John Feldt ERPA CPC QPA

The special catch-up (last 3 years prior to Normal Retirement Age), is the lesser of two amounts: 1) the current year's "annual deferral" amount, or if less 2) the "underutilized" amount. The underutilized amount is the difference between the prior annual deferral limits and the amount of actual annual deferral made for each of the previous years that the participant was eligible for the plan. This is explained in the Treasury Regulations at §1.457-4(c )(3) Special section 457 catch-up (i) In general. --Except as provided in paragraph (c )(2)(ii) of this section, an eligible plan may provide that, for one or more of the participant's last three taxable years ending before the participant attains normal retirement age, the plan ceiling is an amount not in excess of the lesser of -- (A) Twice the dollar amount in effect under paragraph (c )(1)(i)(A) of this section; or (B) The underutilized limitation determined under paragraph (c )(3)(ii) of this section. (ii) Underutilized limitation. --The underutilized amount determined under this paragraph (c )(3)(ii) is the sum of -- (A) The plan ceiling established under paragraph (c )(1) of this section for the taxable year; plus (B) The plan ceiling established under paragraph (c )(1) of this section (or under section 457(b)(2) for any year before the applicability date of this section) for any prior taxable year or years, less the amount of annual deferrals under the plan for such prior taxable year or years (disregarding any annual deferrals under the plan permitted under the age 50 catch-up under paragraph (c )(2) of this section). (iii) Determining underutilized limitation under paragraph (c )(3)(ii)(B) of this section. --A prior taxable year is taken into account under paragraph (c )(3)(ii)(B) of this section only if it is a year beginning after December 31, 1978, in which the participant was eligible to participate in the plan, and in which compensation deferred (if any) under the plan during the year was subject to a plan ceiling established under paragraph (c )(1) of this section. This paragraph (c )(3)(iii) is subject to the special rules in paragraph (c )(3)(iv) of this section. (iv) Special rules concerning application of the coordination limit for years prior to 2002 for purposes of determining the underutilized limitation... ...(v) Normal retirement age (A) General rule. --For purposes of the special section 457 catch-up in this paragraph (c )(3), a plan must specify the normal retirement age under the plan. A plan may define normal retirement age as any age that is on or after the earlier of age 65 or the age at which participants have the right to retire and receive, under the basic defined benefit pension plan of the State or tax-exempt entity (or a money purchase pension plan in which the participant also participates if the participant is not eligible to participate in a defined benefit plan), immediate retirement benefits without actuarial or similar reduction because of retirement before some later specified age, and that is not later than age 70-1/2. Alternatively, a plan may provide that a participant is allowed to designate a normal retirement age within these ages. For purposes of the special section 457 catch-up in this paragraph (c )(3), an entity sponsoring more than one eligible plan may not permit a participant to have more than one normal retirement age under the eligible plans it sponsors. (B) Special rule for eligible plans of qualified police or firefighters. --An eligible plan with participants that include qualified police or firefighters as defined under section 415(b)(2)(H)(ii)(I) may designate a normal retirement age for such qualified police or firefighters that is earlier than the earliest normal retirement age designated under the general rule of paragraph (c )(3)(i)(A) of this section, but in no event may the normal retirement age be earlier than age 40. Alternatively, a plan may allow a qualified police or firefighter participant to designate a normal retirement age that is between age 40 and age 70-1/2. I hope this helps!

bingo!

The company owner took a loan out of their 401(k) account 9 months ago. No loan policy was adopted. The "employer checklist" attached to their document indicates that the plan will NOT provide for participant loans. The IRS talks about discretionary and interim amendments and the deadlines that apply. However, isn't a participant loan more of a DOL issue - what is the timing requirement to adopt a loan policy? I believe it must be done before the loan is made, but I have not found the official cite for that. Any guidance is much appreciated. Oh, just for fun, as I'm sure you've guessed, the loan exceeded $50,000 and no payments have occurred yet. We are currently trying to find out if we could turn this into an in-service distribution, and deal with the tax withholding problem.

Yes.

http://benefitslink.com/boards/index.php?s...mp;hl=undefined

This question was posted twice. Here's a link to the post that has responses: http://benefitslink.com/boards/index.php?s...c=36811&hl=

Two things: 1) a "plan document" isn't technically required by the final regulations, but a "written plan" is (yes, that may just be mincing words FWIW). Only the preamble to the Final 403(b) regulations uses the word "document". The written plan could just be a collection of the contracts, agreements, etc. as long as they cover/include all of the necessary items to satisfy the Final regulations. 2) I don't remember reading a section where a frozen 403(b) plan would not be required to comply starting in 2009 (but another commentator may help us there). Another option would be to adopt the Final Regulations now which allows you to terminate the 403(b) plan. Wow, they still have a money purchase plan! Not many of those left around! The broker might be saying the money purchase plan could be merged into a 401(k) profit sharing plan, which isn't a bad idea, if it's really necessary for the employer to do that. We have a 457 forum here, you can ask specific question there. I'm guessing the employer in your case is a non-profit? A 457(b) plan for a nonprofit can only cover primarily upper management and highly compensated employees (top hat plan). One reason for that may be that the money "deferred" is not protected by a trust, it is still subject to creditors. Now, why spend the money on a money purchase merge/restatement, instead of just adopting the Final 403(b) regulations for the 403(b) plan? If you go to a 401(k) plan, then you have to test average deferrals (ADP test, unless you adopt Safe Harbor provisions); whereas you have no ADP test on a 403(b) plan. Please find someone (other than the broker) who can give the employer the advice they need to have the best overall plan(s) for their specific circumstance.

I'd like to see that case law, we'll take the ones that don't want to work with SoCalActuary.

You're probably talking about a DC plan anyway, but for a DB plan the 401(a)(9) amendment isn't due until they restate for EGTRRA or if earlier, they terminate the plan. Also, if it's a DB plan that does not have lump sum cashout provisions, then I don't think a mandatory rollover amendment is required. added on edit: Ah, yes - I now see the orginal post is also under the 401(k) section. My message here can be disregarded.

Angela, mjb has it. To recap that post: Employee contribution maximums (assuming ee is age 50 and the school is a government employer): 1. 457(b) plan: $15,500 + greater of: $5,000 catchup, or the special catch-up = $20,500 max (if no special catchup) 2. 403(b) plan: $15,500 + $5,000 catch-up = $20,500 max Total maximum employee deferral (contribution) for both plans combined = $41,000. (This assumes the special catch-up is not used, and that both plans allow the $5,000 catch-up) Employer contribution maximums A. 457(b) plan: the amount in #1 above is the max, so if the ee maxes out, no further 457(b) contribution is allowed B. 403(b) plan: $45,000 reduced by employee deferrals (but not reduced by catch-up deferrals) So if the employee defers the maximum in #2 above, the maximum employer contribution is $29,500 as follows: $45,000 - $15,500 = $29,500 Overall maximum for both plans = $41,000 + $29,500 = $70,500 (if no special catchup) That being said, your employer's plans might not contribute any employer dollars, perhaps it only provides for deferrals. Or perhaps the employer has the discretion to contribute if they have funds available to do so, a discretionary employer contribution. In any case, these things would be spelled out in some type of plan summary, perhaps they have even done a full summary plan description for their employees to explain these items. I hope this helps. Let me know if you're curious about the special catch-up. We've only shown the $5,000 age 50 catch-up here.

Thank you Mike, John, QDROphile, mjb, and blbvip. Much appreciated.

Yes, I'm the buddy - nice try! - I did also say that they can go up to $31,000 (15,500 x 2) if they are eligible for the special last 3 years catch-up and they have enough unused prior limits to do so. Let's see what the commentators say!

Ah, yes, okay, and that should vary based on the age of payee as well. Does anyone have a link to the new table (for lump sum payouts after 2007)?

To get the free ACP test, look at 1.401(m)-3(d)(3)(i): "Matching contributions are not made with respect to elective deferrals or employee contributions that exceed 6% of the employee's safe harbor compensation." So instead of the formula you propose, if you are not concerned about the 100% vesting, you could provide 116.67% match on the first 6% deferred. Anyone deferring 6% will get a match of 7% of pay. That would get you a free ACP pass. There are a number of other ways to do that as well, you could combine the Basic SH match with a concurrent discretionary match or use a fixed match to get the desired results.

Wow - cool new posting features! ak2ary - are you talking about the recent drop by about 0.33% in the 30-year treasury rate? Are you saying that even with 20% of the corporate bond rate applied you're thinking that the PPA 80/20 rate will produce a larger amount due than the 100% GATT rate would have? Please elaborate, I haven't kept up on this issue as well as I should.

Thanks jpod, that is very helpful.

I don't think so. The plan was changed during the year (terminated), which affects employee deferrals (stops them) so the requirement under 1.401(k)-3(e) "unless plan provisions that satisfy the rules of this section are adopted before the first day of the plan year and remain in effect for an entire 12-month plan year" has not been satisfied.

See pages 20 and 21 http://www.pbgc.gov/docs/2007_Premium_Paym...nstructions.pdf if the full link didn't copy in, the last part of it is: 2007_Premium_Payment_Instructions.pdf

Ah, when I looked back to the original post, I realize that I failed to mention that the sponsor is a nonelecting church plan that wants to voluntarily adopt some sort of a QDRO policy. That leaves them some flexibility since they are not required to accept QDROs anyway. Must they adopt all of 414(p), or can they adopt a policy that might not include all the 414(p) provisions?

414(p)(3) A domestic relations order meets the requirements of this paragraph only if such order 414(p)(3)(A) does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan 414(p)(5) To the extent provided in any qualified domestic relations order 414(p)(5)(A) the former spouse of a participant shall be treated as a surviving spouse of such participant for purposes of sections 401(a)(11) and 417 (and any spouse of the participant shall not be treated as a spouse of the participant for such purposes), and 414(p)(5)(B) if married for at least 1 year, the surviving former spouse shall be treated as meeting the requirements of section 417(d). This means a DRO can require the plan to treat the Alternate Payee as a surviving spouse and thus assign a specific portion of that QPSA or QJSA to the alternate payee upon the death of the participant, do you agree? If so, must the plan allow a payment to be made earlier than 1) the date the participant dies and the QPSA or QJSA would be payable, or 2) the date the participant begins payments?

Tom, nice job on your letter in May, especially pointing out the conversation Grassley and Baucus had about this.

A large new DB plan is in the process of being established. The plan sponsor does not wish to offer lump sums, other than the $5,000 cashouts. In addition, because the company already provides life insurance outside the plan, the plan sponsor has decided to only provide the minimum spousal death benefit in the plan. Thus, an unmarried participant has no death benefit payable from the plan unless they have retired and elected an option that provides for payments after death, such as life with 10 years certain. The surviving spouse of a participant will only be eligible for the 50% survivor annuity payable no earlier than the date the participant would have reached their earliest retirement age (age 55). As part of this process, the sponsor wants to know if their QDRO policy could be written to allow "shared-payment" QDROs only (rejecting any separate interest QDROs). Can the plan adopt a QDRO policy that does not allow any payments to an alternate payee until the date payments begin to the participant? Thus, if the participant dies before retiring, the alternate payee gets nothing? This seems to be allowable, please comment.

The 90-day "oops, give me a refund" - issue is not an option until 2008, so the IRS might not give us guidance until sometime in 2008 for the tax reporting due 1/31/2009!

No, only the Safe Harbor Match must be 100% vested. Deferrals that exceeds 6% of pay cannot receive a match. The fixed match and the discretionary match can both be subject to a vesting schedule. The discretionary match cannot have any allocation conditions if you want to avoid the ACP test. The discretionary match amount cannot exceed 4% of pay if you want to avoid the ACP test. The fixed match can have allocation conditions, you'll just have the usual coverage testing to pass. The rate of match cannot increase as deferrals increase. This design avoids potential problems with the deemed CODA issue.

Do you think the IRS agree with that too? You could try a private letter ruling, but without that I don't see that this idea gets a qualified plan out if the QJSA requirements.