Carol V. Calhoun

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.

mmagidson, you can find the summary of "Qualification Rules for Governmental Plans" by clicking on the following URL: http://www.benefitsattorney.com/appfa.html You're right, John. This is an illustration of why I put a disclaimer at the bottom of each page saying, "The speeches and articles reflect the state of the law at the time they are written, and the law may have changed since that time." The outline was written before Rev. Proc. 2000-27 (http://www.benefitslink.com/IRS/revproc2000-27.shtml), and does not reflect the new deadline, which is as follows: "The remedial amendment period for governmental plans, as defined in sec. 414(d), is extended to the later of (i) the last day of the first plan year beginning on or after January 1, 2001, or (ii) the last day of the first plan year beginning on or after the "2000 legislative date" (that is, the 90th day after the opening of the first legislative session beginning after December 31, 1999, of the governing body with authority to amend the plan, if that body does not meet continuously)."

Yes, Cindie Moore (Washington counsel for the National Council on Teacher Retirement) and I are coauthoring such a book. Still working on getting the last few chapters to the publisher.

Yes, Cindie Moore (President of the National Association of Public Pension Attorneys and Washington counsel for the National Council on Teacher Retirement) and I are coauthoring such a book. Still working on getting the last few chapters to the publisher.

I think that there may actually be an issue here, even with respect to ERISA-covered plans. Typically, the employee actually owns a 403(B) contract once it is purchased. Indeed, in many instances an employee will have a single contract, to which contributions are made by various employers over time. Thus, the employer may not have any contractual right to move money around among investments specified in the contract, or to cash in the contract and move the money elsewhere. Indeed, some of the money in the contract may have come from different employers. Under your theory, would each of the employers be responsible for redirecting the investments of the contract attributable to that employer's contribution? This is quite different from a trusteed plan, in which the trustee owns all the investments for the benefit of the participants, and therefore can move money from one to another. This would seem to be more comparable to a SEP-IRA type of plan (in which the employer contributes money to the employees' IRAs, but the employees own the IRAs and are responsible for directing the investments of the IRA after the money is contributed) than to a trusteed qualified plan. Although I would agree that the employer has fiduciary duties with respect to the initial investment of ERISA-covered 403(B) money, I am not sure that the employer has a continuing duty (or indeed, a continuing right to make changes) after that.

I think Michael is right. Technically, a governmental plan is "qualified" only if it meets all of those requirements of section 401(a) which apply to governmental plans. (The plan need not have a determination letter -- and many governmental qualified plans do not -- so long as it meets the requirements.) However, people often use "qualified" more loosely, to refer to any plan (401(a),403(B), or 457(B)) which has favorable tax status.

I actually have an outline on this online. You can see it by clicking here.

You are correct. Because the contracts are owned by employees, an employer is not in a position to shut down the trust fund, as could be done for a 401(a) plan.

The tax bills in 1999 and 2000 would have permitted 403(B) money to be transferred to a 401(k) account. The legislation was not considered controversial, but failed to be enacted only because it was attached to tax bills which never managed to get both passed by Congress and signed by the President. However, the provision will most likely be included in some legislation this year. 403(B) money is supposed to be held in annuity contracts or custodial accounts owned by the employee. Thus, absent (a) the passage of the legislation referenced above, and (B) an employee's election to move money from the 403(B) to a 401(k), the employer typically has no way to force a transfer.

In general, they must be held in an annuity or custodial account. This requirement comes from section 403(B) itself. The beginning language refers only to an annuity. Section 403(B)(7) provides that a custodial account will be treated as if it were an annuity under certain circumstances. The one exception is that at one point, the IRS apparently permitted certain state qualified plans to also incorporate 403(B) features, even though the statute did not provide for this. This is no longer permitted, but there were a few plans grandfathered when IRS made the change.

Yes, it applies to governmental plans. However, the minimum distribution rule imposes only the minimum which is required to be distributed, so a plan rule requiring faster distributions would not be invalidated by it. Thus, you are not required to amend your plan to comply with it. However, if your plan incorporates a distribution schedule which was based on (but did not incorporate by reference) the old 401(a)(9) rules, you could amend it if you wanted to permit longer distributions.