davef

How are people interpreting the IRS model EGTRRA amendments as they relate to allowing rollovers of SEP dollars into a qualified plan? Notice 2001-57 seems to cover only rollovers from IRAs under IRC Sec. 408(a) and 408(B). There is no mention of IRC Sec. 408(k). Is this an oversight, or are you interpreting the rules to cover SEPs under 408(a)? Or am I missing something?

I was at a recent IRS/ASPA conference where the opposite position was taken (i.e., no separate accounting for IRA required). There were several high-ranking IRS officials there who did not argue with that postion. The general concensus was that all rollover amounts become subject to the rules under the plan to which they are transferred -- with an exception for rollovers to gov'tal 457(B) plans.

Take a look at the new proposed 457 regulations that were issued today. They allow 457 plans to make distributions as part of a plan termination.

As I read the EGTRRA changes to 457 plans, the extension of the QDRO rules only applies to 457(B) plans, not (f) plans. So, does this mean anything has changed with respect to a payment from a 457(f) plan pursuant to a divorce? For example, if such a payment were made to an ex-spouse, I assume the participant would be taxed on the amount. Would FICA taxes be due as well? Thanks for any help.

Employer A and Employer B are unrelated in the controlled group sense. Both have DB plans. Employer A's plan is underfunded and Employer B's plan is overfunded. If the two employers merge their plans and establish a multiple employer plan under IRC Sec. 413©, can the excess assets attributable to Employer B's plan be used to offset the liabilities under Employer A's plan? I'm not an actuary, but it looks like IRC Sec. 413©(4) says that this cannot be done. Am I missing something? Does it matter whether there is a single trust? Thanks for any help.

I realize that there have been court cases that deal with who the "true" employer is, but it's my understanding that, ever since the PEL case, the IRS has been struggling behind the scenes to figure out how qualified plans need to be structured in light of these arrangements (e.g., do they need to be set up a multiple employer plans?). I haven't seen any recent IRS guidance specifically on how qualified plans are affected by PEO arrangements. If I've missed something, please let me know.

Given the lack of IRS guidance on how PEOs and "co-employer" arrangements need to be handled for qualified plan purposes, do you think that, as long as the clinet's 401(k) plan specifically covered leased employees, it should suffice for now?

Even though gov't plans are technically not subject to those rules you mentioned, do you gain much in a 401(k) plan if you don't include them in the plan? Are there HCEs?

I haven't set one up yet, but I'm having a hard time thinking how these would operate or be drafted any different than a 401(k) plan for a private sector employer. Perhaps any references to 5% owners could be deleted. It appears that someone who is age 50 or older with this type of an employer could have the best of both worlds -- a 401(k) plan, with a catch up contribution, and a 457(B) plan with a catch up contribution, plus the ability to do rollovers to and from the 457(B) plan. (In theory, in 2006, that person could have a total of $75,000 contributed between the 401(k) and the 457 -- assuming no change in the 415 limit.) Do you agree?

I would also surmise that the catch-up is available to under gov't 457(B) plans because it, in some ways, compensates for the fact that governmental entities can't maintain 401(k) plans (which also have the catch-up option). Also, because gov't 457(B) plans are available to all employees, Congress might have been more inclined to give the catch-up to these persons, rather than the top-hat group under tax-exempt 457s (as Ellie. L mentioned).

One thing that has come to light since I originally posted the question is some interesting language that was included in Notice 2001-57, which contained the EGTRRA good faith amendments. The IRS instructions relating the amendment for "Rollovers from Other Plans" state that "A plan that accepts rollovers may be required to separately account for such amounts." To my knowledge, this is not in any Code sections changed EGTRRA. So, it may be something of a "hint" from the IRS that its EGTRRA guidance will require that certain features from the "old" plan be tracked separately.

I'm not sure that using the new elective transfer rules will accomplish getting rid of the J&S requirements under the MP Plan. Although the Code (as revised) is silent on this, the Committee Report under EGTRRA indicated that "the bill does not modify the rules related to survivor annuities under section 417. Thus, as under present law, a plan that is a transferee of a plan subject to the joint and survivor rules is also subject to those rules." Perhaps this will be clarified by the IRS or Tech. Corrections.

Code Secs. 72(t)(9) and 402©(10) [added by EGTRRA] will require a gov't 457 plan to separately account for any amounts rolled into it from a qualified plan, 403(B) or IRA in order to be able to identify those amounts subject to the 10% tax on early withdrawals. From what I can tell, there is not a comparable Code provision requiring the tracking of 457 dollars that are rolled to a qualified plan, etc. If not, then it seems as if those amounts would become subject to the 10% early withdrawal tax. Am I missing something here?

Other than "pick-up" contributions under Code Sec. 414(h), or a grandfathered gov't 401(k) plan, I would say that no dollars can be electively deferred on a tax-sheltered basis under a governmental 401(a) plan.

Looking at new Code Sec. 415(k)(4) [added by EGTRRA], I believe that the School District could contribute more to the 403(B) plan -- up to the 415 limits. Of course employee deferrals would be subject to the 402(g) limits. That section appears to codify what is currently in Reg. Sec. 1.415-7(h). The individual is considered to maintain the 403(b)contract and, thus, a separate 415 limit will apply to the 403(B) contract (assuming there are no controlled group rules that come into play). So, the employee would have two 415 limits -- one under the School District's 401(a) plan and one under the 403(B) TSA. Many 403(B)s allow only employee deferrals and no employer contributions (such as matches), so your example is likely to be the norm. But I think the ultimate limit in your example is $91,000 (40 + 11 + 40). Sounds too good to be true. Do you agree, or have I overlooked something?

I believe you are correct as to the maximum $$ that could be contributed for a participant who is in a gov't 401(a) plan and a 457(B) plan of the same employer. You could add another $1,000 under the 457(B) plan if the person qualifies for the catch-up contribution. I'm somewhat cautious about referring to all of these amounts as "deferrals" since that term, to me, means pre-tax employee contributions. I would consider the amounts contributed to the 457(B) plan to be deferrals, but not those to the 401(a) plan. (In all of these discussions, I am assuming that we are not talking about a grandfathered gov't 401(k) plan.) One issue that arises if a plan allows a person to defer 100% of pay into a 401(k) plan or a 457(B) plan is how other things are "paid for", such as FICA taxes and any pre-tax cafeteria plan contributions.

Your example would only apply to an employer that was eligible to have either a 401(k) or 403(B) plan and a 457 plan. So, it would not apply to a governmental employer, since they can't have 401(k) plans. In that case, you would only have the 401(a) and 457 contributions to deal with. The 401(a) contribution could be as high as $40,000 (100% of pay) in 2002 due to the new 415© limits. The example would, however, apply to a tax-exempt employer, since it can sponsor a 401(k) plan or a 403(B) plus a 457(B) plan.

Old Code Section 457© listed the types of deferrals that were subject to the offset. They are deferrals under 401(k) plans, 403(B) TSAs, SARSEPs, and SIMPLE plans. The elective deferral limits for 401(k) plans, 403(B)s and SARSEPs will be $11,000 next year. But the limit for SIMPLEs will only be $7,000, so the combo limit for a SIMPLE and a 457(B) will be $18,000 (not counting any catch-ups). Hopefully you won't run into too many employers with SARSEP/457(B) combinations, since gov'tal entities and tax-exempts can't have SARSEPs.

What happens in 2002 if an employer has both a 401(k) plan and a frozen DB plan, and both plans provide that the T-H minimum is satisfied in the DB plan? Would the T-H minimum still need to be made under the frozen DB plan (despite what EGTRRA says), or will the plans need to be amended to state that the T-H minimum contribution will now be made under the 401(k) plan?

In some plans, participants become fully vested at early retirement -- so it can be more than just a distribution event. I believe that this is an option that can be selected in the Corbel M&P adoption agreements.

What are peoples' reactions to the IRS' new rules on submitting GUST determination letters and the ability, in some cases, for nonstandardized M&P and VS plans to rely on the opinion/advisory letter? With all the various exceptions, it seems like it will be easier just to file them all, with Schedule Q. Any thoughts?

Can anyone confirm whether an individual with an account under a SEP will be able to rollover those funds to a qualified plan under the new EGTRRA rules? The new law does not make specific reference to rollovers from SEPs to other types of plans. However, since SEPs are generally subject to the same distribution rules as IRAs, can we now assume that a rollover will be permitted between a SEP and a qualified plan beginning in 2002?

I was at an IRS/ASPA conference where the 2000 Supreme Court court case, Harris Trust and Savings v. Salomon Smith Barney (120 S.Ct. 2180), was discussed. In short, the Court stated that ERISA provides a private cause of action "for appropriate equitable relief" against a non-fiduciary party in interest for its knowing participation in a prohibited transaction. This case raised alot of concerns with respect to the late deposit issue -- since that is a prohibited transaction. In serious situations, where deposits are not being made at all, a participant could, in theory, sue the TPA if the employer went bankrupt and it could be shown that the TPA was aware that 401(k) deposits were not being made but did nothing about it. So, does this mean that TPAs should be less involved in monitoring the timing of deposits? Should the TPA resign so as to not appear to be further "participating" in the PT? Does the TPA have a duty to inform participants and/or the DOL? What is contemplated by "appropriate equitable relief"? Seems like there are more questions than answers.

Has anyone given any thoughts as to how the new 402(g) deferral limits should be communicated to participants in non-calendar year 401(k) plans? For example, if an employer has a 401(k) plan with a PY starting 7/1/01, will they be notifying participants toward the end of 2001 that the higher $11,000 limit (and possible catch-up contribution) will be applicable for CY 2002, so that they can change their current deferral election at the start of 2002? While this may seem to be in the best interest of the participants, it could end up resulting in more ADP refunds for the 2001 PY. Any thoughts?

It appears to be the case. Even though SEPs will be subject to the new 415© limits -- which will be the lesser of $40,000 or 100% of pay, and the deduction limit will be increased to 25% of pay, it doesn't look like IRC Sec. 402(h)(2) was changed. Perhaps this is something to be fixed under a Technical Corrections bill.