oldman

We have a governmental 403(b) plan that wishes to apply a three year eligibility requirement for employer contributions with an applicable vesting schedule? Is this permissible?

Thanks to both of you for your response. The plan document does provide that forfeitures will be used to offset future contributions.

We have a client who excluded eligible employees from participating in the plan since July of 2011 to present date. The exclusion of these eligible participants from contributing salary deferral contributions and receiving employer matching contributions would be considered an operational error and the plan sponsor should correct the error as soon as possible using a reasonable correction method that would place affected participants in the position that would have been in had there been no operational defect. Under Revenue Procedure 2008-50, the correction for a failure to include an eligible employee in a 403(b) plan is based on the "missed deferral opportunity" to make deferrals. Under the correction method, the plan sponsor would make a qualified nonelective contribution (QNEC) to the plan on behalf of the excluded employees for their "missed deferral opportunity". The QNEC for the missed deferral opportunity is equal to 50% of the employee's "missed deferral". In addition, the plan sponsor would be responsible for making matching contributions for the excluded employees equaling the matching contributions that would have been would have received had the employees made pre-tax contributions. However, the corrective matching contributions would be based on the full amount of deferrals and not the 50 percent lost opportunity applicable to employee deferrals. Question is can the plan sponsor use plan forfeitures to fund the QNEC and matching contributions?

Thanks to both of you for your prompt response!

Thanks for your response to the correction method for handling employer contributions based on ineligible compensation. Question is what would be the appropriate remedy in addressing elective deferrals contributed to the plan based on compensation inclusive of cell phone reimbursement?

We have a client that used W-2 Wages (excluding Safe Harbor Fringe Benefits) as contribution compensation. In 2011 and 6 months of 2012, cell phone reimbursement was inadvertently included in compensation in applying employer matching contributions. This is an operational error and would the correction be that the affected participant accounts must be reduced by the overage, adjusted for earnings, and then reallocate or place in an unallocated account (suspense account, I.e., forfeiture account) and use to reduce future employer contributions. NOTE: No further employer contributions can be made to the plan until the suspense account is liquidated)?

Employer contributions were made to the plan in 2011.

Q was this a plan where employer made contributions in addition to employee salary reductions in 2011? As a regulatory matter plan can be amended to comply with ERISA back to 2011. Employer contributions were made to the plan in 2011

We have a client that adopted a Non-ERISA 403(b) plan in 2011. Employer has now advised us that their intent was to establish plan subject to ERISA. Understanding that there is a document failure in the absence of provisions relating to ERISA, as well as a failure to perform non-discrimination testing and 5500 reporting, can the plan be amended retroactive to 2011 to address the ERISA omission?

A non-electing church 403(b) plan defines compensation as W-2 Wages. Ministers , who receive housing allowance, contribute all or part of this type of compensation to the plan on a pre-tax basis. Minister defers salary, but only determine at end of year how much salary was used for housing allowance. I am not sure this is allowed. As an alternative, could the ministers contribute housing allowance to plan on an after-tax basis? Rationale is that includible compensation doesn't include housing allowance for purposes of caclulating 415 maximum limits to the plan - i.e., the lesser of 100% of compensation or maximum dollar amount permitted under the Code ($50,000 for 2012). Treasury Reg. § 1.415-2(d)(3)(iv) states that the term "compensation" does not include items such as "opther amounts which receive special tax benefits...". Therefore, housing allowance is not included in the annual limit, since it is an after-tax allowance. A minister could contribute the hosuing allowance on an after-tax basis if his pre-tax salary exceeds the 415 limit and his pre-tax plan contributions do not meet the $50,000 limit. Also, when retired ministers take a distriubtion, the total distribution is subject to 20% Federal Income Tax Withholding and applicable State Income Tax Withholding, since it is not know what portion of the distribution is attributable to the tax free houswing allowance, Box 2b of Form 1099-R - Taxable Amount Not Determined is checked. This procedure allows the retirees, when filing taxes, to exclude from income distributions from the plan that are designated as housing alowances. I am concered about participants deferring on the housing allowance and withholding 20% on the distribution. What do you think?

· ER A 457b Deferred Compensation Plan was established 2/1/1988 · ER B was established as a wholly owned subsidiary as of July 1, 2003 and participated in ER A 457 plan. · Effective 7/1/12, the relationship between ER A and ER B as its wholly owned subsidiary will be ending. · Due to this complete “spin off”, ER B will no longer be considered a governmental entity and thus will no longer be eligible to participate in ER A 457b deferred comp plan. · ER B will be establishing a start-up 401k plan for its employees, effective 7/1/12. With all that said will the ER B participants be able to withdrawal their money or rollover their accounts to the new 401k plan as of 07/01/12? It doesn’t appear to be distributable event, i.e., severance of employment or termination of employment. In addition, elements of same desk rule factor in that employees continue to perform same functions after business reorganization. In the ERISA world, a spinoff of the assets could move from one plan to another, but the 457 plan negates that option and I believe ER B assets must remain in ER A plan until participants are able to take a distribution under the terms of the plan. What do you think?

A fire district is establishing a 401(a) plan that will provide employer matching contributions made in proportion to elective deferrals made to their 457(b) plan by their full-time employees. They also wish to provide for an employer discretionary nonelective contribution that would be made on behalf of “volunteer firemen”. These volunteer firemen are not W-2 employees, leased employees, or independent contractors. The contribution represents a bonus they earned as a result of their completion of courses certifying them as firemen. Since these volunteer firemen are not considered common law employees of the employer, I do not believe they can participate in the plan. What do you think?

ERISA 403(b) plan document adopted effective 7/1/97. Plan was never updated with GUST, EGTRRA, and PPA. ER now adopting a compliant document, effective 7/1/12. Are they consider a non-amender for the period prior to 7/1/12?

It is my understanding that a IRC §414(e) religious organization may sponsor a 457(b) unfunded plan for the rank and file. May church 3121(w)(3)(A) or 3121(w)(3)(B) organizations also be permitted to sponsor such a plan?

Plan had a system problem with their loans where they had a biweekly pay cycle of 26 payrolls but the loans were only included in 24. The new PA wants to know if she can extend the loans beyond the allowable 5 year period because it is not the fault of the participants. Several are coming into their 5th year this year and they are 8 to 10 payments behind. They system problem was corrected a year or so ago, so the problem doesn’t continue to exist but does still effect participants with loans issued prior to the fix. It is my understanding that the participants could reamortize payments, but cannot extend payments beyond the 5 year term. The employter has not defaulted on the affected loans and wishes to extend loan payments past the 5 year term. What are the plan sponsor's options?

Its my understanding that a government owned entity such as a hospital can be designated as a 501c3 tax exempt organization while retaining its goverment status. Acknowledging the plan is sponsored by a governmental entity, do you find any problem in how the employer contributions are allocated as noted above?

We have a 403(b) plan sponsored by a governmental entity, claiming to be a 501©(3) tax exempt entity but exempt from ERISA, that provides participants receiving an employer matching contribution are not eligible for the employer nonelective contributions and participants receiving employer nonelective contributions are not eligible for employer matching contributions. Recognizing that governmental plans are not subject to §401(a)(4) nondiscrimination rules, I believe this plan design is permissible. Do you agree?

Employer B's 403(b) plan has been frozen since its takeover by Employer A in 2007 and its employees have been able to participate in both Employer A's 401(k) plan and 403(b) plan. It would appear that since employer contributions have been made to another 403(b) plan of Employer B within 12 months of the proposed plan termination, then Employer B's frozen plan cannot be terminated unless it can be demonstrated that less than 2% of Employer B's employees who were eligible under B's plan were eligible to participate in A's 403(b) plan.

Thank you all for your comments. A follow-up question, if you please. Would the termination of Employer B's 403(b) plan run afoul of the successor plan rules of Treasury Reg. Sec. 1.403(b)-10(a): "A section 403(b) plan is permitted to contain provisions that provide for plan termination and that allow accumulated benefits to be distributed on termination. However, in the case of a section 403(b) contract that is subject to the distribution restrictions in Section 1.403(b)-6© or (d) (relating to custodial accounts and section 403(b) elective deferrals), termination of the plan and distribution of accumulated benefits is permitted only if the employer (taking into account all entities that are treated as the same employer under section 414(b), ©, (m), or (o) on the date of the termination) does not make contributions to any section 403(b) contract that is not of the plan during the period beginning on the date of the plan termination and ending 12 months after distribution of all assets from the terminated plan. However, if at all times during the period beginning 12 months before the termination and ending 12 months after the distribution of all assets from the terminated plan, fewer than 2 percent of the employees who were eligible under the section 403(b) plan as of the date of the plan termination are eligible under the alternative section 403(b) contract, the alternative section 403(b) contract is disregarded."

We have a non-profit organization (Employer A), sponsor of a 401(k) plan and 403(b) plan. The entity acquired a non-profit organization (Employer B) in 2007. Employer B had a 403(b) plan, but contributions ceased to the plan as of the takeover date, and former employees of Employer B then became eligible to participate in Employer A's plans. Is there any reason why Employer B's 403(b) plan cannot be terminated?

Is a non-ERISA 403(b) plan subject to Treas. Reg. §2510.3-102? A church 403(b) plan has failed to submit payroll deductions to the plan for over 6 months. Would the plan need to calculate lost earnings using the VFCP calculator or use an alternative method by using the highest performing fund from the investment offerings under the plan from the date the monies should have been deposited through the date the monies were deposited? Also, would the employer have to file Form 5330 excise tax reporting the prohibited transaction and its correction?

A follow-up question to this situation. Generally, contributions to a FICA alternative Plan would not be subject to FICA, but would the fact that these are "pick-up"contributions make them subject to FICA?

We have a governmental 401 P/S FICA Alternative Plan with mandatory pick-up contributions of 7.5% of compensation. Plan wishes to allow participants to take distributions on account of a serious financial hardship. In order for an employer to avoid FICA tax liability, its FICA Alternative Plan must satisfy certain design and benefit requirements. A FICA Alternative Plan: -must provide a benefit of at least 7.5% of compensation; -contributions must be credited with a reasonable rate of interest; and -benefits must be 100% nonforfeitable In reviewing Treas. Reg. §31.3121(b)(7)-2 and IRS Publication 963, I was not able to determine if such distributions would be permitted under such an arrangement. Do you know of any reason why such distributions would not be allowed?

We have a Tribal Government establishing a 403(b) program to employees of their public community college. The plan will have a matching contribution subject to a 4 year graded vesting schedule. However, they wish to grant 100% immediate vesting to employees who had participated in their 401(k) plan. I understand that vesting is based on pre-ERISA rules, but I am not sure this provision is "kosher". Any thoughts?