joel

Is the section 402(f) notice required?

THANK YOU TO BOTH OF YOU. JOEL

I would like to play devil's advocate for a moment. One of the exceptions to rollover treatment is a distribution of the participant's contributions (investment in contract) 1.402©-2 Q. 3(b) exceptions: (3) The portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation described in section 402(e)(4)). Thus, for example, an eligible rollover distribution does not include the portion of any distribution that is excludible from gross income under section 72 as a return of the employee's investment in the contract (e.g., a return of the employee's after-tax contributions), but does include net unrealized appreciation. The issue at hand is a distribution of the employee's after-tax contributions---so doesn't this means that the distribution is not an eligible rollover contribution?

Does the Direct Rollover option apply?

Is a distribution of post-tax funds from a section 401(a) DB government plan eligible for rollover treatment to a Roth IRA?

Matt: Thank you for your continued interest. There is no overriding need for the SD to use Separate Accounts for its 403(b) plan. It simply does not want to use the current set of investment provider/TPA/recordkeeper, nor does it want to terminate the 403(b) plan lest the participants become prey to commission-based products in IRA rollover transactions and/or cash-in their Eligible Rollover Distributions. The SD believes that the DCP is well positioned to assume all of these functions at a lower cost. Apparently this would be a seamless transition if not for the fact that the DCP does not offer mutual funds investing but Separate Accounts instead.

Not so fast. Just like Revenue Ruling 67-387 permitted an annuity issued by a Public Employee Retirement System to substitute for a commercial annuity under section 403(b)1 why is it unreasonable to argue that Separate Accounts should be allowed to substitute for mutual funds under section 403(b)7? Because by adding IRC 403(b)(7) to the IRC in ERISA in 1974 Congress made it clear that only annuity contracts and mutual funds that are regulated investment companies under IRC 851(a) are permitted investment vehicles for 403b contributions. That conclusion was the basis for the Rev Rul 82-102 determintion that prohibited establishment of 403b annuity plans that were funded by non annuity type providers such as trusts and CDs. The existing 403b PERS type funds such as the NYC teachers trust and NJ collective annuity trust were allowed to continue in existance. I think the investment management landscape was a little different in 1967. And even as late as 1982 I don't believe Separate Accounts were in use by Defined Contribution plans. Having said that, if Separate Accounts are commonly used by Defined Contribution plans like the Federal Thrift Savings Plan (under section 401(a), The New York City Deferred Compensation 457(b) and 401(k) Plan, under sections 457(b) and 401(k) and the Florida Retirement System's Investment Plan, under section 401(a) it may be time for the IRS to rule that the use of Separate Accounts is a suitable replacement for the mutual fund under section 403(b)7.

Not so fast. Just like Revenue Ruling 67-387 permitted an annuity issued by a Public Employee Retirement System to substitute for a commercial annuity under section 403(b)1 why is it unreasonable to argue that Separate Accounts should be allowed to substitute for mutual funds under section 403(b)7?

"Separate Accounts are similar to mutual funds in that a money manager develops a model portfolio specializing in a particular aspect of the market (such as large-cap, growth, small-cap or value) and purchases or sells securities in an effort to generate positive returns. The key difference between mutual funds and separate accounts is that, in a separate account, the money manager is purchasing the securities in the portfolio on behalf of the investor, not on behalf of the fund." A Separate Account is not a variable annuity. The "investor" in the definition is the Board of Trustees of the Deferred Compensation Plan. A very popular example of the use of Separate Accounts is the Federal Thrift Savings Plan. The Plan participant directs his/her contributions to one or more of the several Separate Accounts on the Plan's investment line-up. Q.: Will these Separate Accounts satisfy the requirement of section 403(b)7? The objective is to give each 403(b) participant, active and retired, the same investment line-up available under the 457(b) Plan; i.e., Separate Accounts. The current 403(b) accounts will be frozen without allowing for any future contributions. With the appropriate employer involvement the frozen balance balance may be transferred to one or more Separate Accounts.

I have received an important clarification. The School District wants to retain the 403(b). It wants to terminate the services of the investment provider, plan administrator and recordkeeper and have these functions performed by the School District's 457(b) Plan. The 457(b) plan's investment line up consists of a series of Separate Accounts. Do Separate Accounts satisfy the requirement of using Custodial Accounts, for investment in mutual funds, under section 403(b)7? Thanks, Joel

"To return to what I suspect was joel's original inquiry, the Internal Revenue Code does not preclude a State government agency from arranging a 403(b) plan for those State and local government employees who are public-schools employees (if the arrangement is proper under State law). If the transition rule described above does not apply, the arranger would limit the investments to annuity contracts and custodial accounts that hold regulated investment company shares." Peter, Yes, this has always been the case, pre and post RR 82-102. But prior to RR 82-102 a school district could also use a PERS as the funding vehicle for annuities under 403(b)1. In the instant case the school district wants to terminate the 403(b) plan and transition its assets into a new 403(b) plan established by the school district's Deferred Compensation Plan. Would this be permitted? Thanks, Joel

Why do you revert back to my original question when I told you that I should have used the word "establish" rather than "administer" in my original question? Moreover, my topic reads: "Establishment of a 403(b) Plan". My question remains: Under Rev Ruling 82-102 a public employee retirement system (PERS) may no longer establish a 403(b) Plan. Q.: Is a public sector Deferred Compensation Plan considered a PERS under RR 82-102?

Apparently I should have used the word "establish" rather than "administer" to begin with. My question remains: Under Rev Ruling 82-102 a public employee retirement system (PERS) may no longer establish a 403(b) Plan. Q.: Is a public sector Deferred Compensation Plan considered a PERS under RR 82-102?

The Ruling revokes Ruling 67-387 which authorized PERS 403(b) Plans.

Yes, a PERS 403(b) Plan may no longer be established under RR 82-102, effective May 18, 1982.

Under Rev Ruling 82-102 a public employee retirement system (PERS) may no longer establish a 403(b) Plan. Q.: Is a public sector Deferred Compensation Plan considered a PERS under RR 82-102?

Can a government 457(b) Plan also administer a 403(b) plan? The 403(b) plan would only accept contributions from eligible employees of the public sector employer.

I administer a governmental 457(b) Plan. The withholding rules for a governmental 457(b) plan are the same as the rules for a 401(k). For distributions eligible for a rollover, mandatory federal withholding is 20%. For SEPPs ineligible for a rollover, there is no mandatory federal withholding and the default is married 3. For other distributions ineligible for a rollover there is no mandatory federal withholding and the default is 10%. Thank you. Is this a correct statement?: Retirement at age 60. Retiree, at age 60, instructs Plan Administrator to make distributions based on life expectancy. These distributions are not eligible for rollover treatment and, therefore, no mandatory withholding tax applies. Is this a correct statement?: Withdrawal of $20,000 with $15,000 representing the RMD. $5000 is subject to 20 percent withholding because it is eligible for rollover treatment. $15,000 is not subject to mandatory withholding because it is a RMD which is not eligible for rollover treatment. Thank you for your time and effort. JOEL

Is there a mandatory federal withholding tax rate on post-retirement distributions made directly to the participant from a government 457(b) plan?

Employee earns $60,000 per year and pays 3 percent of salary (under 414(h)) to his Qualified Pension Plan. He elects to contribute 5 percent of salary to his 403(b) plan. Is the 5 percent of salary based on $60,000 or $58,200?

See Reg 1.401(a)(9)-5 Q/A-1(e) which allows the MRD requirement for a DC account to be satisfied by an annuity that meets the requirement of 1.401(a)(9)-6 A-4. I have seen descriptions of IRA annuity products that state that the beneficiary payout will be paid only in the form of periodic payments. A joint/100 percent to survivor annuity requires the title to the money to be transferred to the insurer----I don't like this option. Can the owner take RMD based on her LIFE EXPECTANCY with any remaining balance, upon her death, distributed to her named beneficiary over the life expectancy of the beneficiary? Is this doable thru the annuity contract? Many thanks, Joel

You are covered if your HO policy covers seepage or water back up due to inoperable sump pump. Check your declaration page of your policy. Having said that, Flood insurance is separate and distinct from your HO and is only available thru the Federal Govt. "A flood" is ground level water that rises high enough to enter the first floor of your home. One can have flood damage to their basement without sustaining a "flood"-----know the difference.

Don't you need to sever employment in order to qualify for disability retirement?

As said on another board recently, "it's writing like this that gets us in trouble". "On a national level"? Are you asking what "national" agency has any "oversight" to define the PA? Or perhaps you are asking whether most state and/or local govt plans specify a particular internal department (or person) to be the PA? Your last sentence is exactly what I intended to communicate. Thanks

Re: NYC Deferred Compensation 457(b) and 401(k) Plans Currently, the Commissioner of the Mayor's Office of Labor Relations is the Plan Administrator. The Mayor has recently proposed that he would like the Commissioner of the Department of Finance to assume the duties of Plan Administrator. Q.: On a national level which governmental department generally assumes the duties of Plan Administrator?