Ellie Lowder

Have had a lot of discussions about the catch up elections with the IRS "guru" and the IRS had meetings with headquarters staffers about the meaning of irrevocability - they are pretty firm in their assertion that the options are employer specific. They assert that the regulations (which, as Michael said, dispute the employer specific position)were not drafted properly to reflect the "real" position. Also: we finally have assurances that that Pub. 571 will be completely revamped (it is poorly written says my source "soon"; written in a more easily understood way and with new versions issued more timely. Would be nice, eh?

I'm not aware of restatement as 403(B) plans in the 70's. 501©(18)'s are still in existence with a limited # of employers, and while no new plans can be set up (since June 25, 1959), provision can be made in the plan to permit current employees to participate in it. Do you have a cite for restatement as 403(B) plans?

These are plans established before June of 1959 in which employees could make contributions of 25% of gross compensation to $7,500 per year - deductible instead of exludible from gross income. Don't see them too much anymore. The IRS position is that those contributions offset the 403(B) elective deferrals. While new employees may participate in grandfathered plans, no new 501©(18)s can be established.

Harvey, I did, indeed, make an effort to challenge with the Employee Plans Division. You might add your voice to mine - sometime we are successful in challenging - sometimes not, as you know. Call me if you'd like to before making the contact! Not only is this a surprising change in the former IRS position on excess deferrals, it flies in the face of Publication 571, as you point out. If other readers have discussed this with IRS, please comment!

Right, Michael. And that same section also changed the compensation to which a salary reduction agreement applies to coincide with the rules for 401(k) plans. Hence, while unused sick leave/vacation pay for years prior to the current one still can't be counted as includible compensation for the calculations, the salary reduction agreements can cause contributions to be taken from those checks (provided they are paid at the time of retirement, not deferred).

Loans from 403(B) elective deferral plans are permitted, provided that the 403(B) account includes a loan provision. In a non-ERISA plan, the participant requests the loan. Loan Code Section is 72(p). There are also proposed regulations - and the IRS has finalization of those on their business plan list for 2000.

Loans from 403(B) elective deferral plans are permitted, provided that the 403(B) account includes a loan provision. In a non-ERISA plan, the participant requests the loan. Loan Code Section is 72(p). There are also proposed regulations - and the IRS has finalization of those on their business plan list for 2000.

In part X of "Tax Consequences of 403(B) Failures", under "Plan Failures", it says in part in ©, "In the absence of appropriate funding vehicles, the plan from its inception is not a 403(B) plan." However, I am told that the IRS has not yet disqualified an entire 403(B) plan - don't know for sure if that's true. Because it is an eligibility failure, it cannot be corrected under APRSC - but, could be corrected through voluntary formal submission under TVC.

Michael is exactly right under current law. Many of us believe we will get new legislation (eventually) that will permit rollover of eligible r/o distributions interchangably, even including the ability to rollover 457 eligible deferred compensation assets to an IRA. Watch for that new pension portability which is a popular "item" with most.

Try PenServ at 215-628-8950, Kent. Nope, Michael, I don't know everything, but thanks for thinking that!!!!!

Try Sheryl Press or John Tolleris in the IRS 457 division - 202-622-6030. In previous conversations, the "remedy" was to refund the excess from the 457 plan.

Yep, bet that is what the questioner had in mind. The instructions to Form 5500 for 1999 provide some clarity on 5500 requirements for 403(B) ERISA plans by saying that plans offering either/or 403(B)(1) annuities and 403(B)(7) custodial accounts are required to complete "Part I and Part II, lines 1-5, and 8". Goes on to say that an independent audit is not required, nor are any schedules. This confirms the DOL Advisory letter (issued for prior years), and clarifies for us!

Thank you, Carol. I look at it, and would like to discuss w/you. Would you E-mail me at elowder@gci-net.com? I have also received some E-mails from others who read the request, and have great hopes of coming up with enough material for an excellent assignment.

I am Director of Educ. for the NTSAA Educational Institute which prepare course material for a designation for 403(b)professionals. I need a chapter regarding DROP programs (to which I will add text regarding the affect of those programs on 403(B) contribution limits). Who knows where articles, etc. regarding those programs can be found? Permission will be requested from authors prior to use - and attribution given in the course work! Thanks!!!!!

DOL Reg. 2510.3-2 provides that an elective deferral only 403(B) plan sponsored by a 501©(3) non-governmental organization can avoid ERISA coverage (and 5500 filing requirements) with limited involvement/reasonable investment options, etc. This exemption from Title I applies to 403(B)(1) annuities and 403(B)(7) custodial accounts. If the plan is sponsored by any governmental group, the reg. wouldn't apply because those groups are exempt from Title I - and, so are churches/QCCOs unless the church elected to be covered.

Yep, the IRS (Employee Plans Division) expressed surprise that I even posed the question, stating that the American Bar Association had already posed this question in May of 1999, and why weren't the rest of us aware of this?

The 402(g)(8) increased elective deferral limit for employees of education, hospital, home health care, health & welfare agencies, and religious organizations is a maximum of $3,000 above the base limit. Yes, it will be $13,500 in 2000. The maximum limit under Option B stays at $15,000 - not sure what you mean in terms of the other special elections. The 415© limit of $30k didn't change.

Hey Alf! Most believe that the retirement plan limits will stay the same for 2000 and most have reported that belief. However, just recently spotted a prediction that limits would move up - for example, the basic 402(g) limit to $10,500. We should know soon, e.g. usually announced October!

Public Education institutions are exempt from Title I of ERISA. But you also said 501©(3). A 501©(3) is generally not exempt. What is the organization?

See Section 403(B)(12)(A)(ii), nondiscrimination rules applicable to "universal eligibility" for elective deferral 403(B) plans.

Mike, the IRS had verbally taken the position that the 402(g)(8) limit is employer specific in answer to a question I posed w/Employee Plans Div. in D.C. When the new guidelines came out, I discussed w/those who prepared them once more - and, they have reiterated that it is employer specific. In the unlikely event an employee uses it up, then spends 15 years with new employer, IRS says it can be used again.

Or, 403(B)(9) income accounts for religious organizations, where investment options are not limited to 403)(B)(1) annuities/403(B)(7) custodial accounts. I have reviewed a great many pending pension bills, and don't see anything in those which would change the restrictions for 403(B) options. Incidentally, employer contributions (non-salary reduction) to annuities have no withdrawal restrictions - so, could be rolled over to an IRA without a qualifying event (provided plan permits it).

Verbal discussion w/IRS people in the Employee Plans Division don't shed a lot of light on what "normally" means. The upshot appears to be that employers will be wise to permit employees that MAY work more than 20 hours per week to participate if they going to contribute more than $200 per year. Since this has been reported as a common violation on audit, and the final examination guidelines discuss this defect extensively, it is best to err on the side of conservatism. [Note: This message has been edited by CVCalhoun]

It was an information letter issued on January 12, 1998 to Theresa Lensander, Chair of the 403(B) subcommittee for the American Society of Pension Actuaries.

Unused sick leave & unused vacation pay earned in years prior to the current one cannot be included as includible compensation for purposes of the exclusion allowance calculation; however, under legislation passed in 1996, contributions to a 403(B) plan are now permitted to be made from checks which contain unused sick leave & unused vacation pay. The salary reduction agreement must, of course, be executed prior to that money being made available to the employee. My review of the Examination Guidelines (1999 final version) does not dispute that.