QDROphile Posted October 27, 2000 Share Posted October 27, 2000 Do you know of a 403(B) plan that allows a one-time irrevocable election? Does the employer include the contribution made pursuant to the irrevocable election in the employee's FICA wages? Link to comment Share on other sites More sharing options...
IRC401 Posted October 30, 2000 Share Posted October 30, 2000 There are a number of state university systems that have mandatory contributions to a 403(B) plan. In some cases the employee has an irrevocable election to participate in the 403(B) program or a DB plan. As far as I know, in all cases the employer is withholding FICA taxes (but it is quite possible that there are plans that I don't know about). Contributions made to a 403(B) plan because of an irrevocable election should not be subject to FICA taxes. For what it is worth, Deloitte is out trying to sell a FICA refund idea to university systems. Question: Does your plan truly have an irreovcable election, or is there some fine print that allows a change? Link to comment Share on other sites More sharing options...
QDROphile Posted October 30, 2000 Author Share Posted October 30, 2000 Sincerely, verily and truly irrevocable voluntary one-time election that establishes the amount of contribution, not simply whether or not the employee participates. Do you mean "should not be subject" in a moral, policy or legal sense? Link to comment Share on other sites More sharing options...
Carol V. Calhoun Posted October 30, 2000 Share Posted October 30, 2000 FICA taxes apply if the contribution is "salary reduction," regardless of the election type. You might want to check out this thread for a discussion of the IRS view of what "salary reduction" means in a related area, the FICA taxation of "picked up" contributions to 401(a) plans. http://benefitslink.com/boards/index.php?showtopic=2174 Employee benefits legal resource site The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances. Link to comment Share on other sites More sharing options...
IRC401 Posted October 31, 2000 Share Posted October 31, 2000 I use the verb should to mean "if the IRS really followed the law, but I don't have any confidence that it will." The statutory language governing FICA taxation of 403(B) contributions is virtually identical to the language used to govern pick-up contributions, but that doesn't necessarily mean that the two provisions have the same meaning. The FICA language dates from 1983. The current pick-up language dates from a 1984 amendment of a 1983 law. The 1983 pick-up language was rather explicit that pick-up contributions were subject to FICA taxes. Congress drafted an amendment in order to exclude pick-up contributions from FICA taxes, but then changed its mind, left the amendment in place, but stated in the legislative history that the amendment meant nothing. (So why didn't they just drop the amendment and leave the law alone? To do so would have avoided the Shalala litigation.) The surviving language is virtually identical to the 403(B) language, but does it mean the same thing??? The question is whether Congress can amend one provision of the Code in a later year by means of the legislative history of another section of the Code. I don't think that they should be able to, but I don't get to make the decision. I think that if you look at the 403(B) language standing alond without regard to subsequent legislative changes to the pick-up provisions, the logical conclusion is that elective deferrals are subject to FICA taxes and that other types of contributions, including one-time elections, are not. Link to comment Share on other sites More sharing options...
QDROphile Posted October 31, 2000 Author Share Posted October 31, 2000 The legislative history is the rub, isn't it? And the legislative histoy is even worse than you descibe when you look into the FICA statutes and the statutes that both brought us and did not bring us one-time election provisions. If you believe legislative history, Congress intended that 401(a) plan and 403(B) plan one-time elections are treated the same for income tax purposes and differently for FICA purposes. While there is nothing theoretically wrong with different rules for FICA and income taxes (and there is plenty authority to say that is so), it certainly can be perplexing and a nasty trap. So I was looking indirectly for what the IRS believes by asking what plans are actually doing. The next question is whether they are doing it advisedly or simply not getting caught. Link to comment Share on other sites More sharing options...
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