mbozek

A written document has never been required for a 403b plan because the language of 403b1 only requires an employer to purchase an annuity for an employee unlike IRC 457(b) which defines an eligible deferred compensation plan as "a plan established and maintained by an eligible employer". A qualified plan is required to be in writing because 401(a)(2) requires the plan trust to be in writing. My concern with requiring a written document is that the IRS will impose tax penalities on employees and employers if the "material terms" (which are not clearly defined in the proposed regs) are not described in the plan document in the opinion of an IRS agent or if the plan has not been amended for changes in the tax law or plan operation, change in investments, custodians, etc. Unlike qualified plans there is neither a remedial amendment period requiring amendment of 403b plans to conform to changes in the tax law (because they are not maintained by an employer) or a determination procedure to approve 403b plans which will make compliance an uncertain, haphazard and expensive prospect to np and public employers. Requiring employers to maintain formal documentation and amendment of 403b plans will result in the termination of many 403b plans. A secondary reason for not requiring a written document is that formal adoption of a plan can be construed in some states as creating fiduciary liability for the employer to litigious employees. Having a written document does not create an ERISA plan- its the imposition of employer control that will create ERISA issues for NP employers who will find it less risky to allow contributions to IRAs by payroll deduction of up to $5000 in 2006 ($6000 in 08).

An IRA can invest in foreign investments as long as the assets, e.g. the stock certificates, are held under a trust organized within the US. However, few custodians will handle non publicly traded or foreign securites because compliance issues under US securities laws, as well as annual valuation requirement for IRAs make it too expensive or too risky. Those custodians that accept odd assets charge high annual fees and limit their exposure.

Is the grant money paid directly to the employees or is it paid to the c3 who then pays the ees?

no. See reg 1.411(a)-11©(4). After NRA/62 benefits in excess of 5k can be distributed w/out participants consent. Consent is never required if the benefit does not exceed 5k.

States that recoginze common law marriage have certain requirements, e.g., parties must live together for a period of time in the same residence, hold themselves out as husband and wife to the public, etc. The spouse should provide evidence that she and the ee begain the relationship in a state that recognized CL marriage and fulfilled the requirements for CL marriage under state law. Merely living in a state that recognizes CL marriage may not be not enough if the relationship begain in another state (remember William Hurt?) You can find the requirements in the Martindale-Hubble law summary for the state.

I dont understand what you are getting at. The DOL does not regulate non ERISA 403b programs of non profits and public schools or 401k plans sponsored by public employers such as NYC who can take as much time as they want to remit contributions as long as it is permitted under state law. 403b and 401k plans subject to ERISA must remit contributions under the DOL regs.

I thought that the language related to involuntary cashouts of vested benefits over 1k and up to 5k. If a plan does not require invountary cashouts, a31B does not apply.

Since under the IRC a 403b is still an individual arrangement between an employee and the employer, the frequency of remitting contributions should be negotiated in the salary reduction agreement. Since it the employees salary that is being deferred (and which the employer is otherwise required to pay) there should be no more than a 30 day delay before remitting the contributions. The problem arises where there are many vendors and/or the sponsor doesnt have the ability to track contributions and allocations on an automated basis.

Have you found an IRA custodian who will accept such assets? If you do they can tell you on how the income will be reported.

If govt plans were to be excluded from this provision then Congress would have exempted them, e.g., govt plans are not subject to nondiscrimination under 401(a)(4). Subjecting govt plans to mandatory rollover is consistent with requiring govt plans to permit a direct rollover under a31A. The reference to 411a11 is to define how the present value of the $5,000 nonforefitable is to be computed.

There is no exception for govt plans. See flush language following IRC 401(a)(34) for qualification provisions that do not apply to govt plans. I dont see how the IRS can grant an exempton if the IRC does not allow it.

I dont compare different state laws that regulate 403b plans. I provide advice to clients on how to comply with the regulatory requirements for deferred compensation plans under state and/or federal laws. The proposed 403b regs will impose significant administrative burdens on employers because of the requirement that a 403b plan be administered in acordance with a written document which contains all of the plan terms. The compliance costs will be paid by plan participants through reduced contributions to the plan. The IRS has not committed itself to developing a determination letter process which would provide certainty to sponsors that the form of the plan complies with the regs because it would divert resources from other areas. Under the regs, maintaining a 403b plan will be all risk and no reward for sponsors because of the compliance aspects.

IRS rulings going back 35 years have permitted salary reduction contributions to be remitted as infrequently as once a year which is still permitted for non ERISA plans where there is no conflicting state law requirement. The proposed regs will require that all of the terms of the plan, including frequency of remitting contributions be stated in the plan document. The 15 day requirement is the IRS way of offering language that can be inserted in a plan document without requiring it in the regs. The question to be asked is will there be a sanction if the employer does not remit the contributions within the frequency specified in the plan document (or fails to follow any provision of the plan document). Note: Rev. Rul 67-69 which permitted 1 yr delay in remitting salary reduction would be "obseleted" when final regs are issued.

If the waiver is drafted properly and all partes sign, it is preferrable to interpleader. However if minors are beneficaries then a ct. appointed guardian must sign on the child's behalf and that will cost money to get the guardian appointed. Also the court may not approve a waiver of benefits by a child.

Foro: Can you explain the ultimate tax benefit of this transaction? Ignoring the question of whether the services paid to the SMLLC are reasonable comp it seems that there is no economic purpose to the creation of the LLC other than to generate a tax loss to the sole proprietor who owns the sked C business. Under the Tax law signed in Oct. there are increased penalties for tax avoidance transactions that are entered into just to generate tax losses including penalites of 75% or more plus interest. You really need to consult a tax advisor not just read books. By the way what is the name of the book?

Joel: Everyone knows that 403b plans are cheaper to administer because there is no ADP testing, detailed 5500 reporting, auditors opinons, IRS determination letters, etc that are required for 401k plans. I dont know how your comment connects with the quote you took from me. 403(b) doesnt have any rule regarding investment selection which exists under ERISA. I dont see any reference to due diligence. Like every regulation, the purpose of the requiring administration of the plan in accordance with its written terms is to collect income and FICA tax from employees of the school districts that don't comply with the regs. The NJ div of Pensions is not a model for investment selection of retirment plan assets since its performance as the exclusive manager of all NJ state retirement plan assets over the last few years has been criticized by govt officials and outside financial advisors will be given part of the state pension portfolio to manage. Also didnt the NJ Division of Pensions have problems managing the NJ 529 plan until it was given to Franklin Templeton? I remember reading unflattering comparisions to NYs 529 plan that was managed by TIAA/CREF. I dont know what you mean by the last statement.

Kirk: She could only go to ct after exhausting her claims for benefits under ERISA 503. In order to make a colorable claim she would need some evidence of being a spouse such as demonstrating compliance with state law requirements for common law marriage which would be reviewed by the Plan admin. Filing of tax returns and joint ownership of property is not indicative of marriage. The facts dont indicate when the ee and "spouse" resided in OH. The Er could remove the case from st ct to fed ct and use Fed interpleader.

A disclaimant is treated as having predeceased the employee, thus making the contingent beneficaries, the children, the recipients of the benefits outright.

Employers do not terminate their 401k plans because they do not have the cheaper 403b alternative available to c3 organizations. Under DOL guidelines employers are passing the 401k admin costs to employees. Please cite the provision in the regs which will require employer due diligence on costs or investment options since 403b does not have a prudent investor rule for selecting investments. The written document requirement will impose admin burdens on plan sponsors such as enforcing hardship distributions, limitation on loans and mrds which will be impossible to administer in a program that uses individual annuities/accounts. Requiring compliance with the terms of a written plan will require the employer to chose one of three options: 1. hire extra staff and use internal resources to administer compliance with the terms of the plan which will not please taxpayers who pay for public education. 2. Hire a TPA to provide the admin services and pass the cost along to participants of between $50-150 per year per participant which will reduce contributons to the plan. NYC costs are not a good example because no other SD has its buying power. 3. Terminate the 403b plan and allow participants to contribute to an IRA. Some people like VAs for the guarantees they provide. This is an investor decision. Note: The proposed regs will not have any effect on the number of vendors who can offer their products because state law controls vendor selection. The LA SD has 80 403b vendors because Cal Ins law section 770.3 has been interpreted to require a SD to allow all vendors to solicit 403b products as long as one ins co is allowed to sell an annuity product. The larger providers such as Vanguard will stay way from SDs with such large vendor lists because it would have to use agents to sell its products.

Veba: Only a participant or bene can commence an action in state ct for ERISA benefits. Under ERISA 502(e) Fids must bring actions in Fed ct. Interpleader requires that all possible beneficaries who can receive benefits under the plan be made parties to the action. What is the basis for the claim that the employee was married at death?

If he doesnt want to take mrds in future years he can roll over the 403(b) from the prior employer to the current employer's plan by 12/31.

An advantage of a Roth 401k/403b is that all employees can elect AT contributions up to $15,000 which will generate tax free earnings which will be more than the 4k permitted under a Roth IRA in 06. In 2006 a married couple with 75k in income will be in the 15% fed tax bracket. The contributions and earnings will have to be accounted for separately with separate recordkeeping.

Since the IRS has never issued any regulations on plans of predecessor employers there have never been any guidance and the courts have refused to enforce any rules on employers. The only accepted definition of a predecessor employer is where an employer changes its form of doing business, eg. goes from a partnership to a corp. and sponsors the same plan.

There is no prudent man requirement for non ERISA 403b plans that would require the use of no load funds. If the rules for administering 403(b) plans become too onerous then public school districts can offer IRAs without any administrative burdens. Most public school teachers contribute less than 5k to a tax deferred plan because their salaries are below 50k and they participate in a non contributory state retirement plan. (NJ provides both a DB plan and lifetime retiree medical for teachers after 5 years of service.) I dont know where you get the idea that many teachers are paid over 100k since only about about 6% of all workers, not just teachers, have comp in excess of the FICA wage base of 87.9k.

No one has ben able to explain the reason for requiring that the election to defer under 409A be made prior to the performance of services in the tax year while NQDC plans under 457b only require election of deferral prior to the month in which the services are performed.