TLGeer

Don't understand your question. What is your understanding of what a 403(a) plan is?

Yep.

I am not entirely clear whether your issue is solely the inability to force Company A out or th possibility of contract hits as money is moved. I am going to assume the first issue. You are encountering one of the basic flaws in the 403(b) regulatory/market structures. The single core issue that prevents a more 401(k)-like structure for 403(b) plans is the dominance of the individual annuity in the marketplace. Technically, your employer is stuck with allowing participants to keep their Company A annuities. They are individual annuities and, while there is no reason the annuity contract cannot give the sponsor or the plan the ability to terminate the annuities, in fact the contract will allocate that power to the annuitant. However, absent money issues, the plan/sponsor should have someone review the actual language of each policy form applicable to annuities issued under the plan, to make sure and to try to find any workarounds that the policy form may contain. It is often true, in dealing with annuities, that there are devils and angels in the details. Absent any luck there, the employer is stuck. The plan can cut off future contributions and/or prevent transfers within the plan to Company A, but not force the money out. Now, the fact that Company A won’t take expense money out of the Company A annuities is not the end of that issue. The plan can, if the plan document permits, allocate expenses in any reasonable, nondiscriminatory fashion, without regard to whether or not the insurers/vendors will comply. Most plan documents cover these cost issues sketchily, if at all. Suppose, for example, the Company A fans were not allowed to continue contributing to Company A annuities and the plan’s terms divvied up the cost of dealing with Company A on a per-person basis. The employer/plan could refuse to transmit information needed to allow loans or distributions to be made without a direction from the participant to Company A to pay accumulated costs. Now suppose the plan allows contributions to Company A. The plan then has salary reductions or employer contributions available as a source for payment of costs, and can withhold them before transmitting a net amount to Company A. There are possible issues under the plan asset regulations here, as well as their counterparts in the 403(b) regulations, but these problems are solvable. Neither of these is a perfect answer, and particularly not the first. I have caveats for you. First, the plan document has to authorize the concept of forcing participants out of Company A annuities; my experience is that 403(b) plan documents generally focus very little on the non-tax issues associated with investment transfers. Second, contract hits are a very important issue even as to participants who want to move from Company A to Company B, and likely would be the source of claims from Company A fans if they were forced to move. How these issues would play out depends, at least in part, on (1) the terms of the annuities themselves (e.g., can the participant avoid hits by taking installments?), (2) the terms of the plan document and its history, (Does the plan say that hits are participant responsibilities, based on the theory that the participant chose the annuity? Were there other choices available?) and (3) whether the plan is subject to ERISA or state law. Last, the plan document is likely to be deficient in one of the three areas mentioned above, control over funding vehicles, coverage of the mechanics of transfers between and among funding vehicle and treatment of expenses and contract hits, and amendments as to one or all are likely needed. Usually, these situations involve a detailed analysis stage, where possibilities and risks are articulated and evaluated, followed by a decision to choose one or more alternatives based on risk and cost factors. This is not a simple task. Good luck Tom Geer P.S, I have gotten waivers of various contract hits and restrictions in the past, but only in the context of group annuities and only where I had some legal theory to push at the insurers. Insurers are far less likely to discuss the possibility for individual annuities. Planned phased contract terminations are easier to get done.

Look at the structure of Regs. 1.403(b)-9(a). Subsection (2) is the definition of an RIA, and (2)(ii) is part of the definition. Subsections (3) through (7) are regulatory. The written plan requirement is in (2)(ii) and is part of the definition of RIA; i.e., unless a "program" is a written plan with an appropriate expression of intent it cannot have an RIA. So, if there is no written plan, there can be no designation of intent in the written plan, and therefore there is no RIA. Therefore, you get the circular result that absent a written plan (that states the intent to have an RIA) there is no requirement for a written plan. Tom Geer

The Wall Street Journal has an article on conversions to church plan status, and an IRS project requiring some form of participant notice on conversion. Interesting read. http://online.wsj.com/article/SB1000142405...0632243300.html Tom Geer

Wow. This raises a whole laundry list of possible problems. I would need much, much more detail on how the PEO plans to do this. Whose plan would it be? Who would own the investments held in connection with the plan? Would the plan document be in the form of a multiple employer plan? Do you have a detailed proposal as to how the PEO plans to proceed? Are they administering other 457(b) plans? What does the proposed contract from the PEO say about the plan? It is possible for a PEO to do this right, but not in the way, or even using the same terminology, normally seen in a PEO environment. Even if you answer the questions above in detail, the mostly likely result here will be a recommendation that you hire someone with 457(b) expertise to review the proposal for you. The downside for failing 457(b) is that the plan become subject to 457(f) and 409A. This can be very painful. Tom Geer

It can be a formula. That can be a match, a percentage, a dollar amount or whatever they can think of. You can also just say the employer will decide how much each year. Tom Geer

Yes, you can. One of the confusing elements of 457 is that it calls contributions deferrals, and that is normally slang for salary reduction contributions. In addition, FICA taxes apply to all deferrals, not just those under salary reduction. However, contributions can be by salary reduction or not. Of course, in a nongovernmental plan the term contributions is misleading, too, because there is not formal funding, not trust or annuity or custodial account other than as a general asset of the employer. Tom Geer

Yes, this would eliminate ACP testing. No, there are no problems. Tom Geer

Here is a link to Reorganization Plan No. 4 http://benefitsattorney.com/modules.php?na...wpage&pid=7 No. The authority is to issue regulations as to statutory provisions contained in both ERISA and the Code. The classical illustration is the issuance of hours of service regulations by DOL that apply under both ERISA and the Code. Code 411(d)(6) provides the rule for vesting on partial termination, and has no counterpart in ERISA or 403(b). Therefore, there is no ERISA provision to which Treasury Regulations under 411 could apply. Tom Geer

Correct. The qualified plan rule is solely a qualification requirement. Remember that the 403(b) rules only apply to vested amounts in the first place. Nonvested amounts are in some odd suspense status, not technically part of the "contract" that is regulated by 403(b). For example, Regs. 1.403(b)-10(a) includes the following sentence: "To the extent a contract fails to satisfy the nonforfeitability requirement of §1.403(b)-3(a)(2) at the date of plan termination, the contract is not, and cannot later become, a section 403(b) contract." This is inconsistent with the notion that vesting is required, so we don't have to argue this point simply from the absence of anything mentioning vesting on a freeze. In the case of a frozen, rather than a terminated, plan, the plan still exists, so that the above-quoted sentence doesn't apply. This means that participants can continue to vest. They can also be given accelerated vesting. Theoretically, they could stop vesting. Somebody has to do a careful review of the terms of the plan to see (a) what effects would result under the plan as written, and (b) what amendments are permitted or prohibited. I can imagine a variety of outcomes from such a review. Tom Geer P.S. A plan with employer contributions other than a church or governmental plan would be subject to ERISA.

457 doesn't distinguish between salary reduction and employer contributions. So, yes, 457 catch up contributions can be from either source. Tom Geer

The answer to your specific question is yes. What effect the clause has on the plan's operations is more difficult to answer.

It's the entity, not the business, that counts. So, it's the difference between division and related entity, yes. If the plan is not a top-hat plan, there may be issues related to ERISA exemption as a church or governmental [;an as a result of having an unrelated trade or business. Tom

There is no specific prohibition. Certainly the for-profit business has to be a division, not a subsidiary. The entire fact pattern would have to be reviewed to look for possible arguments that the service recipient is not another, non-exempt entity. This is off the top of my head, and not a complete analysis. The bells in you head are a useful warning, because someone should take a detailed look at the situation and evaluate the risks. Tom Geer

The nature and extent of 415 issues depends on the details of the DROP structure, so it is impossible to make general statements. Sometimes there are, and sometimes there aren't, issues. It is simply not possible to go further in the context of a public bulletin board. Tom Geer

First, governmental plans are not subject to 411. They are subject to the pre-ERISA rules only. The 415 question is more complex. When the DB plan transfers to the DC plan, this is not treated as an additional accrual under either plan, but as a plan-to-plan transfer. As a result, there is nothing to which 415 could be applied. On the detailed mechanics of the election and transfer, it is impossible to provide an answer without actually seeing the documentation. One possibility is that the election is no to have an annuity distribution begin, but to have the transfer made at the cost of an annuity starting later at a rate determined as if the annuity started now. This is then referred to in a kind of slang shortcut as an annuity election. If so, the transfers would be plan-to-plan transfers and eligibility for rollover treatment, etc. would not matter. Tom

Yes, but there has to be attention to detail in allowing it. I.e., the Plan should not require lump sum distributions (in general, 403(b) plans should leave distribution options up to the funding vehicles within the required limitations, so this will be OK if the Plan is well written). In addition, the loan provisions in the Plan should not accelerate on termination or require repayment through payroll withholding (again, a well-written plan document will defer to the funding vehicles on these points). And, of course, the funding vehicle has to allow it.

The DROP recipient plan can have various forms. For example, it could take the form of a cash balance-style benefit under the DB plan, in which case it would be contained in language in the DB plan itself. The other option is for the DROP amounts to be deposited to some form of defined contribution account, whether under the DB plan document or in a separate DC plan. Exactly how this is done depends on the detailed circumstances. Does the DROP amount reflect the value of the current year accrual (with a sub-question, whether that value is solely the effect of a service cap, whether that value reflects potential increments in the accrued benefit resulting from changes in compensation, or both)? What actuarial subsides does the DB plan provide for early retirement, and are they to be captured for the employee? Who controls the language of the DB plan vs. who wants to create the DROP? Is the DROP money coming from the DB plan (as could be the case in capturing subsidies in actuarial assumptions) or from the employer (as could be the case if the DROP de facto extends benefit accrual service)? There are folks who can write the appropriate language. However, this is no trivial task because (1) the entire situation has to be reviewed, and (2) the DROP-recipient plan's language has to integrate tightly with the DB plan. Tom Geer

Yikes! This set of topics is huge and almost impossible to answer, in a comprehensible way, with theoretical statements. You are right about the plan having to come under a code section. First you have to know what kind of plan you want to talk about. So, is it a 401(k), a 403(b), a 457(b)? Each has different substantive rules and each uses different meanings of the slang term church plan, so you don't even know what church-related issues are present until you know what kind of plan you are considering. As to 457, 457(e)(13) says: "Special rule for churches The term ''eligible employer'' shall not include a church (as defined in section 3121(w)(3)(A)) or qualified church-controlled organization (as defined in section 3121(w)(3)(B))." NOTE: Because of the complexity of these rules, you cannot rely on these, or any other, answers you get on bulletin boards. Understanding and applying the rules is extremely difficult, and planning with them (i.e., how do I select the right form(s) of plan(s)) takes time and experience. If you would like to contact me directly, please feel free to do so. I will try to point you in the right directions. Tom Geer

I have to warn you that this stuff is not for the faint of heart. The statute and regulations are poorly written, for historical and other reasons. And, there can be rules where you don't expect them and therefore don't look for them. That said, with respect to your immediate question: Church or convention or association of churches sponsor-No-403(b)(1)(D) and (b)(12)(D) Qualified church controlled organization-Yes-403(b)(12)(D) Government sponsor-Yes-403(b)(12)© Other sponsor-Yes-403(b)(1)(D) Note that the identity of the sponsor controls. A 403(b) can be "church" in the 403(b) sense even if it (1) fails to meet the requirement of the Code or ERISA for church plan status (and even those two are slightly different), or (b) becomes an electing church plan. Likewise, the fact that the sponsor is church under 403(b) does not mean it is ERISA-exempt. In addition, neither of these lines is necessarily the line for eligibility to include a retirement income account. Tom Geer

Yep.

No. There is no nondiscrimination testing at all for 457 plans.

The custodial account content requirement is that the investment be in a regulated investment company. That is, registered with the SEC as such. If the plan has a retirement income account, it can invest in a wider variety of vehicles. However, a hard answer would require looking at the detailed facts. Tom Geer Are you suggesting that if the plan has a retirement income account (RIA), and if the target date fund is moved to the RIA, then the target-date fund can be unitized? Are you also suggesting that if the target date fund remains in the custodial accounts that it cannot be unitized? Actually, I was trying hard not to say anything definitive. Is the target date fund a regulated investment company, registered as such with the SEC? In the alternative, is it a bank collective investment fund or a managed pool of assets with a target date management style? It could, in theory, be a pooled separate account of an insurance company held under a life insurance policy or some variation of a master trust. Is it? The term "fund" has too many meanings to be the basis for real-world advice. Tom

The custodial account content requirement is that the investment be in a regulated investment company. That is, registered with the SEC as such. If the plan has a retirement income account, it can invest in a wider variety of vehicles. However, a hard answer would require looking at the detailed facts. Tom Geer