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I think I agree with ERISAnut on the application of the universal availability rule for salary deferrals to 403(b) plans subject to ERISA and the "expected to work less than 20 hours a week exclusion mentioned above. It would be nice if IRS could make itself clear on this. According to the regulations regarding universal availability, ERISA plans, in addition to looking for guidance under the 403(b) regulations, also have to look to Code Section 410(a) for guidance. And here is my confusion: Apparently the IRS does not consider an exclusion for employees who are "expected to work less than" a certain number of hours, be it 20 in a week or 1,000 in a year, to be a valid exclusion for purposes of eligibility. In 2006, the IRS issued a Quality Assurance Bulletin making its positon clear and directed plan examiners to not issue determination letters with an exclusion based on individuals expecting to work less than a certain number of hours. So what we have is the 403(b) regs allowing such an exclusion, but seems that the IRS, under 410(a) does not allow such an exclusion and the 403(b) regs seem to defer somewhat to 410(a). As a result, if that is the case, and 410(a) takes precedence, it would appear that the less than 20 hours a week exclusion does not apply to ERISA plans; thus, it would seem that all employees would have to be given the right to participate in salary deferrals immediately in an ERISA 403(b) plans. I'm just wondering if anybody else has come up against this and how it's being dealt with.

Maybe the "logic" is that since the actual payment, the maximum amount under a single life annuity, is based on life expectancy, then it is not an eligible rollover distribution. It looks like IRS may be looking at the form of payment, rather than the actual election.

According to the IRS Gray Book, 2003-24, the IRS unofficially says that it is not eligible for rollover. See (b) below: QUESTION 24 Restricted Employees: Payments Under Lump Sump Option and Rollover of Payments for High-25 a) If a “high-25” HCE elects a lump sum currently that cannot be distributed immediately, would this election lock in the interest and mortality assumptions as of the date the benefits would have commenced had they not been restricted under 1.401(a)(4)-5(b)? b) If the HCE elects the lump sum now but cannot be received due to the restrictions under 1.401(a)(4)-5(b), are the monthly “single life annuity” payments equivalent to the accrued benefit that may be distributed eligible for rollover as the lump sum would be? RESPONSE a) The “high 25” limits do not restrict the participant’s choice of option, just the dollar amount that can be paid in any year until the restrictions are lifted. Restricting the payments should lead to a net result for the participant that is similar to actually paying the selected benefit and obtaining a bond or security interest. Thus the plan can provide that the remaining lump sum, including interest at the rate used to determine the lump sum, is payable at the time the restrictions no longer apply. Note that the high-25 limits no longer expire on death. The restrictions continue to apply to the beneficiary until the financial targets are met or the participant is no longer one of the highest 25 paid employees. b) No.

At the 2004 Q&A between the IRS and the ABA, the following questions was posed. Although the answer is unofficial, it might help with your decision: 19. §401(k) – Hardship Distributions A participant wants to know if the purchase of principal residence qualifies as a hardship if she is using the proceeds to 'buy out' the equity on her current home from her ex-spouse? Proposed response: Yes, because the dwelling is her principal residence and she is purchasing an interest in it that she didn’t own before. IRS response: The IRS agrees with the proposed answer. The participant is purchasing a part of her principal residence.

The provision is effective for plan years beginning after 12/31/2009. So there's still a way to go.

This looks more like a loan to the Roth IRA rather than an excess contribution, thus possibly creating a prohibited transaction. Unless this comes within an exemption to the prohibited transaction rules (I doubt that PTCE 80-26 applies, even though it has the "three day rule"), the Roth IRA potentially could be disqualified (i.e., lose it's tax exemption). Althought Section 408A does not refer specifically to prohibited transactions, following the reference in 408A to 7701(a)(37) back to 408(a) and (b), would seem to incorporate the prohibited transaction rules by reference. The DOL has takenthat position in a number of advisory opinions and PTEs.

According to the DOL regs (2550.408b-1(e)), the loan must bear a reasonable rate of interest; a loan will be considered to bear a reasonable rate of interest if such loan provides the plan with a return commensurate with the interest rates charged by commercial lenders for loans made under similar circumstances. For a while, many of our plans were charging prime plus one or two. Apparently, on audit, the DOL was saying that a rate based on prime wasn't good enough and that the plan administrator had to call up three local banks to find out what they were charging for similar type loans.

The regulations (1.401(a)(4)-5(b)) define restricted employees as "any HCE or former HCE". It would seem that as long as the employee was an HCE at any time. the employee does not lose that status.

Under Treas Reg 1.125-4(f)(1), the significant cost or coverage election change rules specifically do not apply to health fsas, meaning that an election change would not be permitted.

EBIA's Cafeteria Plans book (Volume 1) is the most comprehensive source that I've found.

You might use the methodology in PLR 200108010. Although that ruling involved a multiemployer welfare fund, the analogy is there: The participant did not have any income from the welfare fund but the fund had to issue a W-2. There is no income tax withholding. However, the fund (which in your case is the employer) had to pay the participant's share of the FICA tax. The taxable amount on the W-2 was the total of the value of the domestic partner coverage and the participant's share of the FICA.

We've had success using Form 990-T (see page 5 of the instructions).