Carol V. Calhoun

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.

Assuming that the plan is nongovernmental (and the original post refers to the employer as a "not-for-profit," I would be concerned about its exemption from ERISA, even if all contributions are salary reduction contributions, if the employer holds onto participant contributions for an excessively lengthy time. One of the requirements for the ERISA exemption is that I would be concerned about whether the employer would be deemed to have received indirect compensation if it held participant contributions (that it would otherwise have had to pay out in wages) for a substantial period, during which time presumably it would be receiving the benefit of earnings on the amounts.Obviously, the situation is not nearly as concrete as if this involved a 403(B) with employer contributions (which would clearly be covered by ERISA) or a even a governmental 457(B) plan (for which the model amendments to comply with 457(g) specify a 15-day period). However, I am not sure we can assume that there is no time deadline.

Whether the plan is governmental or not basically depends on whether you were a public or private school teacher. If public, it's a governmental plan, if private, it is not. I would definitely try to get the contract. If you can't get it from your ex-husband, the company should give you a copy.

A written plan document is required. See Treas. Reg. § 1.401-1(a)(2), which states as follows: Thus, a qualified plan must always be written.If the superintendent receives the money after having both (a) attained age 55, and (B) terminated employment, it will be subject to income taxes, but not to the additional tax on early distributions. IRC section 72(t)(2)(A)(v).

IRC section 401(a)(2 requires that "under the trust instrument" certain things be true. Based on this, Treas. Reg. § 1.401-1(a)(2) states as follows: The IRS has in turn interpreted the requirement of a written program to mean that the plan must be operated in accordance with that written program; otherwise, the requirement would be meaningless.

There were some GUST changes with which the plan should have complied--e.g., USERRA provisions. However, the IRS appears at least informally to be taking the position that unlike a 401(a) plan, which has a written plan document requirement under 401(a)(1), a 403(B) plan does not have any requirement of a plan document on the IRS side. Thus, it is looking at actual compliance, as opposed to plan amendments. The plan would be covered by ERISA, and should therefore be amended in such a way that the written document reflects actual practice. However, the ERISA time deadlines are less clear, and the penalties do not include loss of favorable tax status. Thus, in many instances an employer that discovers it has a problem like this merely amends for the future, but does not treat the plan as having lost 403(B) status for the past.

Unfortunately, this would really require looking at the specific contract to see what it says. If it is a governmental 403(B) plan, you'd also need to look at applicable state and local law.

The first source is Code section 401(a)(5)(G), which reads as follows: Code section 401(a)(3) and (4) are the paragraphs that impose the rules that prevent benefits under most nongovernmental plans from discriminating in favor of highly compensated employees.The second source is Code section 410©(1)(A), which reads as follows: Code section 410 is the section that imposes the rules that prevent coverage under most nongovernmental plans from discriminating in favor of highly compensated employees.The third source is Code section 401(a)(26)(H), which reads as follows: Code section 401(a)(26) is the paragraph that imposes the rules that prevent most nongovernmental defined benefit plans from covering less than (i) 50 employees of the employer, or (ii) the greater of--(I) 40 percent of all employees of the employer, or (II) 2 employees (or if there is only 1 employee, such employee).Together, these three sources permit a state or local government plan to cover only one employee, even if that employee is a highly compensated employee, without providing comparable benefits to other employees under any other plan, so long as this is permissible under applicable state and local law.

We have on occasion provided that the benefits under the plan shall be as provided by the Board of Trustees, which shall make its judgments in the form of written documents which shall be considered amendments to the plan document. I would think that you could do something similar with union contracts, provided that this is permissible under applicable state and local law. There is no federal requirement that the entire plan be incorporated into one written document. Indeed, we have been successful in providing, for example, provisions from a state constitution, a statute, a set of regulations, and a set of administrative procedures to the IRS as the "plan document" when requesting an IRS determination letter on a plan. The only thing to remember is that if any employee requests a copy of the "plan document," the office responsible for providing it should be instructed to give the participant copies of all documents that make up the plan document.

Ellie, you're right, I've seen a few of those, too, and should have clarified that in my response. The advantage is that they get to worry about only one federal law instead of 50 different state laws.

As to governmental 457 plans, there have been numerous issues about conforming state law to EGTRRA. You might want to check out the thread available by clicking here on that subject. With regard to 401(a) plans, few of the EGTRRA changes were mandatory for governmental plans. Thus, the major issue has been the extent to which plan sponsors want to amend plans to take advantage of new flexibility.

Joel-- You're right that the plan sponsor receives growth in excess of the Assumed Investment Return adopted by the plan's actuary. (And conversely, the plan sponsor takes the risk of growth less than that of the Assumed Investment Return.) All I was pointing out is that the Assumed Investment Return is itself a form of earnings to the participant, in the sense that what the participant puts in will, if mortality assumptions are correct, be less than what the participant takes out. This Assumed Investment Return (along with the advantage of not outliving the account balance) must be compared to the earnings on and advantages of other forms of investment available to the participant.

Typically, the amount necessary to purchase service credit is calculated in such a way that the employee in effect receives some further growth of the invested assets. However, the rate of earnings assumed for this purpose varies greatly from one plan to another. And of course, there is a trade-off involved: in a defined benefit plan, you cannot typically invade capital once annuitization has occurred, but you also will not outlive your assets if you live longer than the mortality tables would indicate. As with so much in this area, the employee needs to consider carefully the financial aspects of his or her choices, not just the tax consequences.