Carol V. Calhoun

I would agree with you. However, they might consider providing that all accrued annual leave would be contributed to the plan, but that the employee would then have the choice either to take it out immediately (assuming the employee was at least 62), or to have it used to extend the DROP period. So long as the employee does not have an option concerning whether to have the cash contributed to the plan, there is no objection to giving the employee an immediate right of withdrawal.

I believe that you can avoid VCP. Rev. Proc. 2017-1 merely says that the written plan must have been“intended to satisfy the §403(b) requirements.” It does not say the written plan document must have been intended to satisfy the requirements of either the regulations or Announcement 2009-89. Since the plan you've got was a written plan document (which is all that either the regulations or Announcement 2009-89 would have required, anyway), it should satisfy the requirements. And that makes perfect sense. Both the regulations and Announcement 2009-89 were intended to interpret the 403(b) requirements. However, they were made prospective only, to reflect the fact that employers may not have realized before 2009 that 403(b) should be interpreted so as to require a written plan document. To the extent that employers did interpret 403(b) as requiring a written plan document before 2009, and complied before the regulations and the Announcement came out, they should not be penalized for doing what was necessary even earlier than the IRS would have required it.

Yeah, I'm thinking that our most conservative option is to talk to the client about disclosing, and/or to see whether we can limit our letter to "material" items and exclude it that way. But I was hoping someone had more definitive guidance.

On what basis did you decide it was not? I haven't been able to locate any direct authority, one way or the other.

Not under 457(b) plans. But other nonqualified deferred compensation plans of governmental and tax-exempt organizations are subject to a host of special rules. In many cases, such a deferred compensation plan will actually result in taxation when benefits become vested, even if there is no constructive receipt at all.

You might look at PLR 200918007 (May 1, 2009) for an example of a plan design. In that case, monthly benefits started automatically when someone attained a particular age and service. Another alternative would be to give the volunteers a one-time irrevocable election upon first participation in the plan as to when their benefits would be distributed. Or to give them an election each year as to when the benefits accrued in that year would be distributed. You could also pay out just enough to pay the tax at the point at which benefits were first made available. However, as you say, this would involve a lot of administrative complexity in handling the gains.

We have been asked to respond to an auditor's inquiry. We are not aware of any litigation regarding this company. However, there is a union grievance related to changes they made to the retirement plan. Has anyone considered the issue of whether a union grievance constitutes a "claim"?

I'm assuming that what we are talking about is a nonqualified unfunded plan for volunteers, exempt from section 457 due to Code section 457(e)(11). In that case, it is subject to the same tax rules that would apply to a nonqualified unfunded plan of a nongovernmental organization, except that it is exempt from Code section 409A.*/ Thus, a distribution is taxable when actually or constructively received. 26 CFR § 1.451-1. And it is constructively received when it is "made available" to the employee. 26 CFR § 1.451-2. */ The 409A exemption is found at Proposed 26 CFR § 1.409A-1(a)(4).

Thank you!

A defined benefit plan always requires a written plan document. In many instances, that document may be embodied in a statute or regulations. But it has to exist. You may want to ask your HR department how to get a copy. A summary plan description is not required in the case of a governmental plan.

A couple of things: There is no such thing as a QDRO for a governmental plan. If a plan complies with a domestic relations order (DRO), the tax consequences are the same as if the DRO had been a QDRO. But any DRO valid under state law--not just a QDRO--can apply to a governmental plan. There is no requirement that you get a divorce in order to get a DRO. In some cases, for example, spouses will get one if they are reconciling, but want some protection in case the reconciliation doesn't work out. So the fact that one's religious beliefs preclude divorce would not prevent someone from getting a DRO based on the separation. This would seem to me to avoid the equal protection issue. Because governmental plans are not subject to ERISA, they are also not subject to ERISA's preemption of state law. Thus, you would look to state laws (both the pension plan itself, which is often a statute, and state domestic relations laws) to determine the extent to which a court could issue a DRO after death.

I have moved this from the "Governmental Plans" topic, because governmental plans are not subject to PBGC insurance.

We have a question regarding the IRS policy on accepting certain kinds of corrections (not ones discussed in its common plan defects), and would like to speak to someone at the IRS about it. However, the IRS doesn't appear to publicize any information about which staff members are involved with the EPCRS program. Has anyone had any experience in finding an actual human to speak to?

Well, there is always the question of whether the DOL is right in saying that 403(b) plans need not be ERISA plans, even if the employer has a written plan document that complies with IRS requirements. I suppose a participant lawsuit could argue otherwise. But barring that, compliance with the DOL's enforcement position seems safe.

Yes, I would. It would be impermissible to pay settlor fees from plan assets, so if the DOL used those payments as indications of an ERISA plan, it would make it impossible to have a non-ERISA plan. I was interpreting "related 403(b) fees" as meaning fees associated with the management of assets under the contract itself.

Most likely yes. This is not all that different from an employer contribution, which would clearly shift the plan to ERISA status.

I don't think the employer has such an obligation. An adviser that advises participants on whether to take a rollover has an obligation to make sure such advice is prudent. However, the employer has no continuing obligation once the money leaves the plan.

There is no federal requirement that any governmental plan (Social Security replacement or otherwise) provide a spousal benefit. If such a requirement exists, it would have to come from the plan document or applicable state or local law.

As a governmental plan, it is not subject to PBGC jurisdiction.

We have a client that had a defined plan that provided that if a participant could not be located, the benefit would be forfeited, and then reinstated if the participant reappeared. The client terminated the plan, and made no provision for the participants it couldn't locate. Now, some previously missing participants have appeared. The client is perfectly willing to pay them from its own assets. However, clearly the money can't go into the trust, since the trust no longer exists. And we're trying to figure out whether there is any way to set things up that the money can be rolled over. In case it matters, it's a governmental plan, so we're not concerned about ERISA rules. And qualification is not really an issue, for a number of reasons: The statute of limitations has passed. The plan got a determination letter with the provision disclosed. Because the employer is governmental, no deductions are at issue, and the trust would be tax-exempt even if the plan were disqualified. So the only real issue is the taxation of the participants who just turned up.

No. There is no provision to merge a plan into a plan of a different type. Your best bet is to terminate the money purchase plan, tell people you are distributing all assets, and allow people to roll over into the 403(b) if they want to.

No, it doesn't. It's a qualification rule, not a 403(b) rule. Any governmental plan is going to be non-ERISA. But the plan presumably calls for the continued vesting. As a contractual matter, I don't know how you get out of complete vesting if you completely terminate the plan and thus cease to allow future vesting.

ERISA wouldn't require one. But you'd need to look at applicable state law, since ERISA preemption also doesn't apply.

I think your only option is going to be to just freeze the plan, and allow vesting to continue. There really isn't any way to move the money to another type of plan without terminating it, which would require full vesting. Treas. Reg. § 1.403(b)-10 allows an ineligible employer to maintain a 403(b) contract, so long as it makes no future contributions.

Well, that was the conclusion I was coming to, although it's not the one I wanted to hear. I think we may be able to get around the annual additions problem due to Treas. Reg. § 1.415(c)-1(b)(6)(i)(A), which states: If the contributions had been made in the prior year, they would have been allocated to that year, so I would take the position that it was an erroneous failure to allocate amounts in a prior limitation year. But I'm not seeing a way around either the earnings or deductions issue.