Carol V. Calhoun

I can't see why a lesser limit would be a problem. A 457(b) plan is not subject to any kind of discrimination rule, so you don't have to worry about that part. And 457(b) merely states that deferrals in excess of the limits are not allowed; it doesn't require you to permit deferrals up to the limit.

Whether a $350k or $265k limit applies in the case of elective deferrals is really a moot point. The individual with compensation of $350k could defer the maximum ($18,000) even if only compensation below the 401(a)(17) limit were considered, so it really doesn't matter whether you treat his compensation as $350k or $265k. For example, suppose that the person elects to have 5% of $350k deferred. At the end of the year, he will have deferred $17,500, which is less than the lesser of a) 100% of compensation (even counting only 401(a)(17) compensation), or b) $18,000, so he's still within the limit. All he's done by stating the deferrals as 5% of compensation is a timing issue--having the deferrals taken out ratably throughout the year rather than front-loading them so he will max out as early in the year as possible. I suppose the result could be different if the plan actually limited elective deferrals to 5% of compensation for all employees. However, I have never seen a plan that limited elective deferrals to a greater extent than the statute provides. If nothing else, a limitation on the amount of elective deferrals might give rise to issues concerning whether the universal availability test was met (an issue on which I express no opinion).

So the idea is that although the employer could allow distribution of rollover amounts for any reason, it wants to limit such distributions to hardship situations? That is certainly legal. (You can always have a more restrictive distribution policy than the IRS would require.) The real question is an employee relations one. Employees always have the ability to leave their money in a prior employer's plan, or roll distributions from the prior employer's plan to an IRA instead of to your plan. If you impose substantial restrictions on distributions of rollovers from your plan, employees may be substantially less likely to roll money into your plan in the first place. Of course, the employer may or may not care about that.

I have not seen specific guidance on this issue, but I seriously doubt that the IRS would allow an employee to make any kind of election (including an election of a DROP plan) that would affect the pickup. For a long time, the IRS permitted various "one-time elections" that related only to specific compensation to be used to establish a pick-up arrangement. For example, an employee who elected to purchase service credit could be permitted to have that purchase done on a pickup basis, or an employee entering a new plan could be permitted to elect to have picked up contributions made to that new plan. However, in Rev. Rul. 2006-43, the IRS stated that a pickup cannot be a cash or deferred arrangement. Treas. Reg. 1.401(k)-1(a)(3)(v) provides as follows: Example 5 of that regulation reads as follow: Thus, any election into a picked up contribution must truly be irrevocable upon the employee's first participation in any plan of the employer, and cannot be modified even if the employer adopts a new plan. The IRS has recently reiterated the conclusions of Rev. Rul. 2006-43 in Private Letter Ruling 201425026. Based on the above analysis, I think it extremely unlikely that the IRS would permit an employee to make an election during employment that would end the pickup, even if it were for the purpose of participating in a DROP plan.

I think the employer has to be sure not to reply to any inquiries about QDROs or loans. And when considering which vendors it will deal with, it should allow only those that agree to be responsible for these matters.

The only way this works is if employees make a one-time irrevocable election when they first become eligible under any plan of the employer, and cannot later change that election. Under Treas. Reg section 1.401(k)-1(a)(3)(iv): Under Rev. Rul. 2006-43, 2006-35 IRB 329, a pick-up cannot be a cash or deferred arrangement. Thus, if employees are to have an election as to whether contributions are made, it must be a one-time irrevocable election made no later than the employee's first becoming eligible under the plan or any other plan or arrangement of the employer. See Private Letter Ruling 201532036 (August 7, 2015).

I don't see why it would be a problem, unless the changes became so frequent that they created an issue with the plan being "permanent." However, I'm curious why they would want to do this. For a governmental employer, what would be the advantage of having a money purchase plan?

No, but only because there are very few dual status public education entities. The usual reason a governmental entity seeks 501©(3) status is to be able to offer a 403(b) plan. However, since a public school or university can offer a 403(b) plan without getting 501©(3) status, few of them apply for it. That being said, a governmental plan is exempt from ERISA, regardless of whether it also has 501©(3) status, so this should not be an issue.

There are, in general, two advantages to a 403(b) plan. First, if there are only employee pretax employee contributions (no employer matching or other employer contributions), and certain Department of Labor requirements are met, the plan is not subject to ERISA and therefore escapes Form 5500 and other ERISA requirements. Second, so long as all employees are permitted to make contributions, the nondiscrimination rules do not apply, so you don't have to run ADP tests. The disadvantages of a 403(b) plan are that the fees are often higher than with a 401(k), and there are fewer providers (meaning competition is less, and it may be harder to find one with a good investment return). You'll just need to look at all the pros and cons in your situation to figure out which works best for you.

Legally, it is acceptable to exclude the employee if and only if the employee (a) currently normally works less than 20 hours per week, and (b) worked less than 1,000 hours in the preceding plan year. Of course, you would also have to look at the plan terms to make sure that they provided for the exclusion of such employees. As QDROphile suggests, excluding such employees is not particularly good plan design. Since we are talking solely about amounts deducted from an employee's pay, allowing the employee to participate provides a substantial benefit to the employee at trivial cost to the employer. However, excluding such employees is not illegal.

On October 21, 2015, the IRS issued IRS News release 2015-118, announcing the changes in pensions and benefits limits for 2016. Most limits were unchanged. An updated chart, showing these limits for 1996 to 2016, is available by clicking here.

Has anyone heard anything about when the IRS is likely to announce the new limits?

1. Plan-to-plan transfers from an eligible 457 plan to a governmental defined benefit plan for permissive service credit purchases can be made at any time, provided that the plans permit such transfers, and you do not need to be eligible for a distribution at the time the transfers are made. The trust or annuity used to hold the assets of the 457 plan would cut the check directly to the defined benefit plan. Thus, no deductions from wages would be necessary to the extent the money came from the 457 plan. Moreover, this would not be a rollover, because a rollover occurs only if you are entitled to a distribution. To the extent that the cost of the service credit purchase is greater than the amount in the 457 plan, the way to make the extra contribution pretax is to have the defined benefit plan provide for the additional benefit for you, and for your employer to contribute directly to the plan to fund the benefit. That language would have to provide that the contribution was mandatory on your employer's part, and that you could not receive the amount in cash by declining the contribution. If you simply pay for the purchase of service credit out of your wages, it would be on a post-tax basis. 2. As stated above, the movement of money from the 457 plan to the DB plan would not be a rollover, but a plan-to-plan transfer. Such a transfer is not taxable to you. However, as stated above, the contributions to the DB plan that exceed the 457 amount may or may not be pretax, depending on how they are structured. 3. The plan language needs to provide for the transactions. I'm not sure how "vague" the language is now, and whether it could be construed to cover your situation. However, for example, if it provides that purchases of service credit can occur only through payroll deduction, you'd need to have both plans amended so that the transfer from the 457 plan to the DB plan was allowed. Even if the plans already provide for plan-to-plan transfers to purchase service credit, the DB plan might need to be amended if the employer is to make contributions to fund that portion of the benefit not covered by the 457 plan.

Yes, the death benefit is taxable to the spouse, regardless of whether the employee was still employed immediately prior to death. (I'm seriously hoping that the employee was not employed after death!) Assets of a 457 plan must be held by the employer, or by a rabbi trust considered part of the assets of the employer. Thus, they do not actually fund the benefit; they merely serve as measurement of the amount of the benefit. And distributions from a 457 plan are taxable to the employee, regardless of what assets are used to measure the benefit. If the employee separates from service and is still alive, again the life insurance merely measures the amount of the benefit, and the employee is taxable on the benefit received. If the employer chooses to distribute benefits in the form of a life insurance contract, then the fair market value of that contract is taxable to the employee.

Every previous year, the IRS COLA limits have been released the same day as the Social Security limits. I'm hoping that will happen this year, but haven't seen any sign of the IRS limits yet.

Plan participant has requested direct deposit of a plan payout to a bank account. The bank account is a joint account with another individual (not the spouse), and the plan has reason to believe the other individual is sketchy. Any thoughts on a) whether it is acceptable to pay to a joint account at all (since it represents payment in part to a party other than a plan participant), and b) whether the plan has any duty of inquiry to make sure, for example, that this is not a situation in which the right to payments has been assigned to a creditor? My sense is that payment to a joint account is fairly common, and that so long as the payment is made pursuant to the request of the participant, the plan has no further duty of inquiry. After all, once a check was cut, the participant could transfer the money to another party herself. And I've seen in the past situations in which a creditor showed up with the participant, and the participant signed over the check to the creditor on the spot. However, I'm not finding specific authority on point.

It is clearly the employer's responsibility to refund, not the plan's. It was the employer that erroneously sent the contributions. The amounts contributed would have been wages if correctly paid at the time to the employee instead of the plan. Thus, to put her back in the position in which she should have been, they should be wages (not pension distributions) now. Moreover, depending on her age, distributing them them from the plan could result in the 10% additional tax. Unfortunately, I cannot think of any alternatives if the Payroll Mgr is not budging. All you can do is tell the employee that it is the employer which is responsible for the refund, and that she needs to pursue the issue there.

Even though legally, a 403(b) plan can provide for plan-to-plan transfers before one of these events, it is not required to do so. Apparently, there is a dispute between TSA Consulting Group, Inc. and your employer as to whether the plan terms provide for such a transfer. You'd need to request a copy of the actual plan document to figure out which one is correct.

Any public or private school would qualify. IRC section 402(g)(7)(A) limits the 15-year catch-up to "qualified employee of a qualified organization." IRC section 402(g)(7)(B) defines "qualified organization" as follows: So an "educational organization," public or private, would qualify.

I'd say it's reasonably common. In a 401(k) or 403(b) plan, matching contributions are normally made to the same plan as the employee deferrals, and the 402(g) limit does not apply to the matching contributions. However, in a 457(b) plan, all contributions (not just employee deferrals) count toward the maximum limits. Thus, if matching contributions are made to the 457(b) plan itself, they will reduce employee deferrals. The only way around that is to have a separate plan to which employer matching contributions are made.

I don't think individually designed plans can be required to restate periodically. If the documents as a whole (even if they consist of an original plan plus 35 amendments) are qualified, on what possible basis could the IRS require a restatement? It's only weapon would be plan disqualification, and I can't see how that applies. On the other hand, I would still advise a client to restate periodically. Clients have enough trouble figuring out what their plans say when it's all in one document. If they have to piece together bits of things from a bunch of documents, the probability of correct interpretation goes way down.

Yeah, I could understand if the make-up were equal only to the earnings on the missed contribution. But the earnings appear to be a whole separate computation. And ironically, the fact that the employer cannot make up the 2015 contribution until 2016 means that more earnings will be lost, that will then have to be made up.

So if the participant elects max deferrals, she ends up getting the entire 402(g) amount, plus the QNEC, even though that exceeds the amount she could have put aside for 2015 in the absence of the error? I agree this is a reasonable reading of the Rev. Proc., but it strikes me as nonsensical from a practical perspective. Then again, other interpretations also strike me a nonsensical. We could, for example, assume that the QNEC would count as part of the 402(g) amount (even though a QNEC is not normally counted toward 402(g)), on the theory that it replaces a contribution that would normally be subject to 402(g). But given that the contribution can't be made until after the end of 2015, that would mean that there would be no way to figure out during 2015 what the maximum amount she could contribute would be.

The notice requirement is "not later than 45 days after the date on which correct deferrals begin," not within 45 days after the error.

I've got a plan that erroneously excluded a total of three employees in 2014 and one in 2015. It looks like the employer can use the new corrections procedure in Rev. Proc. 2015-28 (requiring only a 25% QNEC instead of a 50% QNEC to make up for the lost deferral opportunity). For 2014, it's fairly clear how this is to be done. However, I've got questions with respect to 2015: Is there a missed deferral opportunity at all for 2015? The Rev. Proc. says you've got to give the employee a notice saying that he or she can make up the missed deferrals, subject to the 402(g) limits. Since we're only halfway through the year, the employee should be able to defer the full 402(g) amount in the second half of the year. At the same time, the procedures are different if the error is discovered within 3 months than if it is discovered thereafter, so presumably some correction is required if the error goes on for more than 3 months but still within the same year? If the employer has to make a QNEC for 2015, how is it calculated? The QNEC is based on the ADP of the HCE or NHCE group. But presumably, the ADP can't be calculated until after the end of 2015. Does the employer have to defer the contribution until after 2015 ends, or is there some way to determine the amount of the QNEC before that time? The notice to the employee must include "A statement that appropriate amounts have begun to be deducted from compensation and contributed to the plan (or that appropriate deductions and contributions will begin shortly)." What does this mean in the context of employee elective deferrals? Presumably, no amounts should be deducted from compensation until and unless the employee makes a deferral election.