30Rock

Broker is on the Board of Directors of a tax exempt entity. He is also the broker for the plan, and of course controls the investments and receives commissions, on assets of 40 million. Is this a prohibited transaction? He is not the named trustee, but he is on the board of the employer, and in essence the plan sponsor is normally a fiduciary. This is an ERISA plan, and it is not self directed, employer directs investments, and broker has plan on local brokerage firm platform. Any thoughts??

A non ERISA plan wants to stay within the non ERISA safe harbor parameters of FAB 2007-2. If the plan has multiple vendors and wants to limit loans and hardships to a single vendor by amending the plan document/loan policy, does this constitute employer discretion regarding plan design and violate the FAB? If so, could the TPA or consultant or vendor make the request to modify the plan in order to avoid employer discretion? Thanks for your thoughts!

(b)lines Ask the Experts – Universal Availability and Immediate Deferral July 13, 2010 (PLANSPONSOR (b)lines) – A reader says: “I have been told that the new regulation for Universal Availability requires employees be allowed to defer immediately to the plan. “Therefore, in all 403(b) plans today, employees must be immediately eligible to defer but the plan sponsor can put an eligibility requirement on the match. Is this correct?” Mike Webb, Vice President, Retirement Cammack LaRhette Consulting , answers: You are generally correct, but, as is the case with most regulations, there are exceptions to the general rule. Unlike 401(k) plans, which allow eligibility requirements such as a waiting period to be imposed with respect to elective deferrals, 403(b) plans generally allow all employees the right to make elective deferrals to the plan upon date of hire, in what you label accurately as the Universal Availability requirement. Over the years, several exceptions have evolved to the Universal Availability rule, most notably for collectively bargained employees. However, the final 403(b) regulations eliminated the collectively bargained exception and restricted the exclusions from the right to make elective deferrals to the following groups: •Employees who will contribute $200 or less annually; •Employees who participate in a 401(k) or 457(b) plan, or in another 403(b) plan; •Nonresident aliens with no U.S. source income; •Employees who normally work less than 20 hours per week (note that hours MUST be tracked in order to administer this exclusion); and •Students performing services described in Code §3121(b)(10) (generally, those enrolled in a post-secondary educational institution performing services for that institution). Even these narrow existing exclusions are somewhat difficult to administer in practice, since, if only one person from an excluded class is included, even inadvertently, all employees from that classification must be permitted to make elective deferrals to the plan. Thus, as a practical matter, many plan sponsors choose to allow all employees the right to make elective deferrals upon date of hire. As for employer contributions, eligibility restrictions, such as age and/or service requirements, may be imposed in a manner similar to that of qualified plans such as 401(k) plans, provided that such restrictions are not discriminatory in a manner that causes the plan to fail coverage testing under Code Section 401(a)(4). Historically, there were some differences as to how the nondiscrimination rules applied to 403(b) plans as opposed to 401(k) plans, but these differences were essentially eliminated by the final 403(b) regulations.

Check the IRS Q&A this October and see if they answer this question.

Could this regulation be part of the annual notice requirement, where you have to offer the plan at least annually which is the notice requirement. However that does not really have anything to do with entry dates. I have not seen any 403b plan document, including the proposed LRMS, that allow you to elect an entry date. They all state date of hire or immediate.

The bill was originally issued in 2009. The statement issued in 2010 still shows the amount due.

I do not interpret the regs to allow this either under the default provisions Does anyone else have views?!

If a participant fails to respond to a mandatory distribution either because he has terminated and his account balance is between $1000 and $5000, or because the plan is terminating and the account must be distributed, then an automatic rollover IRA account can be established for the account, per IRS regulations. What is the employer has another qualified plan, can the money be automatically rolled over by default to this plan, or must it only go to an IRA?

What do you do when the expense submitted was over a year ago? Is there a time limit for approving hardships distributions? What do other practioners do, is it an internal procedure that you need to establish as to how old an expense can be? This is an ERISA 403b plan using the IRS safe harbor standards. Thanks!

A participating employer in a multiple employer plan withdraws from participation and starts a "new" plan as a single employer. If assets from the MEP are transferred to the new plan, do you have to protect benefits? IF it is part of a sale/acquisition such that there is a distributable event - ie termination of employment and then hired by new entity and rollovers go into new plan, I assume the answer would be different?

Good point. I guess you could exclude from HCE comp because you know they have effective opportunity to defer the max. Other than that, it appears not.

415 limits apply, and a plan document. That is all I can see.

I think he is talking about 457 plans, not 403b plans. Since there is no testing involved in a governmental 457b plan, it seems a much safer design than a qualified plan MEA.

I got an answer from TAG DATA I wanted to share - ANSWER 1) If permitted by the loan policy, such a loan may be allowed, because "residence" has been defined in the regulations to include houseboats and house trailers. See below. §1.121-1 Exclusion of gain from sale or exchange of a principal residence. (b) Residence--(1) In general. Whether property is used by the taxpayer as the taxpayer’s residence depends upon all the facts and circumstances. A property used by the taxpayer as the taxpayer’s residence may include a houseboat, a house trailer, or the house or apartment that the taxpayer is entitled to occupy as a tenant-stockholder in a cooperative housing corporation (as those terms are defined in section 216(b)(1) and (2)). Property used by the taxpayer as the taxpayer’s residence does not include personal property that is not a fixture under local law.

Participant has requested primary residence loan to purchase an RV. Repayment period is 20 years It is possible someone could live in his RV, but what documentation does plan administrator ask for? He may use a PO Box as his mailing address. Need some type os proof that RV is really his primary residence Any help is appreciated!

Right, and if you lets say 6 years under a graded schedule, you are crediting more than the employee really worked. I think this requires BRF testing. Also, is the 5 year rule a DC rule or DB rule. Maybe Mike Preston knows? What I mean is, how much prior service can you credit before you need to test - 5 years, or is this just for prior service in a defined benefit plan?? THANKS

Is there a problem granting 100% vesting when certain employees are hired and they previously worked at certain medical facilities and are now being hired by a certain employer, lets call it an anesthesilogy PA. If HCEs and NHCES of the group being hired are treated the same, there is no discriminatory treatment. But granting this group 100% vesting and immediate eligibility while new hires of the employer have to work 3 years for 100% vesting and one year to be eligible, creates BRF testing does it not? I appreciate any insights, thanks!

It is easy to terminate - they are individual contracts, and so anyone that does not consent gets the contract distributed out to them as a nontransferable annuity. The insurance provider would retitle the contract as an individual NTA (nontransferable annuity) which sits as a frozen contract, no new contributions.

There is another thread on benefitslink which I have attached below, that deals with this. Neither a 457 plan nor a 403b plan are permissible options under a Section 125 plan. If the employer contributes to either plan in lieu of the health option then the health plan becomes taxable to all employees - this would be the result upon IRS audit. Advice is to pay the health opt out in cash, and let employee decide whether to defer into either plan as a salary reduction contribution. http://benefitslink.com/boards/lofiversion....php/t2501.html

I found it! But not sure this really answers the question because note he says "they need not be top hat". Since the religious org is not subject to ERISA, they can offer the plan to all employees, or limit it to the top hat group. Keeping it "unfunded" appears to be the main issue. b)lines Ask the Experts – Church 457(b) Plans Dec 22, 2009 (PLANSPONSOR.com) -- December 22, 2009 (PLANSPONSOR (b)lines) – A plan provider notes: "If a nonelecting church, non-ERISA 414(e) organization sponsors an eligible 457(b) plan, it appears that this plan can be offered to all employees, rather than limited to a top hat group, since the plan is not subject to ERISA. However, 457(a) requires all non-governmental 457(b) plans assets to be unfunded." The provider asks: "Since the employer is exempt from ERISA, does this requirement apply to the 414(e) religious organization? Is the plan considered funded or unfunded? In addition, in general, do the 457(b) rules applicable to governmental plans or top hat plans apply - i.e. rollovers, age 50 catch-up, assets protected from the 414(e) organizations, plan loans?" David Powell, Groom Law Group, answers: First, note that many church organizations are not employers eligible to maintain a 457(b) plan. (See Code section 457(e)(13)). Only tax exempt organizations which are NOT churches or qualified church controlled organizations under Code section 3121(w)(3)(A) and (B) (usually, church hospitals, colleges, universities and nursing homes) may maintain 457(b) plans. Because such plans are exempt from ERISA as church plans, they need not be top hat. But if funded, they will run afoul of the constructive receipt/economic benefit rules and will be immediately taxable to the participants. Consequently, most use, at most, a rabbi trust where the assets are exposed to creditors of the employer. And they do not get the benefit of the rules applicable only to governmental plans, so no age 50 catch-up, no loans, and distributions are not eligible rollover distributions. They are essentially like other tax exempt organization 457(b) plans, just not limited to the top hat group. NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. PS editors@plansponsor.com

Thanks Oldman! How did you find that David Powell article?

NO they are not a 3121 church. They are a religious affiliated entity under 414(e) in the healthcare area.

I have a question on church and religious organizations and adoption of a 457b plan. I do not think a steeple church or QCCO under 3121 can sponsor a 457(b) plan. However, it appears that a 414(e) religious organization that is not a steeple church, can sponsor a 403(b) plan however since the employer is not subject to ERISA, the plan would be a deferred comp plan for all plans, and NOT a top hat plan. However, as a governmental plan, the features of the plan are similar to a top hat - ie no loans, no rollovers, no age 50 catchups Can someone confirm?? Thanks!

Thanks Oldman!

What are the thoughts on excluding leased employees? Does 414(n) apply to a 403b? I know a 403b plan can only cover common law employees, however after the statutory one year and other leased requirements, the leased employee is treated as a common law under qualified plan rules?