Carol V. Calhoun

Another advantage to keeping the life insurance outside of the plan is that benefits from life insurance are completely excludible from income if paid on account of death. Thus, the cash value (even to the extent created by earnings as opposed to original contributions) is excludible from income if the life insurance is purchased outside of the plan. By contrast, if the life insurance is purchased inside the plan, the cash value is all taxable. Although this is balanced by complete deductibility of premiums (beyond the PS 58 cost) for life insurance purchased inside of the plan, you may well find that the imputed premiums if the life insurance is purchased outside of the plan are lower than the actual premiums. Just one more thing to add to the mix in considering whether it makes more sense to purchase life insurance inside of a plan or outside.

We have never interpreted the regulation to require double inclusion. Rather, the normal rule is that amounts "previously excludable under section 403(B)(2)(A)(ii)" must be counted as prior employer contributions. Since the excess contributions were not previously excludible, they would not be includible in prior employer contributions at all, absent the language to which you refer. Thus, the language you cite merely results in adding them once, not twice, to the amount of prior employer contributions.

Having a plan document would not make them an ERISA plan, unless the plan document called for employer involvement or other features inconsistent with meeting the ERISA exemption. We have had success in the past in merely filing a final Form 5500 with an explanation.

The theoretical answer is, "not at all." But as a practical matter, a 403(B) plan almost always has to comply with a QDRO. If your plan is subject to ERISA (i.e., it is not a governmental or church plan), section 206(d) of ERISA will impose exactly the same requirements on the 403(B) plan as would apply if it were subject to 414(p). If your plan is not subject to ERISA because it is a governmental or church plan, then it is also not subject to ERISA preemption of state laws (including domestic relations laws). Thus, it might have to comply with a domestic relations order even if that order did not meet the requirements of a QDRO.

The quick answer is that a governmental plan can, provided that (a) there is no barrier to doing so under applicable state and local law, and (B) the stocks are held by a trustee under the plan trust. In the case of a nongovernmental plan, the stocks would have to be held in a "rabbi trust."

I would suspect that the 4.5 percent is "picked up" by the employer within the meaning of 414(h)(2) of the Internal Revenue Code. If the employees' wages are mandatorily reduced by an identical amount, it has the same effect as if the money were taken out of the employee's paycheck, but it is treated as an employer contribution (therefore pretax) for federal income tax purposes.

I haven't seen the actual plan documents to which you refer. However, I would suspect that the plan documents in some way refer to these as being employer contributions for tax purposes, even though they are being referred to as mandatory employee contributions for other purposes. Thus, they would be pretax in the same way as other employer contributions would be pretax.

That is interesting, and I'm not sure it is supported by law. However, it undelines the need for some kind of rollover mechanism for 457 plans, since apparently the IRS is taking the position that even the one current mechanism for making such plans portable is quite limited in its scope.

The exemption of governmental plans from 419 and 419A actually has two components. Governmental plans are exempt from the deduction rules in 419 and 419A themselves because governments don't pay income taxes, and therefore aren't concerned about income tax deductions. Governmental plans are exempt from the parallel unrelated business taxable income rules of 512(a)(3) because of 512(a)(3)(E)(iii), which exempts a welfare fund if substantially all of the contributions were made by tax-exempt organizations. (There is also a whole issue of whether a governmental plan--retirement OR welfare--can ever be subject to UBIT, but you'll have to wait for my book to come out for the answer to that one, because it's WAY too complicated for a message board!)

Yes, provided that the recipient plan provides for such transfers. (Many do not, and plans are only permitted, not required, to include provisions permitting such transfers.)

We've had some discussions of this issue on this board before. The basic problem is that a 401(a) plan is required to continue filing Forms 5500 so long as it has "trust assets," but not after it has distributed all of its assets to participants in the form of annuity contracts. In the 403(B) area, there are no comparable concepts, so it is harder to tell when Form 5500 filing can cease. And there simply is no black letter law on the issue. Of course, if you are dealing with a governmental or church plan, there is no Form 5500 requirement in the first place. See Announcement 82-146.

One question on this, for those of you involved with governmental or church plans (i.e., plans not covered by ERISA preemption): are you familiar with any state laws which could create a problem in this situation? I recall that in the case of 414(h)(2) pick-ups, we have sometimes run into problems with state laws which prohibit taking money out of an employee's paycheck without permission. Would this also be a problem in this situation, in which you would not have employee permission (although the employee would have the right to opt out)?

Governmental plans are not subject to 411(d)(6). See 411(e)(2). However, you need to watch out for state law and state Constitutional provisions. In many instances, routine "impairment of contract" provisions have been held to prohibit various modifications of benefits.

I looked at this once, and it appeared to me that it was indeed possible to have contributions which would be timely for the first year for minimum funding (412) purposes, but which would still be treated as part of the annual addition for the second year. As you say, this is a trap for the unwary. ------------------ Employee benefits legal resource site

Try this link for a discussion of fiduciary duties applicable to governmental plans in general. The article deals with 457 plans as well as other governmental plans. ------------------ Employee benefits legal resource site

The plan is clearly governed by at least one federal law: Internal Revenue Code section 403(B). However, the provisions governing 403(B) plans in general tell an employer what it is required to provide, and what it is forbidden from providing, but then let the employer select the specific provisions within those parameters. Thus, if the 403(B) plan does not permit the sort of distributions which can be rolled over, nothing in federal law will make it do so. ------------------ Employee benefits legal resource site

No. Even in the context of a 401(k) plan, a plan need not require employees to suspend contributions if the employer is willing to use other means to determine whether an employee has other resources with which to meet the financial need. In a 457 plan, the safe harbor of requiring the suspension of contributions is not available, so the employer must always verify whether the employee has other financial resources which could be used to meet the financial need. In doing so, the employer should consider whether the employee plans to make future contributions only insofar as discontinuing contributions might in some instances be an alternative way of meeting the need. ------------------ Employee benefits legal resource site

Actually, the mutual funds must be held in a custodial account, so as long as the bank custodial account you refer to does nothing but hold mutual fund shares, the custodial account should not have a problem. But it should not have named trustees. I'm wondering exactly what those named trustees do, in any event? ------------------ Employee benefits legal resource site

Just remember that "soon" in IRS time and geological time have similar meanings.

I don't believe that they have so far, although last I heard, they were working on it. Anyone else heard of anything new in this area? ------------------ Employee benefits legal resource site

For those of you who may have missed the notice on Benefits Buzz page, a case has now come down clarifying this issue. Colville Confederated Tribes v. Somday, 2000 U.S. Dist. LEXIS 7037 (E.D. Wash. 2000) held that a plan of an Indian tribal government was a "governmental plan" for ERISA purposes. ------------------ Employee benefits legal resource site

Actually, a multi-employer welfare arrangement ("MEWA") is something you want to avoid, not something you want to strive for. Under ERISA, most employee benefit plans are exempt from most state laws. ERISA provides, however, that a MEWA is subject to state as well as federal law. However, it appears that you are asking whether it is possible to set up a health benefit plan for a number of governmental employers. The answer is yes, provided that state law allows it. Governmental plans are not subject to the preemption provisions of ERISA in any event, so they must comply with state law whether or not they are MEWAs. However, it is quite common to have a governmental health plan which covers various governmental entities, so long as that plan complies with applicable state and local law. ------------------ Employee benefits legal resource site

Alas, at the moment there really isn't one. I'm currently writing the Governmental Plans Answer Book, scheduled to be published by Panel Publishing this December, for that very reason. ------------------ Employee benefits legal resource site

I always have a governmental plan issue a Notice to Interested Parties in connection with the filing of a determination letter request. It seems to me that a plan is "described in" section 410©(2) if it is described in any one of the paragraphs of section 410©(1). Governmental plans receive the benefit of section 410©(2) and therefore are described in that section inasmuch as they are exempted from the rest of section 410© by section 410©(2). The language of the second clause of section 410©(2) was intended to exempt governmental plans from rules governing nondiscrimination in plan coverage, but did not cause them not to be described at all in section 410©(2). ------------------ Employee benefits legal resource site

No, this merely means that the pre-1989 distributions are subject only to the pre-1989 distribution requirements, not to the actual distribution method elected before 1989. Although the statute did not contain distribution requirements for 403(B) plans prior to 1989, private rulings had required in general that distributions begin by the time the participant attained age 75, or would have attained age 75 if s/he had not died. ------------------ Employee benefits legal resource site