mbozek

The definition of a 403b plan that is exempt from ERISA as a church plan under 3(33) is different from the definition of a church plan that is exempt from the non discrimination requirements of IRC 403b which only exempt church plans defined in IRC 3121(w)(3)(A) and (w)(3)(B).

How much do you charge for an audit?

He was an owner of the business. Owners are held to a higher standard where retirement plan loans are concerned. A loan default by an ordinary employee is simply a default. A loan default by an owner is a prohibited transaction, and the plan is at risk for disqualification unless very specific, and rather stringent steps are taken. If, due to this owner's termination, he is no longer considered a "disqualified person," I simply deem his loan a distribution. But if, due to ownership as recently as the prior year, he is still considered a disqualified person at the time of default, the employer and the former employee have a rather structured and painful set of corrective measures to undertake. I'm wondering if anyone has an idea as to where this former employee falls in the pecking order. What is the basis for your contention that owners are held to a higher standards where plan loans are concerned. The Legislative history of the EGTRRA amendment allowing loans to owners of unicorporated businesses and S-Corps noted the purpose of the amendment was to eliminate discrimination against self employed persons and S corp owners, e.g., prior law allowed a 100% owner of a C Corp to have a plan loan but not a self employed owner. The Committee report notes that the general statutory provisions for loans will apply to loans by owners.

If the IRA was deemed to be distributed in 1992 what is the tax consequence since the s/l 6 is years. Does the failure to report the distribution in 1992 require filing a return that triggers income tax because it was not reported in 1992? Its not reported on the 5329 so there appears to be no separate filing requirement for this type of P.T. Its only reported on the 1040. Or is the only consequence that the distribution is reported for 1992 but no tax is due b/c the s/l has expired. Or does the duty of consistency apply to require taxation in 2010?

Since Title I 403b plans are not subject to the IRC 5500 penalties and prior to 2009 did not have file a full 5500, a 403b plan used to file 5500s for back years under the DOL program which imposed a fine of a $750 file for each years 5500 with a max fine of $1500. I dont know if this max fine/ program is still in effect. I once filed back 5500 for a client who had not filed the forms for a 403b plan back to 1975 (about 25 forms). I took the 5500 for the most recent year, changed the date on the form for each year to correspond to each open year, answered the same 4 questions and enclosed a cover letter to the DOL describing what was being submitted. The DOL happily accepted the $1500 check and took no further action.

They are employer contributions and are not included under 402(g).

What good is the funding statute when the Gov and the democractic legislature are reportedly trying to pass legislation that would defer taxpayer contributions to the PSERS and SERS retirement plans that will cost $52B?

What is the purpose of this question? State laws usually require that local governments make contributions to the state retirement plans in accordance with reasonable actuarial assumptions but the state legislature can and does suspend ths requirement at its own descretion when governement revenues decline. See IL and NJ as examples. ILs plan is only about 50% funded. NJ has suspended local government contributions to the state's retirement plans for the last three years and this year the state suspended the required $3B contribution. NY is doing something even goofier. It is allowing local governments to borrow from the state pension plan at 5% interest in order to make their mandatory contributions to the state retirement plan which are assumed to earn 8%. In other words pension funding for government plans is totally elastic-the state can suspend contributions at any time. Also funding requirements for state pension plans are irrevalent in those states where public pension benefits are guaranteed under state law or the state constitution, e.g., NY has a constitutional provision requiring the state to pay government pension benefits. If there are not enough assets in the plan the state would have to raise taxes to pay benefits. In AK there was a case that prevented the state legislature from reducing pension benefits paid to retirees. Of course the state legislature could always increase funding by raising employee contributions to the plan.

What type of insolvency are you filing under? If you are filing under the federal bankruptcy act, all 457 plan assets are exempt from the claims of your creditors. If you are filing under state law there are two different answers. If you participate in a state 457b plan creditors claims will be rejected because the assets must be held for the exclusive benefit of particpants. If you participate in a non profit 457b plan the assets may be subject to creditors- its a grey area subject to state law. For example, Texas prohibits wages (including non qualified benefits) from being seized by creditors. Also the plan may prohibit it. You need to check with counsel.

As noted in my response noting that she should check with counsel regarding the application of state and local laws, isnt the application of state and local laws so as to permit employer contributions to the plan a question that needs to be referred to counsel for the town? The remainder of your response is redundent.

and then wind up spending 5000x or more the cost of sending the document by certified mail to have it resolved.

This kind of bureucratic foulup is an excellent reason for paying $3 for certified delivery via snail mail which can be confirmed on the USPS.com website for free and downloaded. Never send any pension documents to a goverment agency without sending it certified mail so that delivery is confirmed.

Why should they pay a fine? If the clients timely filed their 5500s and have proof of doing so they should contact the IRS to have it corrected, not pay a fine. If you do a search you will discover that mistaken notices from the IRS claiming failure to file 5500s is a frequent topic on these boards because the IRS has very poor data base for 5500 records and computer glitches abound generating notices of failure to file a 5500. The IRS has a way to correct their records.

What is the issue? Government 457 plan are not subject to any nondiscrimination rules under the IRC. Have you checked with counsel for the town regarding application of state or local laws. I am sure the plan was adopted pursuant some local ordinance or rule.

If the participant cannot be located and the plan is termiating why not send to contributions to the state abandoned property fund custodian? Another option is to roll it to an IRA if you can find a custodian who will open an account for a missing participant. Default option is to mail it to the last known address of the participant and then wait for the check to be returned and cancelled. Finally you could also try to find the participant through the IRS or a private locater service.

The Corbel document that I am using does not ignore it. It says you can exclude people who normally work less than 20 hours; HOWEVER, if that person ever goes over 1,000 hours in a 12 month period, then they will always be eligible (and thereofre satisfies ERISA). Let's assume a client would never make a mistake - wouldn't you agree that this language reduces the participant count by 30 people in my example, as opposed to a plan that does not allow the 20 hour a week exclusion? But on an unrelated note, I think TIAA made a grave error not including this option, since many of their clients are operationally excluding them, not realizing that their document does not include this option. At least that's what I'm hearing from many different CPA auditors... Austin: I dont think its TIAA's mistake that plan administrators or their advisors dont read the terms of the plan document that are adopted. It happens all the time. The auditors should be informing the clients that they are not following the terms of the plan. I dont know who the model T/C plan was intended to be used by. It may never have intended to be used by a ERISA 403b plan. I believe there is an 800 number that you can call to discuss this question with T/C. Just google the T/C website and search for model 403b plan. What you are proposing is language that has been around for 20 years when sponsors found out that they could not exclude part time employees once they worked more than 1000 hours in plan year. I believe there was some IRS notice that informed plan sponsors of this requirement and plans were revised to state that part time employees would be included to meet the participation requirements of 410(a) once they worked 1000 hours. If a client has an ERISA 403b plan the client should read the plan doucment to understand what is required.

Austin: You are proving my thesis that employers who are subject to ERISA should not use model 403b plans designed to comply with the IRS regs because thees documents ignore the special consequences under ERISA that result from adoption of simplified eligibiltiy provisions , e.g., plan audit, because of an increase in the number of participants in the plan (where an audit is not a requireed for 403b plans exempt from ERISA). As you are well aware model, prototype or standarized documents frequently contain provisions that are not required under the law but which the drafter believes could have a beneficial effect. For example, some prototype 401k plan documents funded solely with mutual funds include a provision requring spousal consent to a lump sum distribution or a loan (or contain complicated langauge in order for the plan to opt out of the spousal consent requirement). The rationale for adding such requirement is to prevent the plan from inadvertently violating the spousal consent requirement if an annuity option is added later and a participant elects it as the normal benefit option. Same with requiring inclusion of all employees who work less than 20 hours a week prevent inadvertent violation of the IRS regs if an employee who normally works less than 20 hours a week works more than 20 hours week.

I dont understand your analysis. While in a non ERISA plan an employee who drops below 20 hour a week can be excluded from participation in a future year under IRS rules, it is irrevalent for plans subject to ERISA because the employee would have to be included in future years for eligibility and would count for the purposes of the audit requirement which you said was the only reason to apply the IRS 20 hour a week rule. I still dont see the significance in plan administration for using the IRS 20 hour a week rule in an ERISA 403b plan. It seem to me that adopting the ERISA requirement of including all employees who work more 1000 in a year will cover the situation of a part timer who is normally works less than 20 your a week but actually works more than 20 hours a week during part of the year. And it automatically excludes a person scheduled to work less than 20 hours a week who in fact never works 1000 hours in a plan year which is permitted under the IRS rule. The other problem with your complex construction for eligibility is that HR personnel will apply it incorrectly with disasterous regulatory consequences for the sponsor under the IRS or DOL rules.

To save $10,000 a year in audit fees, for one! Austin: I am confused by your response. My understanding is that "model" plans issued by the IRS and some financial providers were only intended to apply to non ERISA plans, e.g., SD plans or NP 403b plans that only permit voluntary employee contributions, not for plans subject to ERISA for which the eligibility rules are different. I believe that Bob Architect noted in the 403b FAQ that the IRS less than 20 hour week rule would permit exclusion of part timers who normally work less thn 20 hours a week even though they may work more than 20 hours week during seasonal periods such as Christmas while a plan subject to ERISA is requried to use the more stringent 1000 rule which would result in inclusion of any participant who actually works 1000 hours in a plan year regardless of their normal work schedule. Therefore a plan subject to ERISA could never adopt the less than 20 your a week rule even if available under the document and must adopt the more stringent 1000 hour rule as well as the audit requirement for some plans. My recollection is that the IRS model 403b plan does not include an excluson for less than 20 hour week employees but I have not checked it.

The MRD is required for any distribution received in the calendar year in which an individual attains 70 1/2, not just for distributions received after the date in the year that the individual attains 70 1/2.

What he said. That makes no sense. The plan administator cannot add requirements that are not required in the plan because it would violate the settlor's intentions. Could a plan administrator remove an investment option expressly provided in the plan if there was no express authority or add additional requirements for eligiblity to participate in the plan? If the PA thinks that spousal consent is needed there is a simple solution: amend the plan.

Why would any employer want to include a rule excluding employees who "normally work less than 20 hours a week" because it requires tracking the hours of employees and the penalty for failure to comply is disqualficiation. Also the definition of "normally works less than 20 hours week" is extremeny vague and is subject to interpretaton by the IRS. I would never recommend that a 403b plan adopt such a rule because of the consequence of inadvertent noncomplaince. Just allow all employees (other than students) to participate.

While I am confused by what you were trying to say in your rambling post I will respond to one question. The RA/SRA distinction exists in some TIAA/CREF 403b plans subject to ERISA because employer contributions can only be contributed to a RA which does not allow for a lump sum distribution. SRAs are limited to voluntary employee salary reduction contributions. Where an employer maintains a retirement plan with mandatory employee contributions the RA contract is used (Today most 403b plans use GRA contracts). The non erisa plan for salary reductions is funded with SRAs which allows a lump sum distribution and do not require spousal consent for lump sum distributions or plan loans. There are other structural differences between RAs and SRAs, for example, the fixed rate of return on a TIAA SRA is about .50% less than an RA because it provides for a lump sump distribution. Because of regulatory issues many employers are choosing to eliminate the non ERISA 403b plan and have employees make voluntary contributions to the ERISA plan which is usually funded by a GRA.

The benefits will be paid in accordance with the rules for a surviving spouse, regardless of whether the spouse is also an employee.

Plan cannot pay benefits if it is aware that the identity is false or the SSN is incorrect.