Employee employed by two separate unrelated employers - Max Annual Add

[MarZDoates]

Employee is a pathologist and works for a hospital in which she participates in their 403(B).

Same pathologist is a partner in a partnership which maintains a SEP. With respect to the $40,000 annual addition limitation, do you have to aggregate the two plans together? (The employers are totally separate and unrelated.)

There are no deferrals in the SEP. Employer contribution only.

I know that if we were talking about deferrals, the 402(g) limit applies to both employers together. Not sure about the $40,000. Can she have $40,000 going into the plan with the hospital and another $40,000 going into the plan sponsored by the partnership?

Where could I find the citation? Thank you very very much.

[JanetM]

415© is annual additions. I would infer from use of verbage that the employer would be defined under 414(B) and 414©. If they are not CG or affiliated under 414 then seperate limits apply.

At least that is how I did it when I was TPA. Anyone else have comment?

[Mike Preston]

What year are you dealing with?

The regulations are all a bit out of date. 1.415-8 and 1.415-9. Under those rules, a 403(B) is deemed to be provided by the pathologist if the pathologist "is in control" of the partnership within the meaning of "414(B) or © as modified by section 415(h)". Even if not required to aggregate under the rule just cited, if the pathologist has elected treatment under 415©(4)©, then the 403(B) amounts are treated as annual additions against the applicable year's limitations. Note that 415©(4)© is not applicable to years after 12/31/2001 (unless or until the sunset provisions actually take effect, in which case it is again effective).

I haven't had to research this point, so I am not aware of any citation that replaces the regulation that previously applied to 415©(4)©. I'd be interested in having it pointed out should it exist. However, a conservative view is that the aggregation now applies automatically, without the need for an updated regulation.

[MarZDoates]

Mike, why would the aggregation apply automatically? The partnership maintains a SEP while the hospital maintains the 403(B). Also she owns 20% of the partnership. Does that make any difference? Sorry...this is confusing and driving me nuts! Thanks for your help.

[Mike Preston]

Since the maximum exclusion allowance no longer is applicable, the limitation on amounts contributed to 403(B) plans no longer contains the special election. The implication is that the special election is now the default election. Hence, if it is elected by default the regulatory rule that says the limitations are combined if the special election is made is also the default. Or so goes the theory, anyway.

[Appleby]

JanetM is right…

[Mike Preston]

Citation?

[E as in ERISA]

I agree with Mike that under the old rules, the individual participating in a 403(B) typically had to aggregate that plan for purposes of 415 with any plans that s/he sponsored in other businesses which s/he was in control of. I don't know how the changes in the rules have affected that. But it is worth following through on that analyses to confirm that it no longer applies.

[mbozek]

I thought that an employee is still deemed to be in control of the 403(B) annuity maintained by the employer and and must aggregate the 403(B) annuity with the contributions made to any q plan or sep in which the employee controls more than 50% of the equity or profits of the employer who sponsors such plan. IRC 415(k)(4).

[Mike Preston]

I think the issue is whether the first part of 1.415-8(d)(2) will survive in any manner. The more I read of the Code's modifications, including the codification of the second part of that regulation (415k4 which you mentioned) the more I am struck by the absence of anything which implies it should survive. It appears that the IRS was using the fact that there was individual choice on the part of the participant in invoking a different limitation other than the one that was "normally" available. Now, there is no reason for that choice, as the regular 415 limits apply.

Nonetheless, I remember reading something (a newsletter?) from somewhere concerned that the IRS will attempt to reinstitute the requirement for aggregation.

We will know for sure once the IRS gets around to updating 1.415-8.

I'd still like to see something that directly addresses the issue.

[mbozek]

The regulation is based on ERISA which specifically required that under 415(e)(5) an employee had to aggregate 403(B) annuity contributions with qualified plan amounts in two situations: if the employee took special election C or if the employee controlled more than 50% of the employer who maintained a qualfied plan. (See ERISA Conf. Report 92-1280, P 346.) 415(e) was repealed by the tax act of 1996. 415(k)(4) was added with identical language formerly contained in 415(e)(5) to confirm that aggregation is required in the case where the 403(B) participant also maintains a qualified plan or sep plan with more than 50% ownership in the employer who maintians such a plan. IRS pub 571 ( P.12) specifically notes the application of the 50% rule in aggregating 403(B) plan contributions with a qualified plan after the changes in EGTRRA.