oldman63

Thanks for your comments.

A charter school 403(b) plan provides that all employees who work 10 or more hours a week are eligible to participate in the plan. Plan also establishes a minimum deferral of $10 per month. My understanding of Universal Availability is that no minimum age or service requirement is allowed for eligibility to make elective deferral contributions. Statutory exclusions for elective deferral contribution eligibility: Employees whose annual contributions will be less than $200 Employees eligible to make salary deferral contributions to another 403(b), governmental 457(b), or 401(k) plan sponsored by the same employer Non-resident aliens with no U.S. source income Students performing services described in IRC Section 3121(b)(10) Employees who normally work less than 20 hours a week (lower number of hours can be selected) subject to certain conditions. Does the charter school 403(b) plan design comply with 403(b) regulations?

A governmental hospital claims dual status in sponsoring a 403(b) plan. They now wish to offer a tax exempt 457(b) top hat plan. I am not sure they can. Treasury Regulation Section 1.457-1(m) states "Tax-exempt entity. Tax-exempt entity includes any organization exempt from tax under subtitle A of the Internal Revenue Code, except that a governmental unit (including an international governmental organization) is not a tax-exempt entity." Although the hospital's administration of a 403(b) plan is due to their dual status , I believe the aforementioned regulation prevents them from offering a tax-exempt 457(b) top hat plan. What do you think?

Thanks for your take on this matter!

A Christian School sponsored 403(b) plan filed a 5500SF. The plan has over 100 participants. They indicated on the form they didn't purchase a fidelity bond. They have determined they are a 3121(w)(3)(a) organization and should not be covered by ERISA. What measures can they take to stop filing 5500. In addition, are they still required to perform an audit?

My understanding is a more than 5% owner of a business who is still actively working has to take a minimum distribution each year. Does it make sense to contribute to their retirement plan? If they have an IRA, can they aggregate the 401k balance and IRA balance, taking the RMD out of their IRA? Thoughts?

My understanding is a more than 5% owner of a business who is still actively working has to take a minimum distribution each year. Does it make sense to contribute to their retirement plan? If they have an IRA, can they aggregate the 401k balance and IRA balance, taking the RMD out of their IRA? Thoughts?

The adoption agreement provides that "A Participant attains Normal Retirement Age under the plan when the participant attains age 65". The base plan states "Normal Retirement Age is the age the Employer specifies in the Adoption Agreement provided that the age may not be: (i) earlier than the earliest of age 65 or the age at which the Participants have the right to retire and receive under the Employer's defined benefit plan (or money purchase plan if the Participant is not eligible to participate in a defined benefit plan) immediate retirement benefits without actuarial or other reduction because of retirement before a later specified age; or (ii) later than age 70 1/2". I believe that even though the plan is not subject to 411(d)(6), changing the NRA from age 65 to age 50 and 20 years of service may conflict with state law.

A fire district governmental 457(b) plan operates under the SunGuard plan document. The plan defines NRA as age 65. Employer wishes to change to age 50 and 20 years of service. Also, for police/fire personnel, NRA will be age 50. Couple of concerns. First plan document only establishes an age for NRA. Second, and most important, new NRA may impact participants in a negative way considering the new age and service requirements. What do you think?

Thanks for the clarification.

Section 657 of EGTRRA amended § 401(a)(31)(B) of the Code to require that mandatory distributions of more than $1,000 from a plan qualified under § 401(a) be paid in a direct rollover to an individual retirement plan (i.e., an individual retirement account as described in § 408(a) or an individual retirement annuity described in § 408(b)) of a designated trustee or issuer if the distributee does not make an affirmative election to have the amount paid in a direct rollover to an eligible retirement plan or to receive the distribution directly. Section 657(a) of EGTRRA also added a notice provision to § 401(a)(31)(B)(i) of the Code which requires that the plan administrator notify the distributee in writing (either separately or as part of the § 402(f) notice) that the distribution may be paid in a direct rollover to an individual retirement plan. A TPA manages many plans with the $5,000 cash-out feature, notifies affected terminated participants regarding the mandatory distribution, but only rolls over the account balance to the IRA upon direction from the plan sponsor. Absent plan sponsor direction, the participant’s account balance remains in the plan. Is there a time factor in which the direct rollover be made to the IRA or can the monies remain in the plan as currently administered?

To avoid audit requirement for plan, employer is splitting the plan into two separate plans. Plan provisions will be exactly the same. Since the plans have provisions that are identical, can nondiscrimination testing be performed as if they are a single plan?

A non-governmental 457(b) plan is terminating. However, the plan document was never updated for PPA, HEART, and WRERA. I understand that any plan correction cannot be through VCP, but the plan sponsor has option for the IRS to review their 457(b) plan document or consider any other document form issue by requesting a private letter ruling? In a related issue, in distributing assets upon plan termination, what procedures can the plan sponsor implement when distributees cannot be located?

Tax-exempt employer established 403(b) plan effective 7/1/1998, and amended and restated effective 7/1/1999 on a individually designed plan document. Document was not updated to comply with final 403(b) regulations, EGTRRA, PPA, HEART, and WRERA. What corrective action should the employer take to address these document failures?

A governmental non-ERISA 403(b) plan, with discretionary matching and nonelective contributions, wishes to make the following changes: 1. Compensation is now defined a W-2 Wages with no exclusions. Plan sponsor now wishes to exclude following from definition of compensation applicable to all contribution types: a. All amounts deferred or excluded from taxable compensation under Code Section 125, 132(f)(4), 402(g)(3), 402(h)(1)(B), 403(b), or 457(b) b. Deemed Section 125 compensation c. Bonuses d. Overtime e. Commissions f. Differential Pay g. Safe Harbor Fringe Benefits h, All Post-Severance Compensation 2. Plan currently allows participants to take distributions in the form of lump-sum, partial lump-sum, and installment payments. Plan sponsor now wants to eliminate partial lump-sum and installment forms of distribution. 3. Plan has a 6-year graded vesting schedule and provides 100% vesting if participant severs employment on account of disability. Plan sponsor now wants to eliminate 100% vesting upon disability. I am concerned that these changes would result in a cutback of benefits under 411(d)(6), What do you think?

A governmental 403(b) plan, effective 2/1/2016, with plan year ending 8/31, provides for a fixed employer matching contribution of 100% match on elective deferrals up to 3% of compensation. However, the employer failed to make the required matching contributions. Thus the plan has an operational error and under EPCRS, as updated by Rev. Proc. 2008-50, mandates that the employer implement correction method that would restore the plan and its participants to the position they would have been in had the failure not occurred. Such measures would include: 1. Make matching contributions on behalf of the affected participants retroactive to the time such contributions should have been made. 2. Provide earnings from the time the matching contributions would have first been made. 3. Redo 415 testing for the years in which operation failure occurred. Are there other self-correction measures the employer should take?

A 457(b) governmental plan operates under an AXA plan document. There is an unusual provision in the AXA base plan document. “Mandatory Employee Contributions. Notwithstanding section 4.09(a) above, if the Employer has elected Mandatory Employee Contributions in the Adoption Agreement, such contributions shall automatically be deducted from the Employee’s Compensation at the rate or dollar amount indicated in the Adoption Agreement and shall be treated as an after-tax Employee Contribution. If so indicated such Mandatory Contribution shall be to the Plan and be treated as a contribution that satisfies section 3121(b)(7)(F) of the Code. It is the Employer’s responsibility to determine whether this Plan will meet the requirements to be a social security replacement plan.” I have no problem with the Mandatory Employee Contributions, but 457(b) plans cannot accept after-tax contributions, with the exception of Roth contributions. This plan does permit Roth contributions, but the aforementioned provision is very explicit in its reference to after-tax, not Roth contributions. What do you think?

A prevailing wage plan has loan repayments going back into the plan with pre-tax money from the payroll. In addition, the loan repayments are being paid by the "untaxed/pre-taxed" fringe benefit dollars. My understanding is that loan repayments are paid with after-tax dollars. A participant is repaying part of the loan with money that has already been taxed. As you know, one of the benefits of contributing to a 403(b) or 401(k) is the fact that the money is invested pre-tax. When a participant takes out a loan, he/she isn’t taxed on the proceeds, but the money used to repay the loan has already been taxed so the additional interest going into the account will effectively be taxed twice–at the time of contribution and again when eventually withdrawn from the account in retirement. The rules would not change just because this is a prevailing wage plan?

403(b) plan amended, effective 7/1/2018, to add involuntary cash-out provision of distributions of amounts between $1,000 and $5,000, to be rolled over over to an IRA. Would this provision only apply to participants that terminate on or after 7/1/2018, or could it also apply to participants that terminated prior to 7/1/2018?

What if the loan interest rate is set at prime plus 1% at the beginning of the quarter, but the prime lending rate changes during the quarter. However, the loan interest rate applied to loans during this time remains the same. I am concerned that this policy, of applying an interest constant for a calendar quarter, may run counter to DOL and IRS guidance that the “reasonableness” of an interest rate hinges on the determination of the prevailing market rate for similar loans.

A 403(b) plan would like to establish a loan interest rate of the prime lending rate, in effect as of the first day of each calendar quarter, plus 1%. Do you see any problems with this policy?

A Tribal Governmental K-12 Public School wishes to establish a 401(k) plan. I don't believe they can. PPA 2006 expanded the definition of governmental plans to include a plan established or maintained by an Indian Tribal government for its employee’s performing “governmental functions”, but not to include those employees performing commercial activities (e.g., workers in a hotel, casino, or convenience store) Essential governmental functions would be considered those functions customarily performed by state and local governments if: (1) There are numerous State and local governments with general taxing powers that have been conducting the activity and financing it with tax-exempt governmental bonds, (2) State and local governments with general taxing powers have been conducting the activity and financing it with tax-exempt governmental bonds for many years, and (3) the activity is not a commercial or industrial activity. Tribal governments can establish a money purchase plan or profit sharing plan for its “commercial” employees, not a 401(k), enabling it to comply with the applicable qualification rules under Code Section 401(a) for plans applicable to nongovernmental plans. An Indian Tribal Government is considered a “State” for 403(b) purposes, per Code Section 7871(a)(6)B), that they can offer a 403(b) program but only to employees of their educational institutions. Is my assessment correct?

I also held the common belief that the MP dollars had to be accounted for separately. In researching this issue, I found that because a merger does not entitle participants to a distribution of their account balances, the IRS has ruled that the assets and liabilities attributable to a money purchase plan must be accounted for separately and must retain their attribute as money purchase plan assets and liabilities ( Rev. Rul. 94-76) Specifically, accounts must remain subject to the joint and survivor annuity provisions of IRC Sections 401(a)(11) and 417. In addition, the new or amended profit-sharing plan must not permit distributions of the money purchase plan accounts before retirement, death, disability, severance from employement, or termination of the plan.

A governmental money purchase plan (which did not permit in-service withdrawals) is merging into a grandfathered 401(k) plan, which permit hardship withdrawals. Following the merger, does the money purchase monies have to be segregated to retain the in-service withdrawal restriction OR can participants take hardship withdrawals of these dollars?

Is a 403(b) plan sponsored by a non QCCO 414(e) religious organization subject to Code Section 414(s) testing?