Carol V. Calhoun

As alert readers of this board may already have noticed, my employee benefits legal resource site has moved to a new server. The new address is http://benefitsattorney.com. Do stop by to check out the new site, which contains everything from updated lists of section 415 and other inflation-adjusted limits to how to find out whether participants you cannot locate have died, plus articles and speech outlines on employee benefits. And don't forget the résumé originally published here on BenefitsLink, which was how I originally discovered just how effective this site is!

As alert readers of this board may already have noticed, my employee benefits legal resource site has moved to a new server. The new address is http://benefitsattorney.com. Do stop by to check out the new site, which contains everything from updated lists of section 415 and other inflation-adjusted limits to how to find out whether participants you cannot locate have died, plus articles and speech outlines on employee benefits. And don't forget the résumé originally published here on BenefitsLink, which was how I originally discovered just how effective this site is!

We have always treated years of service (and employer contributions) from the same employer as counting for 403(B) purposes, whether or not the years are continuous. And back in my misspent youth (well, 1985, but from what I hear, there is no upper limit on how old one can be and still be misspending one's youth ), I got a series of favorable private letter rulings on a formula which took that approach. ------------------------------ Employee benefits legal resource site

Although many employers provide that a participant is responsible for determining whether a hardship exists, I've never been convinced that it is that easy. The problem is that if an individual takes an impermissible hardship withdrawal, his or her whole 403(B) contract is disqualified. See Example 35 of the IRS audit guidelines for 403(B) plans, which states as follows: EXAMPLE 35: Employee A began participating in a 403(B) plan ("Plan") in 1989. The Plan is funded through both salary reduction and salary reduction contributions, which are invested in annuity contracts. A is 30 years old, has not separated from service and is not disabled. In 1998, A makes a $5,000 withdrawal that is not a hardship withdrawal. If any portion of the withdrawal is attributable to salary reduction contributions and the earnings thereon, the early distribution restrictions of § 403(B)(11) would be violated. And if the contract is disqualified, it is not just the employee's taxes which are affected. Employer contributions to a nonqualified annuity are treated as wages, subject to employment taxes. And if the employer fails to withhold applicable income and employment taxes, the IRS can hold the employer liable for the amount of the taxes which should have been withheld. So regardless of who is "responsible" for compliance with the hardship withdrawal rules, it is in the employer's interest to make sure that the rules are being followed correctly, rather than merely allowing participant's to certify their own hardships. And yes, the one-year nonparticipation requirement (which would be lowered to 6 months under the tax bill just passed by Congress) is one way of assuring compliance with the portion of the hardship withdrawal rules requiring that the participant not have other assets available to meet the need. Of course, it is still necessary to show that the participant has a hardship in the first place. The problem here is that although governmental and church 403(B) plans are exempt from ERISA, other 403(B) plans are exempt only if they follow certain guidelines set forth in Department of Labor regulations, which require minimal employer involvement. Making decisions on hardship withdrawals might be too much employer involvement for this purpose. Thus, an employer which is subject to ERISA may want to limit participant's choice of annuities to ones in which the issuer is willing to take responsibility for administering the hardship withdrawal rules, and indemnifying the employer if impermissible hardship withdrawals are made. So long as there is still a reasonable selection of investments available, this would appear to be within the regulatory guidelines. --------------------------- Employee benefits legal resource site

Yep! See SEC. 1231, ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS, of the Taxpayer Refund and Relief Act of 1999, H.R. 2488 (formerly known as the Financial Freedom Act of 1999). ----------------------- Employee benefits legal resource site [This message has been edited by CVCalhoun (edited 08-11-1999).]