Ellie? Carol? Define YOS for catch-up purposes...

[Guest STLGiant]

has it been decided that when applying post EGTRRA Catch-up rules, isn't it's 15 YOS with ONE single employer (in this case the XYZ school district) or 15 YOS within public school education (perhaps with several school districts) so long as the employee is within the SAME employee organization (like the StateTeacher's Retirement System?).

[Guest Yanikoski]

I'm not Ellie or Carol, but I think either of them would agree: EGTRRA did NOT change the rules regarding the 15-year catchup. The 15 years has to be with the same employer. In a public school system, this would normally mean the same school district. Being in the same retirement plan is not relevant: if you change school districts within the same state, the Years of Service clock starts over.

[mbozek]

Since the IRS has never been able to define who is the employer for 403(B) plans in an articulated manner, employers may apply a reasonable good faith interpretation of the controlled group rules of IRC 414(B) and 414© as they apply to 403(B) plans until IRS guidance is issued. Notice 96-64. IRS regs will not be applied retroactively. This would include aggregating years of service. Also see IRS audit guidelines for 403(B) plans, Section VI(A)(3)(e). Section V(A.1)(3) of the Audit guidelines contains a peculiar provision which states that an employee who has 15 or more years with another qualified organizaton could use the full amount of the catch up with the new organization.

[Guest STLGiant]

Thanks to both of you...it was the reply from njb that's giving me fits since I've read that same provision and it does appear that it is open to debate.

Not to throw oil on this party, but last Friday at an IRS symposium, Bob Architech said the SAME exact thing that Yanikowski stated, it's service with the SAME employer, yet my read of the regs agrees with mjb.

My only question is that does the organization point to something like this. You can move within one hospital organizations (to different hospitals) and have that service counted--almost the same way one could move between schools within the same district.

Has anyone looked at the legislative notes on this to see if the intent was for ANY service within "one public school district" or any public school district, so long as it was within the same organization (like TRS (teachers retirement system)). I'd be interested to see if anyone was audited on this point and how they faired since a good-faith interpretation of the Code would indicated a "window" of opportunity until such time as the Service issues a better interpretation.

Looking at Pub 571 might lead one to side with Yanikowski, but it appears that the definition is better explained in pre-EGTRRA law than post EGTRRA.

Hey Ellie, what's NTSA have to say about this?? Carol, how are you advising clients on this???

[Guest Yanikoski]

I agree that there is plenty of ambiguity in the hospital market, and I wouldn't dare to venture a definite opinion about that. The public school market is a different story, though, since mergers and acquisitions are virtually never at issue. I meant my comments to apply only to the public school arena, which is what I thought the question was: the employer is the school district, period. I, for one, would like to see a lot more clarification for the non-government sector, though.

[Guest STLGiant]

Thanks Chuck, my comments on the hospitals was two fold. One, Pub 571 speaks of being in the same "organization". Since this terminology is more hospital oriented that school district it could be contrued that there is a different application for hospital organizaitons vs. public school districts. It doesn't help much when the IRS says one thing, yet their publications and the Code leave too much room for doubt. BTW, Elllie is Ellie Lowder and she represents the National Tax Sheltered Annuity Association. Carol is the Board Moderator and is a practicing attorney in the D.C./MD area I think...

[mbozek]

At every conference I have ever attended IRS representatives have always informed the audience that the are not speaking on behalf of the IRS in giving their opinions. There are also plrs where the IRS has approved aggregation of service for 4039b0 plans after merger or acquisitions of NP organizations. The real issues is what constitutes the employer for the purpose of the retirment plan. This is inherently fact driven. In some states there is a state wide retirement plan for all teachers and service is aggregated. The districts could be considered an instrumentality of the state for the prupose of aggregating service. You really need expert tax counsel to review this issue.

The reason the IRS is stating their position verbally and not in writing is that the language of IRC 402(g)(8)(A) requires that a qualified employee have 15 years of service with a qualified organization in order to be eligible to make the excess contribution. There is an ambiguity as to whether the employee is required to have 15 years of service with the same employer for whom the employee is making the excess contribution or is only required to have 15 years of service with a qualfied organization before being able to make the excess contribution to any qualified organizaton.

[Guest Yanikoski]

I am not aware that there has ever been any ambiguity about this in the public school arena. The retirement system does NOT determine the employer in such plans. In the hospital arena, where very complex situations can arise and rules of thumb fail to reflect them adequately, facts and circumstances are more likely to come into play, and it can be very useful to examine whether the employee has been covered by the same plan during the period in question. This may even be the determining factor, where the situationis otherwise in doubt. But to use this same method in the public school arena, where continuity of employment is almost always readily defined by the school district, would be asking for trouble. I'm not saying you don't have an argument, but I'll give you odds that it's an argument you will lose, if you test it.

[Guest Yanikoski]

One other thought occurs to me, and this may help straighten out the confusion. To the extent that the retirement plan determines the continuity of the employer for 403(B) purposes, it is the 403(B) plan that is relevant. In school districts, the state retirement board generally controls the DB plan, but they do not control the 403(B) plan. The school district controls the 403(B) plan. Control of the DB plan, as Bob Architect indicated (and as has always been the case) is not relevant.

[Guest STLGiant]

Since Carol hasn't replied as of yet, I took the liberty of looking at her site. MJB and Chuck, check out the who's the employer general information letter re: governments, specifically to the following:

Question 5. Is the status of a "qualified participant" under section 415(B)(10)(B) of the Code preserved if such participant rolls over amounts to another governmental plan of a different governmental employer? Is his or her status preserved where there are transfers of assets or liabilities or purchases of service credit between governmental plans maintained by different governmental employers?

A. Section 415(B)(10)(B) provides that the term "qualified participant" means a participant who first became a participant in the plan maintained by the employer before January 1, 1990. A qualified participant is one who was employed by a governmental unit and accrued a benefit with respect to such employment under a governmental plan prior to January 1, 1990. While an employee's qualified participant status is preserved in the case of a rollover or transfer of assets and liabilities between plans maintained by the same employer, it is not preserved in the case of such rollover or transfer between plans maintained by different employers. Further, the purchase (or reciprocal recognition) of past service credit with one employer by (or for) an employee under the plan of a second employer does not result in the employee's status as a qualified participant with the first employer carrying over to the second employer.

It would "seem" that in this instance, the reciprocal recognition for past service credit wouldn't be recognized in this instance, would it be recognized for excess contributions utilizing 15 YOS rules??

[Guest STLGiant]

THE ISSUE IS RESOLVED...

Here on the IRS website. Go to the IRS website, on the left side click on "Retirement Plans". Once there scroll down to "403(B) Tax Sheltered Annuities". Click on the word "answers" in the first bullet point and then go to Question 8.

Bottom-line: The IRS views the 15 YOS as with the same employer. I guess one could fight this in Tax Court since there is enough ambiguity for even this slow RB to run threw the line, but then again, most taxpayers wouldn'tb spend the money...