DTH

Taxpayer found out that his AGI was too much to make a Roth contribution for 2018 and has an excess contribution of $4,000. He filed his 2018 income tax return on time, but there wasn't enough time to get the excess out by 4/15/19. Trying to decide to take a distribution or change the contribution to 2019. If he takes the distribution there is no 2018 income tax affect because he already paid income taxes on the $4,000. I think the earnings would be taxable in 2019, year of distribution. In this case I think he needs to re-file his 2018 income taxes to show the $4,000 excess. If he changes the contribution to 2019, I think he would still need to re-file his 2018 income tax return because it would still constitute a distribution. Is there a way to fix this without having to re-file his income taxes. Thank you.

Can a nursing home 403(b) plan permit participants to make 15-year service catch-up contributions? I don't think they would be considered a home health service agency or health and welfare service agency. Could it be considered a hospital?

Rev. Proc. 2007-71 provided model plan language that may be used by public schools to satisfy the final 403(b) regulations plan document requirement. The student exclusion used in the Rev. Proc. was a "student-teacher" definition (see below in bold) and did not point to IRC 3121(b)(10). There is no mention of student-teacher in the applicable IRC or Treasury reg. sections. The pre-approved 403(b) document LRMs has the following exclusion: " Employees who are students performing services described in section 3121(b)(10) of the Internal Revenue Code." (This language is being used by several 403(b) pre-approved document providers.) There is no mention of student-teachers. For those plans that used the IRS 2007 Model document language would you use the pre-approved LRM student 3121(b)(10) exclusion or write in the student-teacher definition from Rev. Proc. 2007-71? Section 2 Participation and Contributions 2.1 Eligibility. Each Employee shall be eligible to participate in the Plan and elect to have Elective Deferrals made on his or her behalf hereunder immediately upon becoming employed by the Employer. However, an Employee who is a student-teacher (i.e., a person providing service as a teacher’s aid on a temporary basis while attending a school, college or university) or who normally works fewer than 20 hours per week is not eligible to participate in the Plan. An Employee normally works fewer than 20 hours per week if, for the 12-month period beginning on the date the employee’s employment commenced, the Employer reasonably expects the Employee to work fewer than 1,000 hours of service (as defined under section 410(a)(3)(C) of the Code) and, for each plan year ending after the close of that 12-month period, the Employee has worked fewer than 1,000 hours of service. Note: This model language assumes that the plan has immediate eligibility, that the plan is limited to pre-tax elective deferrals, and that the plan has no matching or other employer non-elective contributions. The model language in Section 2.1 also assumes that employees who normally work fewer than 20 hours per week or who are student-teachers are not eligible. Either of these exclusions may be deleted on a uniform basis for all employees. If this model language is used by a § 501(c)(3) employer that is not a public school and the plan is subject to ERISA, the plan should delete the exclusion for employees who normally work fewer than 20 hours per week.

Can a governmental 401(a) DC plan require rehired eligible employees, who were 100% vested at termination, to repay their entire distribution in order to have vesting service restored? The rehire would need to repay the distribution the earlier of 5 years after their rehire date or 5 years after the distribution was paid. If paid within this period the rehire will be 100% vested. (Yes, they want the 5-year period to begin after the distribution date and not the termination date.) Thank you.

A governmental 401(a) plan has pick-up contributions only. Employees can elect different percentages to contribute based on the type of pay (e.g., up to 30% on payroll, up to 100% on bonus). If a participant goes over the 415 limit and has excess annual additions, does the plan distribute the excess to the participant? Thanks.

A 501(c)(3) org. has a non-ERISA deferral-only plan and meets the DOL safe harbor rules. If the plan/investment arrangement permits rollover contributions will the plan be subject to ERISA?

A 457(b) plan requires all employees to make a mandatory contribution of 7.5% of compensation. The employer didn't take the mandatory contribution from a new hire's pay beginning 6/2016. The plan document does have language that the employer can make corrective contributions to the plan. Since employer contributions are added together with employee contributions towards the 457(b) limit, would this also apply to a corrective employer contribution?

It has been my understanding that in order to for a plan to accept a direct rollover of designated Roth contributions the plan must allow designated Roth contributions. The IRS rollover chart points to a designated Roth account, which is defined in the Treasury regulations §1. 402A, Q&A 1, which I interpret to say the plan has to allow designed Roth contributions first. I also think that this concept is reinforced with the in-plan Roth "rollover" rules under §402A(c)(4)(B) where a plan must include a qualified Roth contribution program. I have been challenged that a plan with no qualified Roth contribution program can accept a designated Roth account rollover. Does anyone have knowledge of any IRS guidance that says a plan with no qualified Roth contribution program can [or can't] accept a designated Roth account direct rollover. Thanks.

A 401(a) defined contribution plan has discretionary employer contributions and pick-up contributions. Pick-up contributions are considered employer contributions. The plan failed 415 limits testing. EPCRS instructs to place the excess annual additions into an unallocated account to be used as an employer contribution in the succeeding year(s). Employee deferrals and after-tax contributions can be returned to the participant. Are there any special rules where all or a portion of the excess annual addition consists of pick-up contributions?

Thanks for all the great feedback. I think what the church is trying to do is have the plan document say that 100% of any distribution is designated as housing allowance (unless the church board says its not) rather than the church make a formal designation (e.g., employment contract, church minutes, church budget). I'm just uncomfortable about putting language in the plan.The LRMs are silent.

A church that sponsors a 403(b)(1) plan and wants to add language to the plan document that all distributions to ministers are designated as housing allowance unless the church says otherwise. Treasury regulation 1.107-1(b) requires that the employing church or other qualifying organization must designate the amount of parsonage allowance in advance of payment. The 403(b) LRMs doesn’t have housing/parsonage allowance language. Is it appropriate to designate plan distributions as housing/parsonage allowance in the plan document?

A church that sponsors a 403(b)(1) plan and wants to add language to the plan document that all distributions to ministers are designated as housing allowance unless the church says otherwise. Treasury regulation 1.107-1(b) requires that the employing church or other qualifying organization must designate the amount of parsonage allowance in advance of payment. The 403(b) LRMs don’t have housing/parsonage allowance language. Is it appropriate to designate plan distributions as housing/parsonage allowance in the plan document? Thank you.

I have a plan that was recordkept at Nationwide. The employer had an arrangement between Nationwide and Monumental Life where pre-tax dollars were used to pay for life insurance premiums. The employer is sending us a contribution file asking us to carve out the premiums from these contributions and send it to the insurer. Does anyone have any experience with this arrangement? Are you treating the life insurance premiums as annual deferrals under the 457(b) plan? If yes, do you have a life insurance provision in the plan document?

Plan says that benefits shall commence and be made in accordance with the RMD rules and that the Participant's entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant's "required beginning date". The 457(b) plan allows participants who have severed employment 60 days after severance to elect when to begin distributions and in what form. The plan document says if the participant does not make an election the benefit will commence on the participant's required beginning date (RBD). The plan also says that benefits shall commence and be made in accordance with the RMD rules and that the participant's entire interest will be distributed, or begin to be distributed, to the participant no later than their RBD. Does this mean the participant's entire account balance is taxable in the RBD year or that the participant will just be taxed on the RMD calculated amount each year?

Is the 15-year catch-up included in 415 annual aditions? Thanks.

The plan year is calendar, eligibility requirements are age 21 and 1 year of service (1,000 hours) with immediate entry. Subsequent eligibility computation periods revert to plan year. Participant did not meet the requirements during the 1st eligibility computation period (9/23/14 - 9/22/15), but did meet it during the 2nd period (1/1 - 12/31/15). Is his entry date 12/31/15 or 1/1/16? This has impact on whether he gets the 2015 employer nonelective contribution. Thank you.

Plan year is calendar, eligibility requirements are age 21 and 1 year of service (1,000 hours) with immediate entry. Subsequent eligibility computation periods revert to plan year. An employee didn't meet the eligibility requirements during the 1st eligibility computation period (e.g., 9/23/2014 - 9/22/15) but did meet it during the 2nd period (1/1 - 12/31/15). Does the employee enter the plan on 12/31/15 or 1/1/16? This has impact on whether he gets the 2015 employer nonelective contribution. Thank you.

Thank you ETA. I just want to confirm that only the post-88 deferral contributions can be withdrawn without the earnings; pre-89 deferrals and earnings thereon can be withdrawn if the plan allows (i.e., same rules as corporate k plans). Someone is trying to tell me that a governmental k plan can permit deferrals and earnings thereon to be withdrawn no matter when the deferrals were contributed. Thanks.

I believe that a governmental grandfathered 401(k) plan is subject to the same safe harbor hardship withdrawal rules as non-governmental plans. I have someone who is insisting that a governmental plan is not subject to the deferral earnings rule. I looked at the regulations and didn't see an exception. If these plans can permit deferral earnings accrued generally after 1988 to be withdrawn on account of hardship can you please give me a cite. Thank you.

A 457(b) plan has an old vendor that no longer gets on-going contributions other than premiums for life insurance policies. When the plan left the old provider, investment in life insurance was no longer permitted, but participants who had invested in life insurance under the old provider could still keep this investment. Does the plan document drafted by the new provider need to contain a life insurance provision? If no, should the prior plan document under the old provider have a life insurance provision or is the old provider's contract provisions acceptable. Are there different rules for 457(b) governmental plans vs top hat plans? This assumes that investment in life insurance under a 457(b) plan is permitted by state law. Thank you.

I reviewed the FAB Q&A 18 and it is referring to changing 403(b) providers. Non-ERISA plans generally have participant-directed contracts. If the employer allows for another provider, participants would have to direct the old provider to transfer their account into the new provider's contract. In my scenario the employer is not changing providers rather the investment advisor is looking at the investments under one of their current approved providers. The advisor is suggesting to remove a non-performing fund and replacing it with a better one. Affected participants would be notified that the fund is going away and if they don't select another investment, the non-performing fund assets will be moved into a recommended replacement. Would this result in the same (i.e., plan becomes subject to ERISA)? If yes, would a recommendation of leaving the non-performing fund in the investment lineup and add the better performing one. Participants would be notified of the new fund and it would be up to each affected participant to decide to stay in the non-performing fund or move to another fund. I think this may be okay. Lastly, if a fund closes it will need to be replaced. What can be done to keep the plan within the safe harbor? Thank you.

Thanks Belgarath. What if the decsion makers were a retirement plan board made up of employees. However, these employees consist of a board of director memeber, an officer of the company, and HR manager? Thanks.

If an investment adviser suggests to change a non-performing fund and the employer agrees would that action violate the DOL non-ERISA safe harbor? I don't think so; the plan can continue to be non-ERISA. Can you please confirm. Thanks!

A governmental employer has a 457(b) plan that permits unforeseeable emergency withdrawals. They also have a 401(a) plan that matches deferrals from the 457(b) plan. The 401(a) plan wants to allow for unforeseeable emergency withdrawals. Is this permitted? I have only seen hardship withdrawals permitted in these plans. Thanks,

I found that Treasury regulation section 1.401(k)-1(d)(4) provides that a contract that satisfies the requirements of section 403(b), or a plan that is described in section 457(b) is not considered an alternative defined contribution plan. Thus, the employer can terminate the 401(k) plan and distribute the assets. The question remains whether they can merge it into the governmental 401(a) plan.