Mandatory Employee contributions to Money Purchase Plan

[Belgarath]

Non-profit organization, non-governmental (a private college). They have a qualified plan (money purchase)  where, as a condition of employment, the employee MUST contribute 5% of pay. Employer then matches anywhere from 5 to 10 % of pay, depending upon service, etc. So far, so good.

 

The baffling part is that the SPD, and the plan audit notes on the 5500 form clearly indicate that these mandatory employee contributions are PRE-TAX. We’re under the impression, and the EOB seems to confirm, that such mandatory contributions are AFTER-TAX.

 

Am I missing something? Are mandatory employee contributions (non-governmental plan) allowed to be pre-tax? Or is it perhaps poor drafting in SPD?

[ETA Consulting LLC]

What does the plan document say?  Assuming it is a pre-approved plan, the language should be pretty clear.

Good Luck!

[Belgarath]

We don't have a document available to look at, or I would have cheerfully done that! The document is not a pre-approved plan, and last D-letter was 2014.

We aren't doing admin on this plan - we were just asked to compare the provisions, as available in an on-line SPD, for a college for whom we DO handle the administration, as sort of a very informal "benchmarking" that they are doing - we're just doing this as a favor. 

[CuseFan]

I have a tax-exempt client with a similar type of plan. Employees must make 5% pre-tax salary deferrals as a condition of employment. Interestingly, as these are not elective deferrals - they are non-elective deferrals - they do not count toward the 402(g) limit.

[Flyboyjohn]

If the MP plan was pre-ERISA it might be grandfathered for pre-tax deferrals (see the first sentence in 401(k)(1)) if it somehow retained grandfathered status in its plan documents over the past 40+ years.

[Eve Sav]

These are referred to as TAMRA contributions.  They are mandatory as a condition of employment, and they are deducted pre-tax. They do not count in the 402(g) limit. They should not be reported on W-2 in the same box as the 403(b) deferrals.  These mandatory contributions, and any related "match" are considered nonelective employer contributions and must satisfy the general nondiscrimination testing under 401(a)(4). 

[Belgarath]

Eve- I had understood (maybe incorrectly) that these TAMRA contributions applied to 403(b) plans. The plan is question is a Money Purchase plan. Can you confirm that you believe this applies to Money Purchase plans as well? 

John - I don't think that applies here - even though it may be a pre-ERISA MP plan, the employee does NOT have any option to receive in cash, so it wouldn't be considered a CODA regardless, right? (Turns out to be moot - plan started in 1985, s post-ERISA anyway.)

Cuse - so you have a non-governmental tax exempt MP plan that requires 5% mandatory employee contributions, and they are pre-tax. Are you using a pre-approved document?

And does anyone have a citation as to the authority for such contributions being pre-tax? I'm not finding such a cite - looking for love in all the wrong places, I guess...

Thanks to all for the responses. This one is a head-scratcher for me.

[Susan L]

This sounds like a 414(h) governmental pick up plan, which is the only way I am aware of that mandatory employee contributions can be considered pre-tax (https://www.irs.gov/government-entities/federal-state-local-governments/employer-pick-up-contributions-to-benefit-plans ).  Like you, I'll be interested to hear if anyone knows of a way to do mandatory employee contributions in a plan that is not a governmental plan.

[CuseFan]

My client's plan is a 403(b) and not a MP, they used to have both merged MP into 403(b). i do occasional ad hoc consulting for them, the plan is with TIAA-CREF.

[Belgarath]

Yeah, I've seen TIAA references to TAMRA mandatory contributions in 403(b) plans. Problem is, many 403(b) plans are governmental anyway. And it may be that TIAA is just talking about the fact that your calculation of the elective deferral limit under 402(g) isn't reduced due to the mandatory contributions.

Oh well, I'm not going to delve into this any further. Thanks for the responses.

[Belgarath]

Just an fyi - Sal suggested that they may be relying on the fact that an irrevocable election under 1.401(k)-1(a)(3)(v) is not a CODA. I had considered this, but apparently I misunderstood the term "election." To my way of thinking, since it is a condition of employment, there's no opportunity to elect NOT to participate, hence there's no election.

This is why I love to solicit the opinions of others! I should hasten to add that Sal did not express an opinion as to whether such reliance was correct or not - he merely pointed out that this was probably what they were relying on. I want to be very careful not to put words in his mouth!

[Ben Jensen]

CuseFan... How did they merge a MP plan (a 401(a)plan) into a 403(b)?  Not possible unless they are a church.