Common PEP problems are barely addressed by  the SECURE Act’s fix to the “one bad apple” rule (called the “unified plan rule” by the IRS, under which a participating employer’s disqualification error will disqualify the entire plan), though there seems to be a common misunderstanding in the industry to the contrary. That new “bad apple” fix actually has very little operational impact on a MEP /PEP whose operations has been affected by that bad actor.   It provides only a narrow remedy to a narrow issue by which a P3 or lead sponsor can get rid of an employer who causes an operational/qualification error in the plan-though it may take up to a year to do so if one is to follow the IRS’s pre-SECURE Act proposed regs.
Continue Reading The Limited Utility of the “One Bad Apple” Rule Fix

The DOL’s new ESG rules may have a curious impact on some church related organizations which utilize faith based standards in their retirement plan investments. Their ability to continue do may now turn on the manner in which they handle their status as a “church plan.” It arises because the ESG rules will NOT apply

A common misunderstanding between 408(b)(2) and 404(a)(5) is the nature of the requirements: 408(b)(2) requires the service provider’s contract with the plan’s fiduciary contain certain, specific terms. It does NOT require that those fees be disclosed to participants, nor does it require annual disclosure. It is simply a business matter between the fiduciary and the service provider. The only time a follow-up “disclosure” is ever required is if there is a material change in the contract’s terms (including the service fee), and then that disclosure is only required to be made to the plan fiduciary.
Continue Reading The Use, and Impact, of 408(b)(2) and 404(a)-5 Are Often Confused

With few notable exceptions, the statutory and regulatory references we need in the administration of plans are at our fingertips from a number of easily accessible internet resources, a great deal of them actually available for free. One of the most annoying of those “notable exceptions” is found under Code Section 411(e) (6) of the Code, the vesting standards which apply to governmental and church 401(a) plans. Section 411(e)(2) states, in pertinent part, that these plans “shall be treated as meeting the requirements of this section, for purposes of section 401(a), if such plan meets the vesting requirements resulting from the application of sections 401(a)(4) and 401(a)(7) as in effect on September 1, 1974.” You can find those here.


Continue Reading The Hard-To-Find “Pre-ERISA Vesting Rules” for Church and Governmental Plans

Robert Richter, now of ARA and chief editor of the EOB, has weighed ion my posting on the suspension of the due date of loan repayment. I had posited that it is effectively is the participants choice, as the specific language of the statute declares that  “such due date shall be delayed for 1 year” -when combined with the need of the participant to certify COVID stays-effectively means an employee has the right to continue payments or not. I also suggested that the language of the statute means that the employer has no authority to impose a due date. He pointed out that the IRS may end up not agreeing, if past is prescient.
Continue Reading CARE Act Suspension of Loan Repayments: Is it the Employer’s or the Participant’s Choice?

The structure and the language used by the drafters of the CARE Act in their crafting of the new participant loan repayment suspension rules seem to be both rare and stunningly broad: it appears to mandate, as a matter of federal law, that each loan repayment due through December 31, 2020  by COVID qualifying participants are suspended for one year.

This is actually a big deal. Section 2202(b)(2) of the CARES act, which mandates the suspension, did fool with the amortization schedules, or the timing and taxation of defaults under  Section 72(p) of the Tax Code, which is the section which governs the tax aspects of loans. In fact, it did not amend Section 72(p) at all.  Nor did it amend any part of ERISA Section 408(b)(1), which hold the ERISA rules governing loans.
Continue Reading The CARES Act Participant Loan Payment Suspension Rules Take an Unusual Approach in Making the Change; 403(b) Policy Loans Affected Differently

It has now been a dozen years since the IRS issued Revenue Procedure 2007-71, which was written in response to the logistical difficulties which arose from the mammoth changes imposed by the 2007 changes to the 403(b) regulation. The value of this  Rev Proc endures; and is particularly helpful when plans restate their 403(b) plan docs and need to do things like name their vendors;  have Information Sharing Agreements; and try to make plan redesign decisions.
Continue Reading The Enduring Value Rev Proc 2007-71 in Dealing With Legacy 403(b) Contracts…. and Should it be Updated?

It is a very common practice in the 403(b) market for an employer to specifically identify the percentage of compensation it will deposit as an employer contribution to their 403(b) plan: percentages as high as 8, 10 or 12% are not uncommon, especially in higher education. There had been a raging debate in the past as to whether or not this practice of identifying a specific percentage of compensation as the employer formula made the plan a “money purchase plan.” It has been typical for 401(a) plan sponsors to treat plans with set percentage of compensation as “Money Purchase Plans”, where the employer has not reserved the right to, instead, make it a discretionary profit-sharing contribution. But does this rule apply to 403(b) plans?

Continue Reading Dealing With the Legacy of the 403(b) “Money Purchase” Plan

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