Carol V. Calhoun

I fixed the link; it should be working now.

It appears that the W-8BEN is the form the IRS requires to assert treaty status, and it does not by its terms or in its instructions require an independent inquiry. Thus, I would be inclined to say that you can rely on it without other due diligence.

You could not receive the $20,000 from the plan. Whether you could receive it at all (even outside of the plan) would depend on whether the employer also had an "excess benefit plan" as described in Code section 415(m).

Hmm, this would be a most unusual death benefit to have inside of a governmental DB plan. (In the ones I have seen, the death benefit is usually equal to the accumulated employee contributions, or is a feature of a survivor benefit, but is not a multiple of earnings.) Is the benefit funded through life insurance owned by the plan? (There are special rules for that.)

The basic rule is that the excess of (a) the amount received in the aggregate, by the employee and his or her beneficiaries, over (B) the amount of after-tax contributions is ordinary income. However, the mechanism is complicated. If you click on this link, you can see IRS Publication 575, which gives details. (Reading or printing this publication requires the Adobe Acrobat Reader, which is probably already installed on your computer but can be downloaded for free by clicking on the link if it is not.)

I'm assuming the New Mexico case to which you are referring is Public Employees' Retirement Board v. Shalala, 153 F.3d 1160 (10th Cir. 1998). And no, I would not agree that that case holds that the "salary reduction" language is meaningless. Actually, it's the "agreement" language that I think was held to be meaningless, in the sense that the court clearly held that a salary reduction "agreement" could exist even in the absence of any individually negotiated contract. However, the court still said that "a salary reduction agreement necessarily includes any arrangement in which there is a reduction in an employee's salary in exchange for the employer's contribution of the amount of the reduction to a pension plan on the employee's behalf." Thus, a situation in which there is absolutely no reduction of an employee's salary (the employer makes the contribution in addition to the stated amount of the employee's salary) should not be a salary reduction agreement. But we understand that in some audits, even contributions made with no reduction in salary are being treated as subject to FICA.

Postscript to the above notes: it has come to our attention that in at least a couple of audits, the IRS has basically asserted that all contributions picked up by the employer are pursuant to a salary reduction agreement, and therefore subject to FICA taxes, regardless of other circumstances. Has anyone else faced this?

You may also find the message you can access by clicking on this link helpful: http://benefitslink.com/boards/index.php?showtopic=2423

You may also find this message helpful: http://benefitslink.com/boards/index.php?showtopic=2423

Well, this is kind of a meat-axe approach, but I have a fairly complete list of state retirement systems which you can get to by clicking on the link. You might want to start going through those and identifying the ones which have defined contribution plans.

I had a conversation on this matter recently with someone at the IRS who was in a position to know (although of course, as usual, he was speaking only for himself, not the IRS). He said that IRS recognizes that amounts cannot be removed from a 403(B) plan the way they can be from, for example, a 401(k) plan. Thus, they are permitting use of the two percent fee described in Section 8.03 of 99-13 to be used instead of having a return of contributions. Hope this helps!

It is exempt from all portions of ERISA other than the portions of ERISA Title II (the Internal Revenue Code provisions) that apply to governmental plans. The governmental exemption found in ERISA section 4(B)(1) (29 USC 1003(B)) would apply to it.

Basically, the way this is done is by using IRC section 414(h)(2), which provides that a contribution referred to in the plan as an employee contribution will nevertheless be treated as an employer contribution if it is picked up by the employer. Rev. Ruls. and 81-36 set forth the requirements for an employer pick-up within the meaning of http://frwebgate.access.gpo.gov/cgi-bin/multidb.cgi?WAISqueryString=26USC414&WAISdbName=1994_uscode_suppl_4+United+States+Code+(1994' suppl.+2)&WAISqueryRule=($WAISqueryString)&WAIStemplate=multidb_results.joel.html&WrapperTemplate=cong013_wrapper.html&WAISmaxHits=40">414(h)(2). Essentially, they state that an amount is considered to be picked up, even if the employee's salary is reduced by a corresponding amount, provided that (a) the employer designates the amount as picked up, and (B) the employee has no choice to receive the amount in cash as opposed to having it contributed to the plan. Various private letter rulings have ruled that a one-time irrevocable election on the part of the employee as to whether to have the amount contributed will not be treated as a choice within the meaning of (B). Hope this helps!

The New York City Police Pension Fund is part of the New York City Employees' Retirement System. (Just click on the link to go to its Web site.) The statutory section you want is Internal Revenue Code section 414(h), also found at 26 U.S.C. § 414(h). Just click on the button below to go to a page which will have a link to 26 U.S.C. § 414(h). Click on that link, and then scroll down to subsection (h).

This is not required by federal statute, but would be a matter of state or local law for your jurisdiction.

Also, contributions made pursuant to a participant's one-time election at the time of hire or first participation in any plan of the employer are treated as nonelective.

Do you have any idea of whether people have actually been permitted to modify their elections? Although not part of formal IRS policy, it has been our experience that IRS people are often willing to give governmental plans the benefit of the doubt if the plan document is deficient, but actual practice has been in accordance with the requirements. Also, remember that revocability of a pick-up is a tax issue, but not a qualification issue. Thus, the IRS could come back against you for past years, asserting either individual income taxes or employer withholding taxes. However, unlike a qualification issue, it does not have to be corrected retroactively in order to get favorable tax treatment for contributions made after an amendment which inserts the proper language.

I agree with Kirk. Maintaining the attorney-client privilege in employee benefits matters is often extremely difficult, and indeed its availability at all can often depend on which court you are in. I was just trying to emphasize that you definitely lose it, even if it would otherwise be available, if you are paying fees out of plan assets.

457 plan contributions do not count toward the 415© limit. However, there is a complicated interrelationship of 457 contributions to contributions under a 401(k) or 403(B) plan, which should be looked at if you have either of those types of plans.

Gee, Kirk, you are SO cynical! I would just add to this discussion that you have to make sure that the administrative expenses being paid by the plan are in fact expenses of the plan, not "settlor expenses" under the famous "Maldonado letter." (This part is, of course, NOT directed to Kirk, who can be assumed to be fully familiar with that letter. ) For example, recent ERISA Advisory opinions have held that expenses of amending a plan to maintain its qualification, or an audit of a plan's qualification, are in part settlor expenses, because having the plan qualified benefits the plan sponsor as well as the plan itself. Another consideration arises with respect to attorneys' fees. If the plan is paying attorneys' fees, any attorney-client privilege could not be asserted against participants and beneficiaries of the plan, because they would be the "client." Just a couple more issues to keep in mind.

Possibly. This requirement has been waived when plans are still within the period for updating the plan, but I haven't seen anything which would suggest that a plan which is never amended can just ignore this requirement.

The answers are no, no, and no. There really isn't a cite; it's just that the provisions requiring spousal consent are in Title I of ERISA and the qualified (401(a)) plan provisions of the Code, neither of which would apply in this situation.

I'm afraid that the entire amount is ordinary income. That is true even with respect to the part derived from long-term capital gains. The only advantages to taking three years to withdraw the funds are that (a) the tax is deferred with respect to the portion of the amounts as to which the distribution is deferred, and (B) this can in some instances prevent a spike in income from pushing you into a higher tax bracket.

It is not clear that the new 415(n) rules apply to a transfer or rollover between plans to purchase service credit, as opposed to using new money for the purchase. Under the regulations before 415(n), a transfer or rollover was not treated as subject to either the 415© or 415(B) rules, presumably on the theory that the amounts had already been subjected to the 415© limits at the time they were contributed to the original plan. Also, after-tax dollars cannot be rolled over, but they can be transferred directly from one plan to another. A rollover occurs only when someone could take a distribution from the plan, but instead elects to have the amount sent to a new plan. A direct rollover can occur even when the participant has no distribution right, and occurs pursuant to the action of the two plans involved. Finally, I would agree that new after-tax money will be subject to the new rules. The new rules basically permit purchases which fall within their terms to be subjected to either the 415(B) or 415(B) rules, so you would want to look to see which one is more advantageous.

The Idaho ruling actually dealt with treating the state of Idaho and all of its subdivisions as a single employer for purposes of the 401(k) grandfather rules. You can click on this link to see a copy. However, note that it involved a situation in which the state chose to go for single employer status. The individuals at the IRS involved with the ruling stressed that the situation might well be different if the entities chose to treat themselves as different employers.