TLGeer

Tell them to ask their lawyers and CPAs whether its the unauthorized practice of federal tax law. If none of you is admitted to practice as an attorney, a CPA an enrolled agent or an enrolled actuary, you aren't allowed to do it.

Exemption 1-Governmental plans. ERISA 3(32). Easy enough for school districts. Must be established or maintained "for its employees." There is law on this, and it is possible to set up a "public school" that is not governmental. It is also possible to cover non-employees. Exemption 2-Non-Plan. DOL Regs. 2510.3-2(f). Salary reduction amounts only. Has other hoops to jump through. Mostly about being reasonable in limiting investments. After final regs come out, there is going to be significant employer compliance whatever the result. And don't forget that church schools can be exemot as such. I now have a book available, here at BenefitsLink, on 457, which provides coverage of the governmental plans issue. Part of 457 planning is ducking the ERISA funding rules, by being governmental or church or by being for a select group. Don't want to be too obnoxious about it, but people buying it would make me happy. One on 403(b) should be out at final regs plus 45 days.

414(v)(3): (3) Treatment of contributions In the case of any contribution to a plan under paragraph (1) - (A) such contribution shall not, with respect to the year in which the contribution is made - (i) be subject to any otherwise applicable limitation contained in section sections 401(a)(30), 402(h), 403(b), 408, 415©, and 457(b)(2) (determined without regard to section 457(b)(3)), or (ii) be taken into account in applying such limitations to other contributions or benefits under such plan or any other such plan, and (B) except as provided in paragraph (4), such plan shall not be treated as failing to meet the requirements of section section 401(a)(4), 401(k)(3), 401(k)(11), 403(b)(12), 408(k), 410(b), or 416 by reason of the making of (or the right to make) such contribution.

Setting aside the problems of using a non-realizable value as the accrued benefit, expenses of distributions/ mergers can be borne by the individual's account. Arguably, the hit is such an expense, and routinely it is treated as such. Tom Geer

In effect, the forfeitures are applied to reduce future contributions. In the alternative, they could be applied to pay expenses. But they cannot revert while the plan continues. Tom Geer

If the acquired hospital is not a predecessor employer, within the meaning of 414(a), there could be a discrimination issue. If it is a predecessor employer, there should be no need for an amendment. If not, there is a need for an amendment. Tom Geer

You also have t meet the nondiscriminatory availability of benefits, rights and features requirement of 401(a)(4), by covering a nondiscriminatory group. Tom Geer

Depends on the facts. Is the 403(b) frozen? Is it terminated? Why 401(k) rather than 403(b), prospectively? Have you considered a distribution of the annuity? What's the objective? Tom Geer

I do. And it's a lot different from the qualified plan process. Tom Geer benplansol@comcast.net

The contribution timing rules are, technically, rule as to when salary reduction contributions become plan assets that must be held in a trust, annuity or custodial account. They do not apply to any other kind of contribution. If you wait way too long, you may end up with the match being treated as an annual addition for a later year, and you need to determine the match to do the ACP testing on it. Tom Geer

The limitations do not change based on whether or not the plan is subject to ERISA. However, a penny of employer money makes it an ERISA plan. So does a restriction on product vendors that doesn't jump through the hoops in the ERISA non-plan exclusion regs for 403(b). In addition, with the advent of the final regs, the employer is going to have to do some compliance with 403(b), regardless of ERISA status, and getting that done will be a hassle and an expense unless the employer takes a subsidized deal from, say, an annuity provider. And taking the subsidized deal will raise questions about fee levels and allocations within the products offered by the subsidizing provider. There is no particular reason to toss a 401(a) into the mix, other than to maximize employer contributions. A 403(b) lets you make the maximum under 402(g) and a 457 lets you make the 457 maximum. And putting a 401(a) into place to make the first dollar of employer contributions raises complexity and costs in non-useful ways. It would be better and cheaper (all costs in) to create an ERISA 403(b) and a 457. Now, once you've done that, you can put a 401(a) on top of that, because the 403(b) is not a plan of the employer for purposes of the overall 415 limitations. But in the meantime KISS. Tom Geer

With the upcoming final regulations due under 403(b), there is a definite need to re-think how 403(b) documentation is structured. For a variety of reasons, mostly historical and marketplace driven, there is no generally agreed set of practices for how to get documents in place that actually meet the requirements of 403(b) and are consistent with the complex of plan structures that has evolved over time. The marketplace is likely to evolve in these directions over time, so this post is something of a roadmap for the future. At least, it should provide a template of issues you can raise with your provider when the final regulations come out. (And, of course, how we will be working with our clients.) THE THREE PLAN TYPES There are three distinct program types in the 403(b) world, as opposed to just two in the 401(k) environment. Each of these types has different documentation needs, so let's look at each separately. ERISA Plan A 403(b) that seeks to be or admits it is a plan subject to ERISA is, in many ways, the simplest type to figure out. These plans almost always limit investments to a single array, within the setting of a single group annuity contract or a single TPA administration structure. This means that, like an ERISA 401(k) plan, they need (1) a plan document, and (2) a funding vehicle. Group annuity contracts regularly provide both where they are the selected investment medium (subject to my concerns about whether they are amended on a timely basis). Otherwise, the plan needs a plan document and a pooled custodial account agreement that comply with 403(b)(7) (all in mutual funds, plan document controls over custodial account agreement, etc.). Given the possibility that there will be prior annuities in place with distribution restrictions, and the possibility that an employer would allow an opener to individual annuities, the plan document probably ought to permit the plan administrator to designate more than one investment vehicle or at least to grandfather existing funding arrangements. Non-ERISA Plan There are also 403(b) programs that are plans, but not subject to ERISA, because the employer itself is not an ERISA employer (technically, the exemption is for governmental and church plans under a bizarre and complex set of definitions). These are going to require either (1) a separate plan document that excludes ERISA rules, or (2) a master document that has provisions for ERISA and non-ERISA plans. There is no particular technical reason to pick one of these over the other. The single document is easier to draft and to draft from, but has provisions that do not apply to non-ERISA plans, while the two-document choice has less extraneous materials for non-ERISA plans. Given the implications of not having a remedial amendment period, and the better quality control inherent in a single document, we have opted for a single, combined master plan. Oh, and don't forget church plan retirement income accounts as a third investment medium. Non-Plan Programs Mostly for cultural reasons, there is a genuine fear of plan status in 403(b) culture. There is good reason to attribute this mostly to fear-mongering in a marketplace where a lot of small insurance agencies make money from individual 403(b) annuities, but it is real. Setting aside all the negative effects on employees of not having any assistance from employers with, hopefully, better expertise, there it is an there it will remain for some time. This creates an entirely new type of 403(b) program, the non-plan program or arrangement. Even ERISA-exempt employers try to maintain this status, and one of the central marketplaces, school districts, normally have to do so by state law. Otherwise, the structure tends to be fixed by the requirement of the DOL's definition of "pension plan". Normally folks want to see these programs as simpler. For starters, they are all salary reduction-only, so there is no need to cover things like matching contributions or vesting. For another, there is no need to comply with ERISA requirements, except to the extent that analogous rules are placed in the final 403(b) regulations. However, the investment side, and the effects of the market structure, create offsetting complexities. In this marketplace, and program type, there are multiple, unrelated investment providers, most of whom are offering single annuities. Each of these single annuities purports to comply with 403(b), although they are rarely amended on a timely basis to reflect changes in the law. However, none of them provides any of the aggregate limitations resulting from the fact that 403(b)(5) says, and has always said, that multiple contracts are treated as a single contract. Nor do they have to have common provisions about such essentially employer issues as withholding and timing of contributions. After some hemming and hawing, we came to the conclusion that this program type needs a separate document type. Essentially, the need is for a program document that (1) says it is not a plan (ours calls itself a personnel policy), (2) includes overall limitations to be applied under all funding vehicles, in the aggregate, on contributions, loans and distributions, (3) contemplates the addition and removal of specific annuities, custodial account arrangements and retirement income accounts as funding vehicles, and (4) includes the definition of a non-plan under the DOL regulations, where applicable. Procedures under such a program would also be required, along with cooperation from investment providers, to ensure compliance with the aggregate limitations, but that should become a standard part of the "common remitter" function, as we are prepared to do. So there we are. Reasonable minds can differ, but it is clear that the decisions we have made will keep our clients in compliance. This is going to be an important subject, but it is unlikely that anybody will write much about it when the final regulations come out. Accordingly, I am going to pst this on my blog (403b-457plansblog.blogspot.com) for regular readers and at the 403bWise and BenefitsLink bulletin boards. My hope is that the bulletin board postings will generate discussion, and point out the flaws in this posting. At least, they will create forums where I can clarify the underlying reasons and how our system will work. Tom Geer

How is the 403(b) funded? Why have they opted to move to a 401(k)? I don't generally vies that as a good idea. Tom Geer

1-No. The plans cannot be aggregated absent some control relationship. I am assuming that the hospital board and the ownership of the physician group do not overlap too much. 2-Same answer. More interesting would be if the 401(k) and the 403(b) were both sponsored by the hospital. Tom Geer

1-If the plan is for a Schedule C or other wholly owned business, without employees, you never have to use 402(g), because you can structure the contributions as discretionary contributions to a profit sharing plan. 2-The specifically Keogh plan terminology is a little out of date. However, the rules making the proprietor be deemed an employee and defining compensation still exist. What happened was that most of the disadvantages of Keogh plan status were removed. Calling it a "Solo-K" doesn't change what it is, a plan covering self-employed. rcline46, your post ws completely inappropriate, and, frankly, wrong. Plus, and I hope I speak for more than myself, these Boards are not about being or acting up to date or hip, however you choose to define those terms. Tom Geer

The hearings did not even address the real starting point-what does it cost to run a retirement plan? People associated with retirement plans operations have to get that plus a profit margin. Fees cannot be reduced below some minimum level based on the complexity of the regulatory scheme. Given that, the question then is whether totals are reasonable. This is, and ought to remain, a function of the marketplace. Given a competitive and reasonably efficient market (present for 401(k) but not 403(b) or 457(b)), this will drive high cost providers out of the market. The back-room money, therefore, is not good or bad. The question is how it ought to be disclosed. The answer is "fully and comprehensibly". Tom Geer

If you would like me to review the documents, I would be glad to take a look. It's been a while since I functioned as a lawyer, but I have seen lots of ESOPs and option plans, so I can at least give you an objective reaction. You can e-mail me at geertom@gmail.com or call/fax at 888-277-1017. I would absolutely need to see what you have in hand to give any meaningful input, so scan and e-mail or fax the materials. Tom Geer

Please check your inbox here. I am concerned about giving client details where people might recognize them. Tom Geer

Why not keep the 403(b) in place? I just spent the better part of two days helping an employer recover from the same decision. By choosing 401(k), the employer volunteers for a bunch of limits and rules that don't apply under 403(b) (starting with ADP and top heavy) and abandons several advantages of 403(b) (special rules under 402(g) and 415, use of full-time-equivalent year's compensation). Is there some specific reason, or is the boss trying to shake loose of a GAC? Other than the rule limiting 403(b) to annuities and mutual funds, advantages of 401(k) are thin on the ground. Tom Geer

No, the rule would apply.

Absolutely agree. Tom Geer

Take the money now and adjust for 2006 tax withholding and on 2006 W-2. The TPA should know how to do this.

Treasury stock is treated as an employer contribution if no money passes to the employer. If the employer gets money, it is a sale of the stock. Treasury stock is employer securities, and you have to do full compliance. Note especially that if deferrals can be invested in the employer stock there are SEC registration and insider trading requirements or state blue sky law rules. You need to bring a securities lawyer into the process. Assuring compliance will cost more money. Tom Geer

If the service at X does not have to be taken into account (i.e., are they related under 414?), the plan can apply the entry date rules if the plan document so provides. Otherwise, the person is a transfer and the coverage needs to start immediately. Tom Geer

The three year rule is a minimum standard, the slowest a plan can provide cliff vesting. You can create any rule you want that is faster. The pert-timers at 500 hours would never get vested under the minimum standard, so you can use any enhanced rule you want. Going back to an earlier point you raised, the vesting rules now require full vesting in the entire account balance/accrued benefit. Once upon a time, there was authority to use "class year" or rolling vesting, but that is long gone. If you intend to hire a TPA, exotic rules can be a problem. Software systems are set up on the hours of service per computation period method, and the manual intervention for other formats is going to drop many TPAs off the list and probably require extra cost for TPAs willing to take the plan. One possibility, which I have used, for dealing with part-timers, is to exclude them by class. Since the testing of coverage can be broken down between statutory eligibles and statutory ineligibles, a part-time definition that only excludes employees under half-time can test out fine. The second option is to require a 1000-hour year for eligibility for one or all benefit structures (e.g., deferrals, match, employer nonelective) under the plan. And remember, if you provide full and immediate vesting as to a benefit structure other than deferrals, you can make them wait for two YOS. Tom Geer