Carol V. Calhoun

I assume you're referring to 403(b)s in the private sector? A public school is pretty much stuck with 403(b) or 457(b), unless there is a grandfathered 401(k).

I think you can treat it as having gone away, under either of two theories. One is that the merged plan is the continuation of both merging plans. The other is that a plan that has no more assets or liabilities can be treated as no longer existing. The issue we've had with 403(b)s is that it can be difficult to figure out whether they have distributed all of their assets, particularly if the insurer is unwilling to break up the group annuity contract to issue individual annuities. But I don't think the IRS or DOL has any issue with a plan no longer being maintained once it has demonstrably ceased to have assets, as in your situation.

It is actually unclear whether an ITG can maintain a 457 plan. Certain tribal governments have, in the past, maintained Section 457(b) plans for their employees, on the theory that they should be considered state or local governments. Advance Notice of Proposed Rulemaking REG-133223-08, filed with the Federal Register on November 7, 2011, [72 Fed. Reg. 69188 (Nov. 8, 2011)] describes the rules the Treasury Department considers proposing relating to the determination of whether a plan of an Indian tribal government is a governmental plan within the meaning of Section 414(d) and contains an appendix that includes a draft notice of proposed rulemaking on which the Treasury Department invites comments from the public. However, it deals only with the issue of whether an ITG is "governmental," not whether it is a "state or local government." Note that in most respects, section 457 represents a limit on what could otherwise be deferred, not an enhanced benefit. A governmental employer that is not permitted to have a 457 plan could have an unfunded nonqualified deferred compensation plan that could allow for unlimited deferrals, rather than being limited to the $17,500 that could be deferred under a 457 plan. Because a government is not subject to ERISA, such a plan would not have to be limited to highly compensated and management employees, the way an unfunded deferred compensation plan for a private employer would. The only disadvantages of such a plan over a governmental 457 plan would be that it could not allow rollovers and could not be funded. However, in the case of an ITG, the uncertainty over whether a 457 plan is permissible means that whatever approach you take carries risks. If you attempt to adopt a 457 plan, and it is found not to be a 457 plan, the fact that it is funded could cause negative tax consequences for participants. If you attempt to adopt an unfunded deferred compensation plan outside of 457, and 457 is found to apply, then 457(f) could cause negative tax consequences to participants. By contrast, it is clear that an ITG can have a 414(h) pick-up feature, as section 414(h) explicitly states as follows: Of course, unlike a 457 plan, a pick-up arrangement cannot allow for employees to change the amount of their contributions from year to year.

It looks like I've already been heard from here indirectly. Here's a brief synopsis: If a retirement system is an integral part of government, it is exempt from all tax, including on UBIT. If a retirement system is an instrumentality of government, its income is excluded from federal income tax under IRC 115 to the extent the income is derived from an essential governmental function and accrues to a State or political subdivision. Whether a retirement system should be considered an integral part of government or an instrumentality is in itself a muddy area, with private letter rulings taking opposite positions on what seem to be nearly identical facts. To add to the confusion, in General Counsel Memorandum 34476 (Apr. 9, 1971), the IRS concluded that “when a state agency or instrumentality elects to be exempt under section 501, we believe that it should be subject to the burdens as well as the benefits of subchapter F” (emphasis added). In General Counsel Memorandum 36876 (Sept. 30, 1976), the IRS again held “that when a state agency or instrumentality qualifies for and elects exemption under section 501, it is subject to the burdens as well as the benefits of subchapter F” (emphasis added). In both cases, the entity was found to be subject to UBIT. The questions, therefore, are a) whether these old GCMs remain the position of the IRS, and b) whether a a retirement system that has qualified status (which in theory makes it exempt under 501) would similarly lose its exemption from UBIT. One complicating factor, of course, is that in theory, qualified status under 401(a) is not "elected," but simply occurs if the plan meets the requirements of 401(a). When we looked at this some time back, we could not find any public retirement systems that were actually paying UBIT. However, they were quite split as to whether they thought they were subject to it. Some took the position that they were completely exempt. Some avoided all investments that could produce UBTI, believing that they were subject to UBIT. Some were taking a middle ground, avoiding directly commercial activity as potentially "not derived from an exempt governmental function," but taking the position that other investments were exempted by 115 even if they produced what would be UBIT in the case of a nongovernmental tax-exempt.

Yeah, on the OP's question, if you want an individual determination letter, you can use either Cycle C or Cycle E. Here's the link. If you want to switch to a preapproved plan, you'll need to look at what type of plan you've got (defined contribution or defined benefit) to determine when you need to do something.

Just to clarify, the period to submit Mass Submitter defined contribution plans was February 1, 2011 through October 31, 2011. The period to submit Non-Mass Submitter Sponsors and Practitioners, Word-for-Word Identical Adopters, and M&P Minor Modifier Placeholder Applications for defined contribution plans was February 1, 2011 through January 31, 2012. For defined benefit plans, the relevant dates are February 1, 2013 through October 31, 2013 (Mass Submitter) and February 1, 2013 through January 31, 2014 (everyone else). Rev. Proc. 2007-44.

Yes, it does.

For a governmental 401(a), there are no shareholders, and discrimination in favor of officers or highly compensated employees would be irrelevant. Governmental plans are explicitly exempted from nondiscrimination rules.

At least for the statewide systems, there is a page on my site that will show you the plans for each state. Here's a link.

Why would contributions (picked up or otherwise) to a DC plan be tested under 415(b)? That section applies only to DB plans. There is a special rule that employee contributions to a DB plan that are assigned to a separate account are separately tested under 415© (and the benefit generated by them is excluded from the benefit subject to the 415(b) limits). But there is no rule that would make employer contributions (picked up or otherwise) to a DC plan subject to the 415(b) limit.

Thanks, all! I was getting lost in the multiple cross-references.

This is an off the wall question, but I'm kind of going around in circles trying to figure out an answer. A plan participant named a tax-exempt organization as a beneficiary. The plan paid the distribution as a lump sum. Since it was an eligible rollover distribution, the plan withheld at a 20% rate. The tax-exempt would (obviously) like to get the withheld money back. First question: Should the plan have withheld? While it might be common sense that a distribution to a tax-exempt entity should not be subject to withholding, I'm not finding any exception to the 20% withholding requirement for tax-exempt payees, either in section 3405 or the regulations thereunder. Second question: Now that the plan has withheld, what should the tax-exempt do? Since they don't file income tax returns, what form would they use to file a claim for refund under these circumstances. Has anyone here dealt with such a situation?

All I know is that my inbox is full with people asking when my chart will be updated for the 2011 limits. At this point, I'm saying they won't change for 2011, but with a footnote saying that is only a projection. I'm seriously hoping we'll get an actual IRS announcement soon!

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.