But it’s interesting to see the effect on a 403(b) plan going through the edit CAP process: There is no tax exempt trust here that is enjoying 501(a) tax exempt treatment; the employer is a tax-exempt entity; and, though
the individual will suffer taxation, the amount of which should be included in the MPA, there are a couple of important factors which come into play here.
Continue Reading Mitigating Factors in Calculating a 403(b) Plan’s Maximum Payment Amount under CAP: “Inside Build-Up,” Partial Failures, and Non-Deductibility

One of the roots of the problem is what the IRS generally refers to as the “once in, always in” rule of 403(b)’s “universal availability” requirement. “Once in, always in” refers to the IRS position that once an employee has become eligible to make elective deferrals into the plan by reaching the 1000-hour benchmark in one year, that employee will remain eligible to make elective deferrals in future years-even in years where that employee does not complete 1000 hours of service. That person can only lose that ability to defer if they become part of one of those limited categories of employees which can be excluded (such as certain students).
Continue Reading 403(b) Document Delays; the “Once In Always In” Rule; and the “Effective Date Addendum”

One of the more difficult rules that the IRS has imposed on the 403(b) market in recent years is the complete ban on issuing determination letters on individually designed 403(b) plan documents, under any circumstance. But buried in Rev Proc 2017-41 is something we have been looking for in the 403(b) space, which actually would help alleviate some of the concerns document drafters have with these long-standing plans.
Continue Reading IRS’s New 401(k) Pre-Approved Document Rules Suggests a Path To Address 403(b) Document Challenges

The complex nature of handling 403(b) plans-and, in particular, the unique manner in which the fiduciary rules apply to them-make these plans uniquely suited to customized fiduciary services. It is well beyond the skill set of many 501(c)(3) organizations to make sense of their often complicated 403(b) programs, and to put them into some kind of sensical order. This must be done all the while applying a number of rules intended for the 401(k) market (with their centralized recordkeeping systems) in a plan which may have significant assets held by multiple vendors under a variety of contracts with differing terms.
Continue Reading Managing Critical 403(b) Issues through Proper Allocation of 3(16) and 3(21) Fiduciary Responsibility

The 403(b) limitation year is determined on a person by person basis, it is not a plan wide rule. Only the individual can change the limitation year, and only for its contracts. To change the year, the individual must attach a statement to his or her income tax return filed for the taxable year in which the change is made. To change a plan’s limitation year, the administrator would need each employee to make that 1040 filing.
Continue Reading 403(b)’s “Limitation Year” Rules Demonstrate their “Individual” Nature-and Their Potential Value of the Universal Platform of the Future

The IRS decided to handle this “best guess” period by announcing that any 403(b) document could be corrected under a new, special 403(b) Remedial Amendment Program, by that new RAP’s end date. It announced that the beginning of the RAP was the required adoption date for 403(b) plan documents (generally, January 1, 2010). The end of the RAP would be announced once the IRS approves its first set of pre-approved 403(b) documents. Once those first pre-approved documents are released, the IRS promised to announce the “end date.” It has now done that, with Rev Proc 2017-18 announcement of March 31, 2020 as the end of the RAP-which also suggest that the pre-approved documents will be released by that date.

Continue Reading Correcting the “best guesses” on 403(b) Plan terms by using the first 403(b) Remedial Amendment Period under Rev Proc 2017-18

We may know what is a “Qualified Church Controlled Organization” (which we refer to as QCCOs), and even what a “Non-Qualified Church Controlled Organization (or Non-QCCO), but nothing ever defines just what qualifies as a “church.” In the 403(b) world we often refer to them as “steeple churches,” but that seems just to beg the question as well.
Continue Reading When Is an Organization a “Church” that Sponsors a Retirement Plan?

There is a potential impact of the 403(b) University Lawsuits on the ability of 401(k) plans to maintain self-directed brokerage accounts. These 403(b) plans, with their wide variety of investments which are subject only to the control of the participants, are essentially structured in the same manner as SBDAs (without many of the security law protections that are given 403(b) participants). Should the plaintiffs succeed in their calms that it was imprudent to permit employees the ability to invest in a wide range of securities without fiduciary oversight, this may well be the death knell of SBDAs.
Continue Reading A Potential Impact of the 403(b) University Lawsuits on 401(k) Self Directed Brokerage Accounts

How do you audit a 403(b) in-kind distribution? There is no financial transaction, no cash changes hands, there is no change in investments. It really is only a nominal change in the records of the insurer. Yet, somehow, GAAP requires that the “transaction” be verified. There is no answer, yet, to this question, which means the industries (that is, auditors, insurers, and lawyers) will be pressed for finding a standardized approach for bringing audit certainty to this process. It even becomes a bigger issue than 403(b)s: QLACs and other distributed annuity contracts are all able to be distributed as “in-kind” distributions from 401(a) plans as well, and there is no acceptable “recordkeeping” method to audit.
Continue Reading Auditing Distributed 403(b) (and 401(a)) Contracts