Carol V. Calhoun

They are treated separately for purposes of the 415(c) limits. Of course, deferrals under 401(k) and 403(b) plans of separate employers are aggregated for purposes of the 402(g) limits. 457(b) plans are subject to separate limits, regardless of whether it is one employer or more than one. (And of course, a state or local government can't have a 401(k) at all unless it is a grandfathered 401(k).)

You wouldn't necessarily even need a new plan for this. It is common to have more than one annuity carrier in the same plan, and to cut off new contributions to an annuity without requiring people to move the old money. Using just one plan avoids the need for two Forms 5500, etc.

No. Under Code section 408(c)(3)(B)(i), "adjusted gross income shall be determined in the same manner as under section 219(g)(3), except that any amount included in gross income under subsection (d)(3) shall not be taken into account." Under 408(d)(3)(C), "The conversion of an individual retirement plan (other than a Roth IRA) to a Roth IRA shall be treated for purposes of this paragraph as a distribution to which this paragraph applies." Thus, a Roth conversion is not treated as part of modified adjusted gross income for purposes of the $129K income limit for contributing to a Roth IRA.

Yes. 415 limit is separate for different employers (so long as they aren't part of the same control group). 402(g) is measured at the employee level.

The employees can't be considered to have terminated employment. However, their 401(k) plan can be terminated. At that point, they will need to take a distribution which they can roll over to the 403(b) plan if they want to. There is no rule that prohibits a rollover of an amount obtained on a plan termination to another plan of the same employer. Code section 401(k)(10)(A) and Treas. Reg. § 1.401(k)-1(d)(4)(i) provide the rule that you can't terminate a 401(k) plan and distribute assets if you have an alternative plan. However, Treas. Reg. § 1.401(k)-1(d)(4)(i) specifically provides that a 403(b) plan is not an alternative plan for this purpose.

Thanks, @John Feldt ERPA CPC QPA! My chart of limits (which goes back to 1996, if you play with it enough!) has now been updated with the projections.

Title has now been changed. Thanks to you and @Tom Poje for all your work on this!

You are correct on both counts. From Notice 2003-20: Treas. Reg § 1.457-10(b)(5) provides that a beneficiary may transfer the money to a 457(b) plan of a nongovernmental employer if both the transferring plan and the receiving plan allow for this. Of course, this would require that the beneficiary actually work for a nongovernmental tax-exempt which maintains a 457(b) plan that allows for such transfers.

I have a governmental client (not state or local, so 457 doesn't apply) that wants to implement a nonqualified plan for an official. Without getting too far into the details, the plan would provide that the basic benefit is $X per year, but that a supplemental benefit of another $X a year is payable if the official doesn't engage in a paid activity (employment or self-employment) for as much as six months of the year. Note that any paid activity (not just employment with the original employer) for six months would eliminate the supplemental benefit for that year. Leaving aside for the moment the question of interpretation (e.g., how do you measure the number of months in the case of self-employment?), does this violate 409A? In theory, the "form" of benefit could be modified by the participant's decision whether or not to accept paid activity. (E.g., it would be a life annuity if the participant retired completely, but would be some sort of popup benefit if they continued to be employed elsewhere for several years.) And the supplemental benefit would be payable on something other than one of the events named in 409A (the cessation of all paid activity, not separation from service with the original employer). On the other hand, this doesn't seem to be what 409A was intended to get at, since the benefit would be forfeited entirely, not just deferred to some later date, if the individual engaged in paid activity.

Probably not. There is a forfeiture provision relating to the New York State and Local Retirement Systems. It relates to members convicted of a felony related to their public service. However, it applies only to those who joined the New York State and Local Retirement Systems after November 13, 2011. Cuomo would have been a member long before that.

You are correct, they are ineligible. Only a 501(c)(3) or a public school can have a 403(b}.

Since the contracts can't be moved and the investments can't be changed, the client's only power is to approve or not approve a distribution. I suppose they would have to exercise that power in a prudent manner (i.e., not permitting a distribution that would violate the terms of the plan). But the current fiduciaries wouldn't be liable if the plan was just invested in bad investments, because they would have no power to change that. I do wonder about the potential liability of those who set up those old contracts, though. I'm old enough to remember a time when the way a 403(b) got set up was often that an insurance agent came through town and said, "I've got this great new plan that gives your employees a tax advantage and doesn't cost you anything. Just sign here and send us the money from your employees' paychecks every month." So the employer signed up for a plan that allowed only for investment in that company's annuities, without ever thinking at all about whether there were better products out there. And those annuities often had surrender charges that effectively prevented the employee from moving money out of them. Is the fiduciary from 1980 going to be held liable if someone turns up today and says, "I have a pitiful retirement account, which could have been much larger if you had stopped for one minute to figure out what a good investment would be"?

Thanks, @Mike Preston. That seemed to be the result based on what I could find, but proving a negative is always tough. @Effen, that is what I was finding so odd. This plan clearly allows the subsidized benefit even to terminated vesteds, but only if they apply for it on time. So it puts a premium on someone who has perhaps been gone for years remembering that the subsidized benefit exists and applying for it during a fairly narrow window. Anyway, thanks, all!

Plan provides that normal retirement age is 65. However, early retirees and vested terminated participants can elect to receive unreduced benefits as early as age 60. Is there any requirement that benefits be actuarially increased if a terminated vested participant does not apply for benefits until, for example, age 65? The only authority I can find on this is Code section 411(b)(1)(G) and Treas. Reg. section 1.411(b)-1(d)(3), which say that an accrued benefit cannot be decreased on account of increasing age or service. From an intuitive standpoint, it would seem obvious that if you can get a particular monthly benefit at age 60, providing only that same monthly benefit at age 65 constitutes a reduction in the benefit (because the same amount will be received for fewer years). However, Code section 411(a)(7) defines the accrued benefit as "in the case of a defined benefit plan, the employee’s accrued benefit determined under the plan and, except as provided in subsection (c)(3), expressed in the form of an annual benefit commencing at normal retirement age." (Subsection (c)(3) deals with the portion of the accrued benefit attributable to employee contributions, and is not relevant here.) So since the plan is not decreasing the amount payable at normal retirement age (age 65), is it free simply to tell the participant who applies late, "Sorry, we know you could have started receiving full benefits at age 60 if you had applied on time, but because you didn't, you won't receive either a make-up for the missed payments or an actuarial increase"?

The old account balances would cause the plan to be an ERISA plan. The only exception dealt with certain pre-2009 403(b) plans that ceased to have employer contributions after that. Field Assistance Bulletin No. 2009-02.

We have a client with a lot of employees who elect additional income tax withholding. The forms provide that employees are to specify the amount of additional withholding per pay period. However, some employees instead put down a figure that they intend to be their entire year's withholding. The result is that so little is left in each paycheck that 401(k) deferrals are limited by the absence of any paycheck to defer from. And surprisingly, this occurs often enough that it's impractical to manually check and fix the issue, and employees sometimes don't notice and correct the error right away. Does anyone have any experience with whether it will be treated as a plan qualification error if the client does not withhold and defer the percentage of compensation elected by the employee because there is not enough money left after taxes from which to deduct the funds? I've heard rumors that this was a JCEB question (never answered) some time back, but have been unable to find it in the online JCEB materials.

I think this should work. 26 CFR § 1.401(m)-1(a)(2)(ii) provides that The clear implication is that an employer contribution made to a defined contribution plan on account of contributions made by an employee in a plan that is intended to be a qualified plan or other arrangement described in § 1.402(g)-1(b) is a matching contribution, even if the plan to which the employer contribution is made is separate from the plan to which the employee deferral is made. In the context of governmental plans, it is common to have a 457(b) plan with matching contributions made to a 401(a) plan. Obviously, this doesn't work in the private sector, because a private sector 457(b) plan can cover only highly compensated employees. But it does reinforce the idea that matching contributions can be made to a plan other than the plan under which the employee made deferrals.

I know there is a 10% limit for the first year, and a 15% limit for all subsequent years, on automatic contributions under a QACA. However, if you have just a straight auto enrollment/auto escalation (not an EACA or QACA), are there any legal limits on how high the level of contributions can be? I'm not finding any, but proving a negative is always hard.

We do the same as @RatherBeGolfing and @Alan Kandel. Client sends us a check for the filing fee. We deposit the check, then use a POA and the firm credit card to make the submission. The thing that's a pain is that you want to have all the information for the 8950/8951 ready before you start the process, but you can no longer just fill the forms out in advance and submit them. I actually saved copies of the old Forms 8950 and 8951, converted them to fillable forms, and fill them out (in order to have a reminder for myself, not to submit to the IRS) before each VCP submission. And of course, this process will be even more cumbersome if they ever change what you have to submit online from what was required by the old forms.

Employer has a health plan, and a VEBA. The VEBA permits use of VEBA assets to fund health benefits. However, the health plan is not insured. Rather, a vendor requires that a reserve fund be set up. That fund is used for health benefits, and must be replenished as it is used for that purpose. The vendor will only accept amounts sent by wire transfer. However, the bank that holds the VEBA account will only send money by checks. (This strikes me as odd, but that's the facts we have.) Employer would like to have the VEBA write a check to the employer, and the employer would immediately contribute the funds to the reserve fund by wire transfer. However, for some brief period of time, the money would be in the employer's hands. Has anyone seen the IRS argue that this is an impermissible inurement?

As long as the 403(b) is completely terminated and all assets distributed, there are no legal issues. There are, however, two ways in which employers get tripped up on this. Some 403(b) providers (particularly annuity issuers) have restrictions on the investments which may prohibit distributions except at the participant's direction. This can in some instances make it impossible to distribute assets, and thus to get the plan completely terminated. In some instances but not all, you can get around this by distributing the annuity contracts rather than cash, but you really have to look at the contracts. Some employers want to just move all the existing money to the 401(k) plan. You can't do that, because there is no provision for plan to plan transfers from a 403(b) to a 401(k). You can give participants a choice of taking the money in cash or rolling it over to a vehicle of their choice (which could include the new 401(k) plan), but you can't restrict their choices. There is no required 12 month wait. The rules that prevent distributions from a 401(k) if you set up a new 401(k) too soon do not apply if the old plan is a 403(b).

Yep. Chart at https://benefitsattorney.com/charts/maximums/, showing limits from 1996 through 2021, has been updated.

Thanks, John! All now posted at https://benefitsattorney.com/charts/maximums/

Thanks for that information! The IRS always takes weeks after the CPI-U is issued, and I expect it will be even worse this year with the pandemic.

That would be wonderful! As usual, I'm happy to give credit (in this case, to you, your firm, and him). I just like to keep my site as useful as possible, and having the projected numbers helps a lot.