Lori Friedman

By the way, this is an interesting discussion, don't you think?

I agree, Andy, that Sec. 457 is another piece to the jigsaw puzzle. I'll always qualify any 457 discussion, however, with a few comments. First, a 457 arrangement, whether eligible or ineligible, is riskier for the employee. Unlike a 403(b) plan or QP, Sec. 457 deferrals are general assets of the employer and a contractual agreement to pay. An organization might be financially solvent and responsibly governed now, but there's always an inherent insecurity about betting on an unknown future. Second, it's preferable to supplement a 403(b) plan or QP with a 457(b) eligible arrangement, to avoid the pitfalls of substantial risk of forfeiture. For 2004, 457(b) contributions are generally limited to $13,000, an amount that's comparable to 402(g) but falls far short of the 415 limit. An ineligible 457(f) benefit, although unlimited, can be a Pandora's Box of problems for the employee. When SROF expires, usually because the individual leaves the employing organization, deferred amounts are immediately taxable. Third, there are extremely limited rollover opportunities for 457 assets. An employee can transfer benefits between organizations -- in essence, moving the general assets of one employer into those of another employer -- but that's about it.

First, a non-ERISA 403(b) plan is the simplest and least costly vehicle for employee elective deferrals: 1. Virtually no administrative responsibilities or costs. 2. No ADP test. 3. No top-heavy test. 4. Catch-up election for long-term employees, not subject to nondiscrimination testing. 5. The participant is deemed to have purchased the contract. Compliance problems, if any, are generally limited to individual participants and do not place the entire plan at risk. Second, for the purpose of the Sec. 415 limit, 403(b) plan and QP contributions ordinarily aren't aggregated. A participant can usually receive employer contributions up to the Sec. 415 limit in a QP and make additional contributions, up to a separate Sec. 415 limit, in the 403(b) plan. The non-ERISA 403(b) plan retains all of the advantages discussed above, plus the higher overall contribution maximum benefits the organization's executives and other HCEs. Third, when an organization makes employer contributions to a Sec. 403(b) plan, the plan becomes fully subject to ERISA. 1. The employer assumes all of the obligations and responsibilities of plan sponsorship and administration. 2. The plan has one Sec. 415 limit to cover both the employer contribution and the employee salary reductions. It loses the greater overall contributions permitted when a Sec. 403(b) plan and QP co-exist. 3. It's difficult (impossible?) to hire a TPA to perform the testing and compliance work for a 403(b) plan. The IRS won't provide a determination letter to give the plan a "stamp of approval" (but the plan can request a private letter ruling). QPs have a well-defined set of rules, but 403(b) plans have much less certainty in the absence of final regulations (promises, promises). Briefly: non-ERISA 403(b) plan = excellent arrangement ERISA 403(b) = not so great. If an organization chooses to forgo the advantages of a 403(b) plan, it should at least enjoy the benefits of a QP.

Step one - For a defined contribution plan, the plan document (or adoption agreement) dictates whether forfeitures are (1) reallocated to other participants or (2) used to reduce future employer contributions and/or "reasonable" administrative costs. Step two - What's a "reasonable" administrative cost? It seems as if the cost of producing and distributing a SPD -- a required, automatic disclosure to participants and beneficiaries -- would certainly be a reasonable expense of plan administration. Rev. Rul. 84-156 might be helpful.

An IRA-to-QP rollover can be very advantageous. Traditional IRA distributions must begin after age 70-1/2, regardless of whether the individual has retired from his/her employment. In general, however, someone who continues to work after age 70-1/2 can delay QP distributions until actual retirement. IRA rollovers are treated as QP assets and get included in this more favorable treatment.

You're correct, MWeddell, when you say that 403(b) plan vesting concerns were simplified by the MEA's elimination. But, I was thinking in a broader context. In general, it's more beneficial for a Sec. 501©(3) employer to conduct any ERISA-covered activities in a tandem, qualified plan while retaining the non-ERISA characteristics of a 403(b) arrangment.

Although employee salary reduction contributions must be immediately and fully vested, employer amounts (both matching and non-matching) may be subject to a vesting schedule. The vesting schedule must comply with ERISA's minimum vesting standards. Though permitted, a vesting schedule can impose substantial administrative burdens on a 403(b) plan and, thus, is usually avoided. It's generally preferable to make employer contributions to a Sec. 401(a) qualified plan that parallels the 403(b) arrangement. For example, when employer matching contributions are subject to a vesting requirement, the matching contributions can be based on 403(b) salary reductions but made to a qualified plan.

Since the issuance of Rev. Rul. 2004-10, it's becoming increasingly common for 401(k) plans to charge "reasonable", nondiscriminatory administration fees to participants. A non-ERISA 403(b) plan, however, isn't administered by the employer. The organization is limited to the role of conduit: withholding contributions from employees' paychecks and forwarding the funds to an investment or insurance company. I'm curious what costs are incurred by your organization: the time spent by your accounting staff to generate the payment checks, or perhaps the postage costs to forward the payments? I'm guessing that these costs would be very immaterial to your organization.

Facts: A labor union provides a vacation plan for its members. Pursuant to collective bargaining agreements, contracting employers contribute: (1) annual vacation pay, and (2) the employer's share of FICA to the plan. Union members receive their vacation pay net of FICA tax withholding. At year-end, the union reports each member's vacation benefit on Form W-2. I believe that this arrangment is an ERISA welfare benefit plan, as defined in 29 USC 1002(1)(A). The plan provides a benefit described in LMRA Sec. 302(a). I also believe that the plan is required to file an annual Form 5500. There's no trust, which should be irrelevant; an ERISA welfare benefit can include any plan, fund, program, or other arrangement. Any thoughts about this matter? Thank you.

The ADP test is never required for a 403(b) plan. If the plan has an employer match, it won't be a non-ERISA plan and will become subject to ACP testing. But, the employer really doesn't want to "go there". It's best to protect the non-ERISA attributes of a 403(b) plan and make any employer contributions to a separate, parallel qualified plan. It's ok to do a 403(b) match into a qualified plan sponsored by the employer.

You're describing a multiemployer plan that is maintained pursuant to collective bargaining agreements. Under DOL Reg. Sec. 2510.3-37, just one Form 5500 is filed for each multiemployer plan, and the contracting employers do not file individually. The employers don't sponsor a multiemployer plan; instead, the plan is sponsored by its own Board of Trustees.

Please help. I can't find any guidance about this matter. First, an individual is now allowed to roll over funds from an IRA to an eligible retirement plan (including a qualified plan or a 403(b) plan). Second, the beginning date of minimum required distributions from a retirement plan, but not an IRA, can now be delayed until the individual's retirement after age 70-1/2. My question: What's the correct treatment of IRA funds that have been rolled into the eligible retirement plan? Does the rollover retain its IRA character, and are distributions required to begin at age 70-1/2? Or, does the rollover acquire the properties of the eligible plan, and can distributions be delayed until a later year? I've found just one bit of guidance about this matter. The Panel (Aspen) Pension Answer Book - 2004 Edition states that "IRS representatives have opined that an IRA owner may roll over funds from an IRA to a qualified retirement plan and delay required minimum distributions until retirement..." But, who are these "IRS representatives", and where have their opinions been circulated? I really need more guidance than this one passing reference. Thank you.