Carol V. Calhoun

I just ran across this topic, and wondered whether the previous replies have been superseded by Department of Labor Field Assistance Bulletin No. 2008-01, http://www.dol.gov/ebsa/regs/fab2008-1.html. That Bulletin treats it as a fiduciary breach if no one has the authority to collect delinquent contributions. While the situation described in the Bulletin is one in which no trustee has the obligation to collect delinquent contributions, I wonder if it would also apply to a situation in which the only party authorized to collect delinquent contributions from the employer was the employer itself?

Since my name has been mentioned here, let me just say that my view (like that of all but one other commentator) is that the limit on 457(b) plans is $15,500 (for either 2007 or 2008), assuming no catch-ups. The section 457(b) limit applies to both employer and employee contributions to a 457(b) plan. If you are a governmental employer, and want to have employer matches to a 457(b) plan, you probably want to put them into a qualified (401(a)) plan to avoid this problem.

Tom, you did way better than a lot of sources out there, including About.com. I have spent much of today writing back to people who assured me that the deferral limit was $16,000. Fortunately, the IRS made the official announcement today, so I was able to show them that the $15,500 figure was correct. For anyone who is interested, my chart of pension and Social Security limits shows the limits for any years you would like between 1996 and 2008.

The all new edition of the Governmental Plans Answer Book has now been released! This book takes the reader step by step through the various laws that govern such plans. For those practitioners with private plan experience who wish to work with governmental plans, it compares the regulation of the two types of plans. The authors' systematic answers to hundreds of questions will provide an invaluable reference for investment advisors, plan administrators, attorneys, actuaries, and accountants. It will also serve those institutions that promote, market, service, or provide technical support to retirement plans, products, and related services. Highlights of the Second Edition The Second Edition of the Governmental Plans Answer Book (November 22, 2006) gives subscribers the most relevant, current, and practice-oriented answers to the issues faced daily by plan administrators, attorneys, actuaries, consultants, accountants, and other pension professionals as they navigate the requirements and procedures involved in administering their plans. The Second Edition has been revised to include the most up-to-date developments in the area. New features include: Pension Protection Act of 2006 provisions affecting governmental plans. All new surveys of practices of state retirement systems. New staggered cycle for requesting IRS determination letters on qualified plans. Automatic rollover requirements in the absence of a participant election. New regulations under the Uniformed Services Employment and Reemployment Rights Act ("USERRA"). New requirements for annuities involving cost-of-living changes or other payments that vary over time. New flexibility to allow for terminations of tax-sheltered annuity or custodial account (403(b)) plans. Options for governmental plans that have not been timely amended for legislative changes. For more information on this book, written by Carol V. Calhoun, Cynthia L. Moore, Keith Brainard, you can use the following links: Description Table of Contents Purchase

The all new edition of the Governmental Plans Answer Book has now been released! This book takes the reader step by step through the various laws that govern such plans. For those practitioners with private plan experience who wish to work with governmental plans, it compares the regulation of the two types of plans. The authors' systematic answers to hundreds of questions will provide an invaluable reference for investment advisors, plan administrators, attorneys, actuaries, and accountants. It will also serve those institutions that promote, market, service, or provide technical support to retirement plans, products, and related services. Highlights of the Second Edition The Second Edition of the Governmental Plans Answer Book (November 22, 2006) gives subscribers the most relevant, current, and practice-oriented answers to the issues faced daily by plan administrators, attorneys, actuaries, consultants, accountants, and other pension professionals as they navigate the requirements and procedures involved in administering their plans. The Second Edition has been revised to include the most up-to-date developments in the area. New features include: Pension Protection Act of 2006 provisions affecting governmental plans. All new surveys of practices of state retirement systems. New staggered cycle for requesting IRS determination letters on qualified plans. Automatic rollover requirements in the absence of a participant election. New regulations under the Uniformed Services Employment and Reemployment Rights Act ("USERRA"). New requirements for annuities involving cost-of-living changes or other payments that vary over time. New flexibility to allow for terminations of tax-sheltered annuity or custodial account (403(b)) plans. Options for governmental plans that have not been timely amended for legislative changes. For more information on this book, written by Carol V. Calhoun, Cynthia L. Moore, Keith Brainard, you can use the following links: Description Table of Contents Purchase

The all new edition of the Governmental Plans Answer Book has now been released! This book takes the reader step by step through the various laws that govern such plans. For those practitioners with private plan experience who wish to work with governmental plans, it compares the regulation of the two types of plans. The authors' systematic answers to hundreds of questions will provide an invaluable reference for investment advisors, plan administrators, attorneys, actuaries, and accountants. It will also serve those institutions that promote, market, service, or provide technical support to retirement plans, products, and related services. Highlights of the Second Edition The Second Edition of the Governmental Plans Answer Book (November 22, 2006) gives subscribers the most relevant, current, and practice-oriented answers to the issues faced daily by plan administrators, attorneys, actuaries, consultants, accountants, and other pension professionals as they navigate the requirements and procedures involved in administering their plans. The Second Edition has been revised to include the most up-to-date developments in the area. New features include: Pension Protection Act of 2006 provisions affecting governmental plans. All new surveys of practices of state retirement systems. New staggered cycle for requesting IRS determination letters on qualified plans. Automatic rollover requirements in the absence of a participant election. New regulations under the Uniformed Services Employment and Reemployment Rights Act ("USERRA"). New requirements for annuities involving cost-of-living changes or other payments that vary over time. New flexibility to allow for terminations of tax-sheltered annuity or custodial account (403(b)) plans. Options for governmental plans that have not been timely amended for legislative changes. For more information on this book, written by Carol V. Calhoun, Cynthia L. Moore, Keith Brainard, you can use the following links: Description Table of Contents Purchase

A 403(b) contract under a plan subject to ERISA must impose the limitations of ERISA (including the spousal consent requirement). That 403(b) contract is (at least in theory) owned from the beginning by the employee. Thus, the spousal consent requirement will not go away just because the employee separates from service. The only way to get around the spousal consent requirement for subsequent distributions would be to get the spouse to consent to a full distribution from the 403(b). If that occurred, the distribution could be rolled over to an IRA (or to a non-ERISA 403(b), if available) that did not have a spousal consent requirement for subsequent distributions. But earlier or later, the participant must at some point give consent to the distribution, if it is not in a qualified joint and survivor form.

The Sarbanes-Oxley Act of 2002 [Public Law 107-204], which became law on July 30, 2002, banned company loans to executives. Many have therefore been concerned that the premiums on split dollar policies could be considered interest-free loans to the extent the corporation is eventually reimbursed for them. The uncertainty over the policies virtually halted their sale in 2002, and has even created uncertainty as to whether premiums can continue to be paid on existing contracts. [“Insurance Plans of Top Executives Are in Jeopardy,”New York Times, Aug 29, 2002, Business section] To the extent that split-dollar insurance even remains possible, regulations issued on September 17, 2003 [TD 9092] and Rev. Rul. 2003-105, 2003-40 I.R.B. 696, tax the value of such arrangements under either an economic benefit or a loan theory, depending on whether the employee or the employer is the owner of the policy.

Essentially, for pre-1996 participants, the plan is to use the plan language that was in effect on July 1, 1993. If the plan, as in effect on July 1, 1993, did not impose any limit under section 401(a)(17), then no limit applies today for pre-1996 participants. Conversely, in the case of a plan that, on July 1, 1993, imposed a limit equal to the 401(a)(17) limits as they might exist from time to time in the future, even pre-1996 participants are subject to current 401(a)(17) limits. The IRS announcements deal with an intermediate situation. As of July 1, 1993, many governmental plans limited compensation to the 401(a)(17) limit that was in effect in 1993 (without regard to any later statutory changes), as adjusted for changes in the cost of living. In the normal course of events, the IRS would not have continued issuing cost of living adjustments to the old 401(a)(17) limits after such limits were adjusted by statute. However, because so many plan participants are grandfathered into the old 401(a)(17) limits, as adjusted, the IRS continues to issue cost of living adjustments to the old limit for that group of participants. There is, by the way, considerable doubt as to how far the IRS announcements actually extend. Although they are based on the pre-1996 section 401(a)(17) limit, the cost of living adjustments they apply are based on the post-1996 formula for cost of living adjustments. Thus, to the extent that a governmental plan on July 1, 1993 incorporated by reference both the existing 401(a)(17) limits and the existing method for determining cost of living adjustments, the IRS announcements may not apply.

The attachment is a genuine pleading from the Second District of New York. Response.pdf

I've put up a form now to make finding a person's or business's name and address if you know the phone number easier. Just click on this message to go to it.

The point is, a provision to disallow loans after NRA shouldn't be in the plan in the first place. You can't put an illegal provision in the plan, then claim that you have to leave it there because operating the plan in a way not in compliance with its terms would disqualify it. As for the security issue, it is perfectly permissible to say that a loan must be repaid upon termination of employment, or before distributions are made. Seems to me that gets at the security issue, without impermissible age discrimination.

The practical answer is that to the extent that an employee's age indicates that s/he might not be making payments for the next 30 years, it also indicates that s/he will not need a house to live in for the next 30 years. And when the house is sold, the mortgage will be paid. (Lenders typically lend less than the full value of the house, to make sure that this will be so even if the house goes down in value.) So age should not affect credit-worthiness. And in any event, ADEA says what it says, regardless of what you may think of it. So denying a loan to an employee based on age is simply not permissible.

The theory is that these employees are unlikely to meet vesting requirements on their own, because they will never get enough hours of service in a year or enough years. Thus, if they are to benefit at all from the replacement plan, benefits must be nonforfeitable.

Since this is not a governmental entity, the 457(f) plan presumably covered only a top hat group to begin with. Thus, there is no reason that the private entity could not just continue the existing plan, even though it would no longer be described in section 457(f). Or it could terminate the existing plan, but pay out the amounts already deferred when due. The deferred compensation rules for taxable entities are actually more liberal, not less, than 457(f).

As a practical matter, 403(B) contributions will never be aggregated with 401(a) contributions of the same employer, since an employee cannot own more than 50% of the type of employer eligible to sponsor a 403(B) plan (a tax-exempt organization, or a public school or university) in the first place. The only time aggregation is required is if the employee participates in a 403(B) with an employer and also owns a taxable business that provides a 401(a).

To the extent that GATT affects the calculation of 415 limits, a governmental entity is required to comply with it. However, a governmental entity is not required to use GATT interest rates in calculating the actuarial equivalence of various benefit forms for purposes such as calculating survivor annuities, because it has no requirement to provide an actuarially equivalent survivor annuity.

Assuming the noncompete agreement works (and that's a big assumption), the employee would still be taxed on the present value of the benefit as it became vested. Thus, at the end of the year, the employee would be taxed on the present value (not quite equal to the remaining 24 months due to present value assumptions) of the remaining 24 months of payments.

There is now no coordination between 401(k)/403(B) elective deferral limits and 457(B) limits.

You're right, a tribal government is not covered by 457 at all. Whether a corporation run by the tribal government was subject to 457 or not would depend on how it got its tax-exempt status--e.g., as an arm of the tribal government, or as a 501© organization of some type. If the corporation is merely an arm of the tribal government, it would not be subject to 457, because 457 covers a governmental plan only to the extent the government involved is a state or local government. If the corporation is not governmental at all, but has tax-exempt status only due to one of the purposes enumerated in section 501(a), it would be subject to section 457(B) in the same way as a private tax-exempt organization. If the corporation is an instrumentality of tribal government, but not an arm of tribal government, and also has tax-exempt status under 501©, the situation gets totally murky. Some very old GCMs suggested that an entity that was both governmental instrumentality and 501© tax-exempt status might lose some of the advantages of instrumentality status (in that case, exemption from UBIT) due to its election of 501© tax-exempt status. But those are not official precedent, and are in any event not directly applicable here. And to the best of my knowledge, IRS has not issued any guidance at all on this issue in recent years.

I would say that 457(e)(10) transfers and 457(e)(17) transfers are two entirely separate animals. The first section deals only with transfers from one 457(B) plan (governmental or nongovernmental) to another. As you point out, this section would not be necessary in the case of an in-service transfer, since no amount would then be payable. 457(e)(10) states that a participant will not be taxed under the constructive receipt doctrine on the amount that the participant could have elected to have paid (that's the "amount payable"), if in fact the participant elects instead to have it transferred to a new 457(B) plan. The second section deals with a transfer from a 403(B) or a governmental 457(B) to something that is not a 457(B), at a time when the amount is not distributable to the participant. It allows such transfers only in very limited circumstances: The plan must be to a governmental defined benefit plan qualified under section 401(a); and The transfer must be for the purpose of purchasing the limited kinds of service credit defined in section 415(n)(3)(A), or in order to repay a prior distribution of less than $5,000. Great care must be taken in the case of a transfer for the purchase of service credit to make sure that the service being purchased falls within the definition of section 415(n)(3)(A). For example, suppose a participant moves from one school system to another within the same state. The state provides one defined benefit plan that covers employees of both school systems, and the second school system also contributes to its own local supplemental defined benefit plan. An individual could not use 403(B) or 457(B) money to purchase credit for past years of service under the second school system's supplemental plan, because that participant would continue to have credit under the statewide plan for those years of service.

I've edited mbozek's link, and it should work now.

Federal law does not impose a requirement that the cost of service credit be determined by reference to the rates assumed in funding the plan. In the past, though, the most common deviation was that employees were permitted to purchase service credit for less than the actuarial cost of such credit. For example, it was once common to see situations in which an employee could purchase service credit merely by paying the contributions (without interest) which such individual would have paid had s/he been an employee for the relevant period. In recent years, I've seen a lot less of that, as plans have become more sophisticated in determining actual costs. However, ultimately the cost is a function of applicable state and local law and the plan document. All this means is that, as with any other financial decision, you need to look at what is being offered, and how it compares with other uses of the money.

Basically, the fact that it is a governmental plan means that you have to look more to California law (whether it is California law regulating governmental plans, or California insurance law governing annuity contracts), and less to federal law, than if it were a nongovernmental plan.

I'm not saying that the standard here is necessarily 15 days. I am just saying that I don't think we can assume that the employer has an unlimited amount of time to make the contributions. Although the employer can receive reasonable compensation for its services, the question of whether the compensation is reasonable would be a factual issue. I would suspect that an employer that delayed contributions for, say, two years would not be protected by claiming that ERISA didn't apply, and therefore that it had no obligation to move faster than that.