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Bob Toth has more than 30 years of experience in employee benefits law. His practice focuses on the design, administration and distribution of financial products and services for retirement plans.

There is a little noticed change in the IRS’s recent update of Publication 571 (which is the IRS’s 403(b) technical guide). In a highlighted box on page 4 is the following, under how the limits on “annual additions”-otherwise known as the 415 limits- apply: “More than one 403(b) account. If you contributed to more than one 403(b) account, you must combine the contributions made to all 403(b) accounts maintained by your employer. If you participate in more than one 403(b) plan maintained by different employers, you don’t need to aggregate for annual addition limits.” This innocuous seeming statement is actually pretty outstanding, finalizing a quiet morphing over a generation of the way the IRS applies a regulation in a way we rarely see.
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A 403(b) MEP is really complicated when you get down to it because-like anything 403(b), it seems-of the devil that exists in the details.  For example, besides  having to deal with the DOL 2012 Advisory Opinion on all MEPs; and  the fact that the Tax Code Section governing 401(a) MEPS does not apply to 403(b) plans (which means you can never really have a 403(b) MEP for tax purposes); and that the ERISA Section governing all ERISA MEPs (including 403(b) MEPs) requires compliance with that Tax Code Section which doesn’t cover 403(b) MEPS; you still have to deal with the complications of dealing with those legacy contracts of the various participating employers in the MEP. Then there is the issue of dealing with those combination of ERISA and non-ERISA 403(b) plans commonly sponsored by a 403(b)participating employer. These require use of traditional state law agency rules to make them work.
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There is a growing public policy concern regarding the ability of workers in the gig economy to access the ability to accrue retirement savings,. Though IRA’s and SEPs are, of course, available, they are nowhere near as effective as worksite retirement plans. Troy Tisue’s testimony at the Senate HELP Committee’s hearing on retirement plans for the gig economy addresses how Open Meps® may help address this issue. In addition to his written testimony, Troy also discussed at the hearing on how there are ways in which aggregation programs-which are currently available- can be used to address this need.
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The DOL’s proposed regulation permitting Association Health Plans which cover unrelated employers is likely to have a significant impact on the market’s ability to offer Multiple Employer retirement plans to unrelated employers. This is because the regulation permits AHPs through the regulatory modification of ERISA’s definition of the term “employer” under Section 3(5).
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The application of the Spousal Consent and Joint and Survivor Annuity rules is one such issue which we need to consider. In the 401(a) space, dealing with this issue is pretty straightforward. The rules apply uniformly to all 401(a) plans through 401(a)(11) and 417, which is well coordinated with ERISA’s requirements under Section 205. As long as the default form of benefit under the plan is not a J&S benefit; and the spouse is entitled to the survivor benefits upon the participant’s death unless the spouse consents otherwise; the rules are met. If, however, the plan is a money purchase plan, or holds money transferred in from a money purchase plan or a defined benefit plan, or the plan’s default distribution is an annuity payment, the spouse must consent to a lump sum distribution-or even to a loan. Many will remember the efforts we went through years ago cleansing those annuity payment requirements from plans and products, just so no spousal consent would be required for lump sum distributions or loans. Now, though, we have to deal with documenting these rules as they apply to 403(b) plans. Its not so simple
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The DOL’s advisory Opinion on MEPs in 2012 was specifically premised on the DOL’s interpretation of the definition of “employer,” for health plan (MEWA) purposes. The DOL ‘s position was that it had no authority to redefine their historical definition of employer for MEWA purposes merely for retirement plan purposes, that they were bound by the statute to apply the same “employer” definition to both health plans and retirement plans. Does this mean that the new proposed definition of “employer” will, necessarily, by operation of statute, be expanded for retirement plan purposes as well?
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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.
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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 University of California made news when it announced that it has found a way to apply the collective trust rules in such a way to make just such an offering to its 403(b) plan. The downside to this is that it still does not “crack the nut” to make CIT’s available on a bulk basis as 81-100 trusts for unrelated employers. But it still is an interesting tool. It appears they could have done the following. Make sure you have a copy of your US Code handy (or at least you’ve pulled up the Cornell’s on-line US Code tool). Its complicated.
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