Copy of: Dist Liability

[Guest barrystarr]

Any advice or counsel- PL or IRB or case?

Is a school district any more responsibile financially (Even with a "Hold Harmless"..) for mistakes in their participants contributions or distributions..... for their 403bs or their 457bs ??

Thankx

[mbozek]

The IRS has no authority to determine who is responsible for a mistake in contributions or distributions. The IRS will assess the tax due under the tax law for the error against the employer or employee who may have a legal remedy against another party such as the TPA or provider who made the mistake. The liability of an employer for a 403(b) or 457 plan under the tax law can be difficult to determine where there are multiple vendors who act independently and there is no plan administrator who aggregates contributions of an individual participant or amounts borrowed from loans.

[Guest barrystarr]

But in a 457b there is a plan sponsor named-the employer. So is an error shared here; and in 403b is the liability also shared less do to the fact that there is no sponsor named?

Or are you saying that the irs goes only after the party where there is a remedy availabile?

I'm seeking insight regarding responsibilty/liability because the district is stateing that its feeder (non-unified) districts should NOT independently do 457b because the overall fiduciary liability is greater than for 403b.

Does anyone agree that this premise is untrue????? That 457bs for schools are no more dangerous

than 403bs.

thankx

barry

[mbozek]

The IRS is only concerned with collecting taxes from a responsible party. For public employers the issue of fiduciary liability for mistakes in a 457 plan is a matter of state law. In some states the district can be a fiduciary if it administers a plan or retains discretion. You need to have counsel review the applicable laws.

[GBurns]

That is the point .. Who is the responsible party???

If an employer makes a pre-tax deduction that is not proper or is not correct, then that employer is usually held responsible by the IRS and other reulators for the resulting under-withholding and the reduced employer matching FICA etc. Payroll errors are not traditionally or logically blamed on the employee who has no control over the calculation of the payroll or the calculation of withholding and payroll taxes. The fact that the employee eventually at the end of the year gets a W2 and uses that info to file a tax return with which any deficiencies might have to be made up has nothing to do with the issue the least of which is the incorrect employer matching FICA, incorrect FUTA and incorrect state Quarterly returns including unemployment taxes and possibly WC.

An improper pre-tax deduction in this case could include no salary reduction agreement, incorrect amount, no legitimate 403(b) plan, no legitimate 403(b) annuity or investment provider etc.

If you think about it, Why is there even a Hold Harmless Agreement? Could it be that the employer's all got legal advice indicating that this was necessary for protection? If so, protection from what? Errors, obviously, unless of course you think that Hold Harmless Agreements have no use and it was just being done foolishly or for the fun of it.

[mbozek]

Barry: The IRS only cares about recovering taxes from who ever was responsbile for payment, either the employer for witholding taxes or employee if the limit on plan loans is exceeded. In some plans there is no central administration because of the risk that the plan administrator will be held liable as a fiduciary to the employee under state law for any problems. In some states the employer who is designated as plan admin is legally a fiduciary. Some attorneys believe that the employer will not be liable if it does not act as a plan administrator if the employer only remits contributions to the vendor. The employer enters into a hold harmless agreement with the vendor for indemnification in the event the employer is laible for taxes or penalities.