(e)(6) says that compensation will be taken into account at its present value. While the 457 guidance is light on PV guidance, you could probably rely on the FICA guidance, which gives the Moodys rate as an example of a market interest rate. The risk is that you overstate the discount rate in your PV calculation, which understates the deferral and creates the potential for an excess deferral subject to 1.457-4(e)(3). If you don't distribute the excess by the following April 15, the entire plan falls under the 1.457-11 rules. In other words, you no longer have a 457(b) plan. Link to comment Share on other sites More sharing options...
Guest matt2800 Posted April 16, 2012 Share Posted April 16, 2012 So in a deferral only plan that provides for a stated return in the document, you are saying that the anything above the Moody's rate is unreasonable????? Link to comment Share on other sites More sharing options...
Guest LeeNunn Posted April 16, 2012 Share Posted April 16, 2012 No. I'm saying that there is very little guidance. Given the stakes, you might consider limiting yourself to a rate that you know the IRS considers reasonable (although in different context). Also, you can always use a real investment (one with a market value that goes up and down) to measure the balance. If investment experience is favorable, there's no telling what you might earn (or lose). Link to comment Share on other sites More sharing options...
QDROphile Posted April 16, 2012 Share Posted April 16, 2012 A deferral arrangement is going to be subject to the FICA rules, so that should take care of the matter. Link to comment Share on other sites More sharing options...
Everett Moreland Posted April 16, 2012 Share Posted April 16, 2012 matt2800: If I understand your post, what you describe seems to be a defined benefit plan. Link to comment Share on other sites More sharing options...
Guest matt2800 Posted April 16, 2012 Share Posted April 16, 2012 A deferral arrangement is going to be subject to the FICA rules, so that should take care of the matter. Agreed. Link to comment Share on other sites More sharing options...
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