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
Mitigating Factors in Calculating a 403(b) Plan’s Maximum Payment Amount under CAP: “Inside Build-Up,” Partial Failures, and Non-Deductibility
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
403(b) Document Delays; the “Once In Always In” Rule; and the “Effective Date Addendum”
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).
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The Most Effective Proposed MEP Legislation Happens Not To Be MEP Legislation
This legislation could fundamentally change the MEP landscape, and even lessen the contention over state run MEPs. It would do this by opening the market for the advantageously pooling of the resources of small employers which would have otherwise been reserved to the State programs. It also could minimize any need for new federal MEP legislation, and promote models which are a lot less risky than the MEP.
Continue Reading The Most Effective Proposed MEP Legislation Happens Not To Be MEP Legislation
403(b)’s “Limitation Year” Rules Demonstrate their “Individual” Nature-and Their Potential Value of the Universal Platform of the Future
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 Tightens Plan Examination Process With New Rules for Plan Sponsors and IRS Examiners
With the IRS’s focus on “black belt” business practices, it announced on November 21, 2016 a new process for its retirement plan audits. These rules center on the timing of the “Information Document Requests” (IDR), which are central to an audit. The problem, as tends to be the problem with many such structured business process improvement efforts, is that-as good as they may appear to the designer on paper-they often leave little room for the actual business experience.
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Auditing Distributed 403(b) (and 401(a)) Contracts
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.
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Website Privacy Policies and the Federal Trade Commission’s Authority over Retirement Plans
Remembering that ERISA does NOT preempt the application of other federal law (like the SEC, Anti-Money Laundering, and the Patriot Act rules-just to name a few), which we continue to learn to integrate into our practices, we now may find ourselves needing to deal with the Federal Trade Commissions standards as well. The issue arises from something as innocuous as the website privacy policies which are so commonplace on retirement plan vendor websites (you know, those things know one ever reads or pays attention to). Well, it appears to matter to the Federal Tead Commission.
Continue Reading Website Privacy Policies and the Federal Trade Commission’s Authority over Retirement Plans