Leaderboard

You are correct. 403(b) Answer Book - Seymon-Hirsch and Anderson-Briggs,Q 11:9,Is an arrangement that provides employer contributions subject to ERISA? Last Updated: 7/2017 Yes. DOL Regulations Section 2510.3-2(f) (see Q 11:2), which sets forth narrow criteria exempting a Section 403(b) arrangement from ERISA, permits an employer to collect salary reduction contributions and forward them to the funding agent. An arrangement that provides any contributions other than salary reduction contributions creates employer involvement beyond what is permitted by the exemption. Such an arrangement would be subject to ERISA unless the employer was otherwise exempt as a governmental or church plan sponsor. Employer matching contributions to a separate plan that are made by the employer on the condition that an employee makes voluntary contributions to a Section 403(b) arrangement would also cause the Section 403(b) arrangement to fail to satisfy the safe harbor. A Section 403(b) plan does not fail to comply with the safe harbor merely because the employer also maintains a qualified Code Section 401(a) plan. However, DOL Advisory Opinion 2012-02A clarifies the DOL view that conditioning employer contributions to the separate plan on the employee making voluntary salary reduction contributions to the Section 403(b) plan would be inconsistent with the limited employer involvement permitted by DOL Regulations Section 2510.3-2(f) (see Q 11:2) and would also conflict with the requirement in DOL Regulations Section 2510.3-2(f) that employee participation in the Section 403(b) arrangement be completely voluntary.

I believe AO 2012-02A addressed this very question. And as I recall, the DOL said such an arrangement would violate the "completely voluntary" requirement. But don't take my word for it - you may want to check the AO. If you can't find it, I think I have a hard copy lurking in a file somewhere.

Just a note that taxation of qualified plan benefits since ERTA in 1981 has been based solely on an actual distribution of benefits. Don't think that changes the taxation conclusion here though.

Bottom line: employees get W-2s. People who get 1099s are vendors.

A former spouse gets nothing unless provided in a QDRO. Unless the participant dies before the plan determines the QDRO, the QDRO can invade the "rights" of the second spouse. The formula you describe is conventional and is not regarded as overreaching with regard to the second spouse. This a bit complicated, and one could quarrel with the articulation, but you, as subsequent spouse, do not "vest" with repect to a QDRO until the participant dies. As a matter of value judgment on my part, you have nothing to complain about if the former spouse is awarded half of the benefit accrued during the time of marriage to the first spouse, including the survivor benefit that goes with that half. To get closer to your question, the terms of the QDRO determine the disposition of the survivor benefits. As subsequent spouse and designated beneficiary, you have all of the survivor benefits that are left over after the QDRO alternate payee's survivor benefit (as expressed in the QDRO) is honored. You may have some portion and the former spouse may also have a portion.

Absolutely agree & if an auditor actually asked about it I would probably laugh at them

Agree about the immateriality for sure, but I've seen similar issues on multiple $4,000-$5,000 checks on larger plans so the discussion about proper tax treatment and 5500 reporting is worth having - the right answer applies to all situations, large and small, does it not?

I just broke my 'like' button hitting it so hard :-)

Ok, not the rules but here is my take on the 5500. Do whatever you want it is immaterial to spend this much time thinking about it. What I would do is not include it in the ending assets as it was paid and move on. But if the CPA doing the audit (assuming it is even an audited plan) said put it in the ending assets I would give them what they want without any additional thought. Too small of an amount to care about. I have never seen an IRS or DOL audit of a 5500 that has ever looked at the assets of a plan hard enough to get into this issue.