Carol V. Calhoun

Remember that grandfathering is based on whether the employer had any 401(k) plan as of the relevant date, not on whether the particular 401(k) plan existed on that date. So, for example, if the state had a 401(k) plan on the relevant date, and the board could be treated as part of the same "employer" as the state (even though the board never participated in the state plan), the board would be entitled to set up a new 401(k) plan now. (Idaho, for example, managed to set up a plan for the state and all its localities, based on a single agency having had a plan by the grandfather date.) Given the vagaries of what constitutes the employer at the governmental level, some boards may simply be taking the position that they are part of the same employer as the state, and thus entitled to set up new 401(k) plans if the state has a grandfathered plan.

No. There are provisions for individual participants to roll distributions they receive from a 403(b) plan to a 401(k) plan. However, there is no legal basis for a merger of plans, or any kind of transfers between 403(b) and 401(a) plans other than rollovers.

A 403(b) is permitted, but not required, to allow employee deferrals. The only real limitation is that if it allows deferrals for one, it must allow them for all, except for certain specified exclusions.

I always advise clients against using the <20 hours a week exclusion. There are just so many situations in which it's easy to screw up. Substitute teachers are an obvious example. To exclude them, you have to be able to say that they are expected to work less than 20 hours a week. But how would you determine that? By looking at the average substitute teacher in the district? By looking at substitute teachers at that grade level? In that subject area? With that amount of experience? A lot of people who work less than 20 hours a week aren't even going to be interested in making deferrals. The cost of letting in those who want to is minimal. Why would you bother to exclude them?

The IRS has always required that a plan be updated for the latest statute and regulations before termination, even if the deadline for other plans has not arrived. The idea is that other plans can be amended retroactively, but there is no opportunity to amend a plan after termination.

I would talk to him about this. If it is for religious reasons, perhaps one of the sharia-compliant investment funds would work for him? Or you could just amend the plan to let anyone with a religious objection waive participation. After all, it saves the employer money to keep him out of the plan. Why force the issue, if he isn't demanding higher wages in exchange for the waiver?

But in the case described at that link, the doctor does not own the employer that maintains the 403(b) plan. And the 403(b) and 401(a) are maintained by separate employers (the first by the tax-exempt, the second by the doctor's wholly owned company. As the OP and I have been discussing, a 403(b) and a 401(a) of the same employer are never aggregated, although a 403(b) of one employer is aggregated with the 401(a) of a different employer that is controlled by the employee.

Yep. One of the first issues I dealt with as a young associate (back before dirt was invented) involved this. I think I spent a month figuring out the question, then another month figuring out the answer, then a third month saying "OMG!!"

How could this ever happen? The only employers that can maintain a 403(b) are employers tax-exempt under 501(c)(3) and public schools. And no one can "own" either of those.

How do you get an owner for a 501(c)(3) organization?

Yes, the DRO is enforceable against the employer or the plan. The QDRO provisions do not provide any additional rights to a domestic relations court; rather, they are a limitation on what a domestic relations court can otherwise divide with respect to the division of an ERISA plan. To make this clearer, you can't object to an order dividing a bank account because it does not comply with the requirements for a QDRO. And the bank (as well as the parties) must comply with that order. Similarly, while a non-ERISA plan is not subject to QDRO requirements, it also does not get the ERISA preemption that would allow it to refuse compliance with a domestic relations order.

403(b) and 401(a) of the same employer are not aggregated for 415 purposes, because the employee is not in control of the employer, and a 403(b) is considered a plan of an employer controlled by the employee. https://www.irs.gov/retirement-plans/403b-plan-plan-aggregation-in-determining-compliance-with-irc-section-415c

Yeah, it depends on whether it is a defined benefit or defined contribution plan. For defined contribution, contributions beyond the date specified by Kevin C would be treated as annual additions for the following year, which could potentially (depending on the amounts involved) create a 415(c) problem for the subsequent year. However, for a defined benefit plan, there really is no limit, since governmental DB plans are not subject to funding requirements.

https://www.irs.gov/retirement-plans/governmental-plans-under-internal-revenue-code-section-401-a So an HSA is never a 414(d) plan. A governmental HSA would be governmental plan under ERISA section 3(32). So it is difficult to understand why it should be subject to 4975. But there appears to be no statutory exemption.

To be a QDRO (or even a DRO with which a governmental plan can comply), an order must be "made pursuant to a State domestic relations law." So the order can't be vacated at the plan level; the relevant court would need to vacate it.

This seems like something that should have been dealt with in the original dealings with the vendor. If the employer is trying to make sure it doesn't have these obligations, it should not permit vendors to participate unless they agree to handle the necessary functions.

To the extent the organization is subject to the requirement, there should be no objection to using a 403(b) to meet it. The requirement is just that you need to put a certain amount of money into benefits, and there is a lot of flexibility in what benefits to provide.

A couple of issues with that: The guidance doesn't say the plan administrator's fiscal year, it says the employer's fiscal year. (Even a single employer plan can name someone other than the employer as the plan administrator.) Presumably, this is to prevent employers from fooling around with deduction rules. But the IRS has not set forth an alternative rule for a plan which has more than one employer (either multiple employer or multiemployer). The plan administrator of a multiemployer plan is not the union. It's the joint (union-management) board of trustees. Which undoubtedly doesn't yet have a fiscal year. I suppose you could set up the board of trustees to have a different fiscal year than the plan, although that seems like it could cause a lot of confusion.

Has anyone thought about what the deadline is for setting up a new multiemployer defined benefit plan? Example: Plan is intended to be effective July 1, 2017, and to be a calendar year plan. The employers all have fiscal years ending June 30. The plan is not finalized until January 20, 2018. The IRS 401(k) resource guide says, "The plan may not be made effective earlier than the first day of the employer’s tax year in which the plan was adopted. In other words, an employer may adopt the plan document on the last day of its tax year, with an effective date retroactive to the first day of that tax year, but not any earlier." https://www.irs.gov/retirement-plans/plan-sponsor/401k-resource-guide-plan-sponsors-starting-up-your-plan If this applies to multiemployer defined benefit plans, it would mean that the plan could be retroactive to July 1, 2017, even if the plan itself has a calendar year. It would seem odd to make the deadline for adoption of a multiemployer plan the employer's fiscal year. What if the employers had different fiscal years? A more reasonable approach would seem to be to have the deadline relate to the plan year--meaning that the plan could be adopted in January of 2018 retroactive to July 1, 2017 only if the plan adopted a plan year that ended between January 31 and June 30. However, I'm just not finding any guidance at all on this issue. Is anyone aware of any?

I agree. The general rule is that an amount is tested when it is included in W-2 income. In the case of a 457(b) plan, that would be when it is paid out. That gives you more flexibility in the case of a 457(b) plan than in the case of a 457(f) plan. The issue with the 457(f) is that you can't defer after it vests, which means that it will be included in income in a year in which the person also has income from employment--which means you're more likely to push total income over the $1 million cap. Your best bet if that is an issue is probably to have the person become a part-time consultant after termination of employment, and have vesting under the 457(f) dependent on continued consulting services. However, that's a delicate maneuver, since the consulting services required have to be substantial, but if they are too substantial, the income from them may still be high enough to trigger the $1 million cap. By contrast, with a 457(b) plan, the employee can make an election to defer receipt until after termination of employment. If you're interested, I wrote a piece on the application of the law, which included this. Here is the link.

No. That was in one of the previous versions, but not in the final version. There is also a trap for the unwary in the new law. While 457(b) plans of governmental employers don't count as remuneration for purposes of the new excise tax on excess compensation, 457(b) plans of private employers do. And it appears that it counts when it comes out of the plan, not when it goes in. So the guy who has been putting aside money in a 457(b) plan for decades, but who becomes a covered employee, may discover that a distribution from the 457(b) triggers the excise tax. People will have to be a lot more careful about when they take out 457(b) money.

@Luke Bailey: You can still have picked up contributions subject to an election if the election is a one-time irrevocable election at the time the employee first participates in any plan of the employer. @DTH: Employer (including picked up) contributions to a DB plan are not subject to the 415(c) annual additions limit. Instead, the benefits generated by them are subject to the 415(b) limits. So this problem could only exist if you have a defined contribution plan. If you have a defined contribution plan, ideally the plan should preclude you from making contributions in excess of the annual additions limit in the first place. If for some reason the plan did not include such language, or contributions were mistakenly made in excess of the limit, there is no provision as there would be in a 401(k) plan for returning the excess. Instead, what we recommend is that the contributions continue to be treated as employer contributions, and put into a suspense account to be credited against future employer contributions. The employer can then make a payment to the participant from its own assets (not plan assets) to compensate for the fact that money has been taken from the participant's wages but cannot be credited to the participant's account.

The existing design is a very rich DB plan for the doctors, and a 401(k) for everyone else. However, no comparability testing has ever occurred, because they have always taken the position that everyone other than the doctors is not employed by the same employer. We are trying to talk them out of that, and are looking for an alternative that would preserve the existing benefit structure but with the DB plan for the doctors converted to a nonqualified plan. So the doctors don't want their deferrals plus employer contributions limited to the $47,850. Nor do they want to make the 3% safe harbor contribution.

It looked to me like they were basically just taking the principles of 457(f) and applying them to all employers, not just tax-exempt ones. The only reason for repealing 457(f) is that it will no longer be necessary in light of 409B. So your plan design would be unaffected.

Yes, we could probably do something if we had vesting at a time removed from retirement age. But when trying to wean them off of the idea of a qualified plan, it's hard to persuade them that they don't want something that pays out at retirement. I was able to find Advisory Opinion 2008-08A, which allows one filing for a top hat plan that covers more than one member of a controlled group. However, it does not get into the issue of whether top hat status is determined on an employer or controlled group basis. We considered that. But the composition of the workforce in this case is such that we'd either end up cutting way back on the DB benefit for the doctors, or vastly increasing the cost of the DC benefit for everyone else, to meet the nondiscrimination rules. As a policy matter, not allowing a top hat plan in this situation makes no sense. For Code purposes, we treat the leased employees as if they were employed by the corporation. If they were, there would be no doubt that the physicians would be a select group of highly compensated employees. It's hard to see why the physicians should be considered in need of so much more protection in a separate entity than if they were in the same entity as the leased employees.