DTH

A 501©(3) org changed to a governmental employer. The 501©(3) org had a 401(k) plan that they froze when becoming a governmental employer. They then started a 457(b) plan and 401(a) profit sharing plan that matches deferrals in the 457(b) plan. They would like to get rid of the 401(k) plan. Is the 401(k) plan considered a predesessor employer plan so they can't terminate and disburse the deferrals until an event? Can they merge the 401(k) plan into the governmental 401(a) plan? I can't find anything definitive. I think they may be stuck with the frozen 401(k) plan. Thanks!!

Are military deemed severance and qualified reservist distributions a protected benefit? Thanks!!

Thank you Carol. There is so little guidance on pick-up contributions. This could be a great topic for ASPPA’s annual meeting. Have you ever seen a plan that has a provision indicating that plan entry dates are daily for 60 days then becomes monthly? The employer has a one year of service requirement and gives employees 60 days after meeting eligibility requirements to make their one-time only pick-up contribution? Once they make their election the employee enters the plan and the pick-up contribution becomes effective. If an employee doesn't make an election within the 60 days, they will enter the 1st of the next month and the default pick-up percentage that becomes effective as of that date. Seems odd to me. To me the document should say when entry is as of a specified date (e.g., 1st of the month) and give employees 60 days before their entry date to make the election. If no election is made the default applies on their entry date. As always we appreciate your expertise and support. Thank you.

A governmental 401(a) plan allows employees to make an irrevocable pick-up contribution election within a range of 1% - 10% of compensation. The plan also allows employees to make a one-time irrevocable election to not participate in plan. The plan has an age 21 and 1 year of service requirement with monthly entry. If an employee is eligible to enter the plan on 4/1/2016 must s/he make the election by 4/1/2016 or they don't make an election can they make it at a later date (e.g., 1/1/2019)? The 401(k) regulations provide: §1.401(k)-1(a)(3)(v) Certain one-time elections not treated as cash or deferred elections. A cash or deferred election does not include a one-time irrevocable election made no later than the employee's first becoming eligible under the plan or any other plan or arrangement of the employer that is described in section 219(g)(5)(A)…. It appears the employee would need to make the election by 4/1/2016. Also, to the extent the plan allows for a range, should the plan contain a provision as to what happens if the employee does not make an election or can that be disclosed in an employee communication or an election form. Thanks.

An employer has a 401(a) plan with a pick-up of 4% of compensation and also has a 457(b) plan. An employee makes $50,000, so $2,000 will be picked up and contributed to the 401(a) plan. The employee is deferring 10% of compensation. Do you take 10% of $50,000 or $48,000? Is this dependent on the 457(b) plan's definition of compensation? I think no matter what the plan's definition of contribution compensation is it would be $48,000 because pick-up contributions are considered employer contributions. Can you please confirm this. Thank you.

Governmental 457(b) plans are not subject to 415©(1)(A) defined contribution limitation. Governmental 401(a) plans are subject to the limitation. For the governmental 401(a) limits test do you include deferrals made to the employer's 457(b) plan? I don't think so. Can you please provide a site. Thanks!!

Thank you Carol this is very helpful. I was not aware of the PLR. If a plan permits employees to make a one-time irrecocable election to not participate in the plan, elect to never make pick-up contributions, or allows for them to elect their pick-up contributions under a range (e.g., 1% - 10% of compensation) would that change the answer? Thank you.

A governmental 401(a) money purchase plan has a 4% pick-up contribution. The plan does not permit employees to make a one-time irrecocable election to not participate in the plan nor to elect to never make pick-up contributions. A collectively bargaining agreement (CBA) raised the 4% to 6% for existing employees. Can this be done via a CBA, a new employment agreement, or by the employer for non-union employees? I had thought that once pick-up contributions start they can't be increased or decreased for any existing employees. From Rev. Ruling 2006-43: Section 1.401(k)-1(a)(3) generally defines a cash or deferred election as any direct or indirect election (or modification of an earlier election) by an employee to have the employer (i) provide an amount that is not currently available to the employee in the form of cash or some other taxable benefit, or (ii) contribute an amount to a trust or provide an accrual for a plan deferring the receipt of compensation. Thank you.

A plan has a calendar plan year. The employer is moved from an individually designed plan (timely signed an 8905) and is using a pre-approved document. The PPA restated document is effective 1/1/2016. When the employer got their PPA restatement they notified the document provider that they made a change in operation mid-2015 plan year but failed to request an amendment to the plan document. Did the employer need to sign an amendment by 12/31/15 for the change or can the change be incorporated into the PPA document and signed by 4/30/16 (i.e., under PPA remedial amendment period). If it can be incorporated into the PPA document would is be under varying effective dates or would the PPA restatement date need to be the effective date of the change in operation (e.g., 10/1/15). Thank you.

Thank you Carol. They want the employee to make the pick-up election the month before the employee terminates employment. So what you are saying is this can't be done. Thanks!!

Happy Holidays! An on-going governmental money purchase plan with a match wants to allow participants to elect 0% - 100% 414(h) pick-up of their final paycheck. The final paycheck will include accrued sick and vacation pay, which can be a large sum. It looks like they are trying to circumvent a CODA by calling the election a 414(h) pick-up. Can this be done? If yes, can you please provide a cite or PLR. Thanks!

Hi Mike, It is not that it bothers me, it is just I have not seen it done before. I just want to make sure there aren't any issues other than more restrictions on distributions. Thanks!!

Happy Thanksgiving. I have a governmental employer who had a money purchase plan that they converted to a profit sharing plan in 2012. Now they want to convert it back to a money purchase plans. Has anyone every seen this done? Thanks!!

Has anyone seen a non-ERISA 403(b) plan sponsored by a dual status (i..e, 501©(3) and governmental) public education entity? Thanks!!

I have found my answer in 26 CFR 31.3121(b)(7)-2(d)(4)(ii), The employer may exclude this group from the mandatory 7.5% contribution in the FICA Alternative plan. Treatment of re-hired annuitants. An employee who is a former participant in a retirement system maintained by a State, political subdivision or instrumentality thereof, who has previously retired from service with the State, political subdivision or instrumentality, and who is either in pay status (i.e., is currently receiving retirement benefits) under the retirement system or has reached nomal retirement age under the retirement system, is deemed to be a qualified participant in the retirement system without regard to whether he or she continues to accrue a benefit or whether the distribution of benefits under the retirement system has been suspended pending cessation of services. This rule also applies in the case of an employee who has retired from service with another State, political subdivision or instrumentality thereof that maintains the same retirement system as the current employer, provided the employee is a former participant in the system by reason of the employee's former employment. Thus, for example, if a teacher retires from service with a school district that participates in a state-wide teachers' retirement system, begins to receive benefits from the system, and later becomes a substitute teacher in another school district that participates in the same state-wide system, the employee is treated as a re-hired annuitant under this paragraph (d)(4)(ii).

We have rehired some retirees on a part-time basis. The retirees are receiving an annuity from our defined benefit plan but are no longer eligible to accrue additional benefits under that plan. These employees also will not have deductions taken out of their pay for social security. Must we take the mandatory 7.5% out of their pay or can we exclude these rehired retirees from our FICA Alternative plan. Thank you.

In a 457(b) plan the employee pre-tax/Roth deferral contributions are added together with employer contributions towards the 457(e)(15) limit. So the deferral limit could come into play. If the combined employee/employer contribution is more than the IRS limit the employee would have an excess deferral that needs to be distributed from the plan. These plans are not subject to IRS nondiscrimination testing so the employer can give different rates of employer contributions to different groups. The question is really about pay raises and if the employer can give employees to option of getting a raise or in lieu of the raise get a higher rate of employer contribution. I know an issue had come up with governmental 403(b) plans where an employer gave employees the option of medical coverage or getting the employer's portion in cash. The employer can't allow employee's who elected the cash option to have the option of taking cash or putting the cash into a 403(b) plan. This seems to be a similar scenario.

A governmental employer gives a 5% employer contribution into their 457(b) plan. The employer wants to give employees the option of receiving a 2% raise or in lieu of a raise the employer will put an additional 3% employer contribution into the plan. Thus, employees who elect their raise will get a 5% employer contribution and employees who elect no raise will get a 8% contribution. My gut tells me this may be against state labor. Has anyone see a governmental employer do this?

Can a retired public safety officer asking for a direct payment to an insurer satisfy his RMD? The qualified distribution (up to $3,000) must be directly paid to the insurer and reported on Form 1099-R as taxable in box 2A. It will be up to the retired public safety officer to take the deduction on their personal income tax return. If the participant requested $3,000 to be directly paid to the insurer and his RMD is $1,000, he will only be able to deduct $2,000 as the RMD must be taken into income. Any thoughts?

A participant took out a primary residence loans for 15 years in a 401(k) plan. In year 5 the participant took a bona fide leave of absence and after the one-year period was up he made a balloon payment to make up the missed principal and accrued interest, and resumed loan repayments. Now in year 10 he has to take another bona fide leave of absence. Can he suspend loan repayments for another year? Thanks!!

Thank you all. I had looked at the Treasury regulations and the Revenue Ruling but they did not specify. I had also looked at a few vendor forms online and the forms said that the participant had to take a plan loan first but their specimen plan document has the same unforeseeable emergency standard language as the regulations. It is possible that the restiction could be in a seprate Participant Loan Program the vendor suppied the employer.

A governmental 457(b) plan permits participant loans and unforeseeable emergency withdrawals. Must a participant take a loan from the 457(b) plan first before they can request an unforeseeable emergency withdrawal (assuming the loan does not cause a hardship).

Hi, IRS Revenue Ruling 2006-43 does not permit a participating employee, from and after the date of the “pick-up”, to have a cash or deferred election right with respect to designated employee contributions. Participating employees must not be permitted to opt out of the “pick-up”, or to receive the contributed amounts directly instead of having them paid by the employing unit to the plan. A collectively bargaining agreement originally said that 3% will be picked up from union employees pay. After several years went by a new collectively bargained agreement raised this to 5% for existing and new employees. Athough participants can't change or opt out of the pick-up contributions can a collectively bargaining agreement or employment contract renewal raise it for existing employees who are having pick-up contributions taken out of pay? My gut tells me no, but I can't find a cite or ruling where the IRS specifies they can't. Thanks

Hi, A 457(b) governmental plan allows participants to elect their normal retirement age for the special pre-retirement catch-up. Can a participant retire this year (age 60) and begin taking their unreduced DB benefit and turn in their 457(b) special catch-up papwerwork declaring their 457(b) normal retirement age as 63 so they can make the catch-up contribution this tax year? The 457(b) regulations refer to declaring a normal retirement age and not a normal retirement date. At first blush it appears that the taxpayer could do this but I have heard that IRS auditors saying that taxpayers can't do this. The taxpayer would need to turn in their 457(b) special catch-up form declaring their normal retirement age before telling the DB plan or employer that they are going to retire in the same tax year. Has anyone had any experience with this? Also, if the IRS says the taxpayer can't do this does anyone have any IRS published guidance showing they can't. Thanks.

A 501©(3) organization established a non-ERISA 403(b) in 2009; only allowed for deferrals. In 2014 they added employer contributions and the plan became subject to ERISA. They added a 4-year graded vesting schedule. There is no predecessor employer Under ERISA you can exclude vesting service before the establishment of the plan or prior to age 18. Can they exclude the pre-ERISA service? In other words, they want all existing and newly eligible employees to start vesting service in 2014 when the employer contributions were added to the plan. If yes, can you please provide a cite. Thank You.