Carol V. Calhoun

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.

Yeah, I think we can get around the new tax bill (assuming it even gets enacted) by having payout on vesting. But I'm not sure that gets around the top hat issues. They are not remotely interested in an after-tax plan.

We have a situation in which a corporation wants to have a plan for its employees, all of whom are physicians. We ruled out a qualified plan, because there are a lot of nonphysicians who would be considered leased employees and/or part of an affiliated service group, so any plan for just the physicians would fail nondiscrimination testing. However, we are now stuck on the question of whether they can have a nonqualified plan. The issue is that in order to be a top hat plan, a plan must be for a select group of management or highly compensated employees, and it seems unlikely that a group consisting of all employees could ever be "select." And while the leased employees and affiliated service group are all treated as part of the same employer for Code purposes, there does not seem to be an analogous provision under ERISA. Has anyone dealt with this situation? Any brilliant thoughts on resolving it?

I remember a long time ago saying jokingly to someone at IRS, "You'll be horrified to discover that some of our governmental plans don't comply with all of the IRS qualification requirements." Her disbelieving response was, "You mean some of them do?"

Thanks for trying! There is just so little guidance on what seems to me like an obvious issue.

We are looking at the taxation of benefits to provide for egg extraction and freezing. Publication 502 provides that: Two questions: Does the reference to "overcome an inability to have children" refer only to a current inability to have children, or a future inability? For example, suppose someone has cancer, and is just about to have radiation treatments that will forever eliminate the ability have children--can we provide IVF on a tax-free basis? What about someone who is trans, who is about to enter hormone treatment that may impair fertility? Or what about someone who is 35 now and has no partner, but wants to preserve eggs for later when her fertility may have declined? How long is "temporary" storage? I have heard, though been unable to locate documentation, that John Sapienza, IRS Office of Chief Counsel, made remarks at a May 2002 ECFC Teleconference that "temporary" might mean that eggs were stored and used within the same year. Obviously, that would in many instances be insufficient even in the case of current infertility (for someone who took a long time to get pregnant, or wanted to have a second child). And it would certainly be insufficient in instances such as those described in 1, above. Has anyone had any formal or informal contact with the IRS on either of these questions? Or does anyone have a copy of Sapienza's remarks?

It looks like they have received a letter on one of their plans, but not others. The list of approved plans is at https://www.irs.gov/pub/irs-tege/preapproved_403b_plans_list.pdf

We definitely have instances in which we as attorneys draft a form QDRO, which a nonattorney employee of the employer or plan then provides to plan participants or their attorneys. I don't see the purely ministerial function of providing the sample QDRO as being the practice of law. But I would not want a nonattorney drafting the QDRO in the first instance, or providing the participant with legal advice concerning it.

Has anyone considered the issue of whether a retirement plan can permit the employer discretion over whether to approve an employee's application for phased retirement without violating the definitely determinable benefits rule? Basically, the idea behind allowing phased retirement is that they want to hold onto a valued employee on a part-time basis so the employee can train a replacement. But they don't want to offer phased retirement to someone in other situations--e.g., if there are many other employees with the same skills, so they don't need the outgoing one to train the incoming one. It's a governmental plan, so we're not concerned about discrimination in favor of highly compensated employees. And I wouldn't have any issues if they said from the beginning something like, "Phased retirement is available only to employees in the X department," or "Phased retirement is available only to employees who are level Y or above." But can they retain the discretion to decide when the employee applies whether or not to grant that employee phased retirement? My concern would be that Employee A requests phased retirement, and gets it. Employee B is denied phased retirement, but then requests and receives part-time status. So in effect the employer has exercised its discretion in such a way that Employee A gets benefits from the retirement plan, and Employee B does not, even though both are otherwise in the same situation.

So long as the written document is effective January 1, 2009, and the VCP submission is filed with the proper fee, that seems to be the only correction required. See: https://www.irs.gov/retirement-plans/403b-plan-fix-it-guide-you-didnt-adopt-a-written-plan-intended-to-satisfy-the-law-by-december-31-2009

Sure! As long as the plan document is clear on what is allowed, this should be permissible. The one practical problem is that the IRS will no longer rule on custom plan documents, but will only issue opinion or advisory letters on pre-approved plans. So if you choose this mechanism, you'd be on your own in making sure it was acceptable under 403(b).

I'm not sure it does. The employee is still giving up cash, and getting more in the way of retirement benefits. In theory, the extra cash is retained by the employer instead of being contributed to the plan. However, when benefits rise, the employer ends up having to contribute more to the plan, sooner or later. So the IRS could argue that the employee still has a choice between more cash and a larger contribution to the retirement plan.

We've actually thought about that one, and it's not at all clear. Before the passage of section 415(n), it was unclear whether the contributions made by employees to purchase service credit should be treated as annual additions subject to the limits of 415(c), or part of the defined benefit subject to the limits on benefits of section 415(b). The reason was that the 415 regulations state that "If voluntary employee contributions are made to the plan, the portion of the plan to which voluntary employee contributions are made is treated as a defined contribution plan pursuant to section 414(k) and, accordingly, is a defined contribution plan pursuant to §1.415(c)-1(a)(2)(i). Accordingly, the portion of a plan to which voluntary employee contributions are made is not a defined benefit plan within the meaning of paragraph (a)(2) of this section and is not taken into account in determining the annual benefit under the portion of the plan that is a defined benefit plan." While this makes sense for nongovernmental plans, it is not clear that it is true for a governmental plan. A section 414(k) plan must be "A defined benefit plan which provides a benefit derived from employer contributions which is based partly on the balance of the separate account of a participant." Amounts used to purchase permissive service credit are typically not put into any kind of separate account. So the question is whether the language in the 415 regulations could actually apply to them, since the plans to which they are contributed are not in fact 414(k) plans. Section 414(n) was intended to remedy this issue by providing that if certain requirements were met, the plan could treat the purchase of service credit as subject to either 415(b) or (c), at its option. However, the down side is that purchases of more than five years of nonqualified service credit are automatically treated as violating section 415, even if they would otherwise comply with 415(b) or (c). However, the question is whether you can avoid the 415(n) rules simply by allowing people to contribute to the defined benefit plan, and increasing the benefit under the plan, without measuring the increased benefit by years of service. For example, suppose the benefit under the plan is 2 percent of compensation times years of service. The employee has compensation of $50,000 and 20 years of service, meaning that without anything else happening, the benefit would be $20,000. It is clear that you could not allow that employee to purchase 10 years of nonqualified service (which would result in a total benefit of $30,000) without running afoul of 415(n). However, can you simply provide that if the employee makes a contribution of $X, they will get an extra $10,000 in benefits, without tying that $10,000 to years of service? On the one hand, section 415(n) by its terms applies only to "service credit," which would suggest that the previous strategy would work (at least if you could figure out whether the 415(b) or (c) limit should apply, and limit the benefit or the employee's contribution accordingly). On the other hand, that employee has achieved exactly what would have happened if the extra 10 years of service had been credited, so this seems an end run around 415(n). To the best of my knowledge, the IRS has never considered this issue. So you are kind of on your own in figuring out a) whether this works at all, and b) whether the contributions should be treated as subject to 415(b) or (c) limits.