Carol V. Calhoun

The rules could be the same or different, depending on the plan document. Most commonly they are the same, but unfortunately, you really have to check.

In states which have not elected in to Social Security, employees of state and local governments must nevertheless be covered by Social Security unless the employees are covered by a retirement plan that meets certain requirements ("FICA alternative plan"). Treas. Reg. § 31.3121(b)(7)-2 gives the details. So long as certain minimum benefit, etc., requirements are met, the plan can be any type of retirement plan -- 401(a), 403(b), 457, etc. The rules which would apply to a FICA alternative plan, once the money was in it, would be identical to that of any other plan of a similar type. Thus, for example, a FICA alternative 403(b) plan could make a 90-24 transfer, if one was otherwise available, but a FICA alternative 401(a) plan could not. Also, you have to look at the specific terms of the plan and contract involved. Rev. Rul. 90-24 merely governs the tax consequences of a transfer, if one is permitted. However, the plan document, applicable state or local law, or the contract involved may prohibit such transfers.

Definitely! I was responding to Denise's question, which specified that it was a calendar year plan.

Typically, governmental plans are embodied in, or at least are pursuant to, a state or local statute. The legislative body would be the legislature (state or local) which had authority to amend that statute.

This depends on the legislative session. For example, suppose the legislature meets only every other year, and did not meet in 2000. If it meets from January 15 through March 15, 2001, "the 90th day after the opening of the first legislative session beginnining after December 31, 1999" would be about April 15, 2001. The first plan year beginning after that would be calendar year 2002. And the last day of that plan year would be December 31, 2002.

None under federal law. However, applicable state or local law may require a summary. Even if it does not, it's probably a good idea to provide one, to lessen the possibility that employees will not understand their rights, and may later claim contractual rights based on other documents or alleged oral statements.

One thing to watch out for here is that legislative history indicates that church retirement income income accounts described in 403(B)(9) are subject to exclusive benefit rules. I understand that there is some question as to whether any 403(B) plan run by a church might be held to be a 403(B)(9) plan. Exclusive benefit rules have in other contexts been held to impose fiduciary standards. Thus, if you allow only one provider, you would want to make sure that there had been adequate due diligence to make sure that the choice of that provider was an appropriate choice, bearing in mind both risk and reward, from a fiduciary perspective. As for the idea of employees having their own 403(B) plans, they cannot establish such plans on their own (independent of an employer). They might have 403(B) plan from another concurrent or past employer, but a 403(B) plan requires employer involvement.

It can under federal law, although you need also to look at applicable state and local law. Barring some problem in state or local law, the usual problems you run into are more political than legal. Because the deferred amount will be shown as current W-2 income, you have to consider whether the total amount shown on the individual's W-2 will trigger news stories suggesting that s/he is overpaid, that the employer is wasting money, etc. In that sort of environment, the difference between current compensation and deferred compensation shown on a current W-2 may not be obvious to the general public.

Withdrawals would be taxable, but why make them? If the account pays the fees directly, they should be considered an administrative expense of the account itself, not a withdrawal.

http://www.benefitslink.com/boards/index.php?showtopic=2265 Just confirming what I said in my other post, you might also want to check out the link above for a lengthy prior discussion of the extent to which a Native American tribe's plan is or is not subject to ERISA.

You might also want to check out this link for a discussion of the extent to which a Native American tribe's plan is or is not subject to ERISA: http://www.benefitslink.com/boards/index.php?showtopic=2265

The only requirement to which church plans are subject under federal law would be the funding requirements of pre-ERISA I.R.C. section 401(a)(7). I.R.C. section 412(h). And as you correctly point out, these requirements are not very meaningful as interpreted by Rev. Rul. 71-91. Of course, church plans are not subject to ERISA preemption of state law. However, in practice, few states seem to regulate them.

For what purpose are you doing ACP testing? It would not be required for salary reduction contributions to the 403(B) plan itself, and it would not be required at all for a 403(B) plan of a governmental employer. Does the same employer (or a member of its controlled group) have a 401(k) plan, or is it making matching contributions?

In theory, no, because governmental plans are exempt from Title I of ERISA, under which the guidance was issued. The only question is whether a court interpreting state statutes, or the common law of trusts, might look to the Department of Labor guidance by analogy.

Hmm, Pax, guess I failed to remind everyone of that yet again on this thread?

Unless someone meets one of the very limited exceptions in Internal Revenue Code section 403(B)(12), the person must be allowed to contribute, regardless of length of service.

I have heard a couple of explanations for the relative scarcity of negative elections in 403(B) plans. First, because the level of permissible contributions by highly compensated employees is not tied to the level of contributions actually made by other employees, there is not the incentive that there is in 401(k) plans to make sure lower-paid employees contribute. And second, I have heard that many state laws restrict the extent to which governmental employers can deduct amounts from employees' paychecks without their consent, in ways that might apply to a 403(B) plan. However, I have not done a survey of either practice or state law, so you can take this for what it's worth.

Just a clarification on the quotation from my comparison of 401(k), 403(B), and 457 plans : A state or local governmental entity other than a public school or university cannot have either a 401(k) plan (unless it meets the grandfather rule described above) or a 403(B) plan (unless it is a governmental instrumentality that has also obtained 501©(3) status). A public school or university run by a state or local government can have a 403(B) plan even if it does not have 501©(3) status, but cannot have a 401(k) plan unless it is grandfathered. And just to complicate things still further, the rules are different for federal governmental entities. Note, however, that it is the state and/or local governmental employer, not just the plan, which is grandfathered. See PLR 200028042 (April 19, 2000), in which the entire state of Idaho and various local governments within Idaho were permitted to adopt a 401(k) plan based on the fact that two Idaho state agencies, which were treated as part of the same "employer," had one as of the grandfathering date.

There is no problem under federal law with establishing a separate benefit for a group of employees. However, you would need to consider three things: The terms of the plan document would need to provide for the benefit. Any requirements of applicable state and local law would have to be considered. If the employer is making contributions in one year that are attributable to many past years, you may run into problems with the maximum contribution limits of Internal Revenue Code section 415 in some instances. Hope this helps!

They are not subject to ERISA Title I. Whether they are subject to any bonding requirements depends on applicable state and local law.

By the way, if you want links to information on the retirement bill (including links to the full text of the bill and committee reports), they are available by clicking here.

This one is complicated! In brief, governmental plans are not subject to PBGC requirements at all. However, some have argued that portions of the Internal Revenue Code that do apply to them may require vesting and/or annuity purchases upon a conversion of a cash balance or other defined benefit plan to a profit-sharing or other defined contribution plan. What we normally recommend to our clients is that they consider obtaining a determination letter as to such a conversion. However, there are obviously a number of issues to consider if the transaction has already taken place, and the ability to undo it may be limited. Obviously, these are very fact-specific questions, and I'm reluctant to get into too many details on a public message board, but I hope that this at least gives you a start.

This has been a continuing issue. Although governmental entities can have qualified plans (you can click here to see the requirements for one), governmental entities are exempt from many of the rules that apply to nongovernmental entities, and are covered by state laws from which nongovernmental entities are exempt. Thus, standard form documents do not cover them very well. Some governmental employers just use plans designed for private employers, but this may cause the governmental plans to be subject to rules that otherwise would not apply to them, to have plan documents that do not work very well (e.g., to require Department of Labor consent to certain kinds of transactions, when the Department of Labor will not get involved with transactions involving governmental plans), and to violate state laws that do apply to them. The only other alternative is an individually designed plan. However, this may not be feasible if few employees are covered.

This has been a continuing issue. Although governmental entities can have qualified plans (you can click here to see the requirements for one), governmental entities are exempt from many of the rules that apply to nongovernmental entities, and are covered by state laws from which nongovernmental entities are exempt. Thus, standard form documents do not cover them very well. Some governmental employers just use plans designed for private employers, but this may cause the governmental plans to be subject to rules that otherwise would not apply to them, to have plan documents that do not work very well (e.g., to require Department of Labor consent to certain kinds of transactions, when the Department of Labor will not get involved with transactions involving governmental plans), and to violate state laws that do apply to them. The only other alternative is an individually designed plan. However, this may not be feasible if few employees are covered.

State and local governmental qualified plans are totally exempt from nondiscrimination testing under Internal Revenue Code sections 401(a)(5)(G) and 410©(2). Other governmental plans (e.g., federal governmental plans and plans of international organizations) are potentially subject to nondiscrimination rules under current law. However, postponed the effective date of those rules for governmental plans, and the pension reform legislation which has now passed the House, and is pending in the Senate, would eliminate the nondiscrimination rules for all governmental plans.