A plan sponsor asks: Does a 403(b) plan document need to include language authorizing permissive 403(b)-to-governmental defined benefit transfers for purchase of service credit?
The final 403(b) regulations require that a 403(b) plan document “contain all the material terms and conditions for eligibility, benefits, applicable limitations, the contracts available under the plan, and the time and form under which benefit distributions would be made.” As such, the transfer for purchase of service credit would likely need to be separately addressed in the plan document if only 403(b)-to-403(b) transfers are currently addressed.
A plan sponsor asks If a teacher retires at the end of a school year but the employer generally pays teachers over a 12 month period such that payments continue for two months following the end of the school year, is a contribution based on this compensation considered a post-severance contribution?
The final 403(b) regulations do, in certain cases, permit contributions based on compensation earned prior to retirement but paid within 2.5 months (or the end of a “limitation year”, if later) after an employee has a severance from employment. It would be necessary to look at specific contract and plan terms in each case.
A plan adviser asks: In Revenue Procedure 2007-71, the IRS provided transition relief for certain 403(b) contracts issued after 2004 that cease to receive contributions before 2009 either because of discontinuance of contributions to the contract or the covered employee becoming a former employee. Do these contracts need to be included in the more comprehensive Form 5500 filing that many 403(b) plans will be subject to in 2009?
At this moment, the answer appears to be yes, although the Department of Labor is currently studying this issue and has been asked to issue some relief (such as guidance that mirrors the relief provided in Revenue Procedure 2007-71). However, we cannot be sure of that at the current time.
A plan adviser asks: Can a 403(b) plan impose quarterly entry dates for elective deferral contributions and not violate the universal availability rule?
The final 403(b) regulations provide that an employee must have an “effective opportunity” to make 403(b) elective deferral contributions at least once a year. As such, a quarterly entry date process appears reasonable so long as these rules are applied consistently to all employees such that all employees are only eligible to enter the 403(b) plan on the first day of a calendar quarter.
A plan sponsor asks: An employer has switched vendors multiple times since 1999. In 1999, it discontinued contributions to contracts provided by its vendor at the time. These contracts were treated as a separate "plan." No contributions, employee or employer, have been made since that time. Does this separate "plan" need a plan document?
The IRS has been indicating that a plan document is required in this case unless the plan has been terminated, which includes all assets having been distributed, before 2009. For this purpose, the regulations state that the delivery of a fully paid individual insurance annuity contract is treated as a distribution. One option that might be available, then, is to terminate this old plan so as to avoid having to comply with the plan document requirement as of January 1, 2009.
A plan provider asks: One of the requirements for a contract exchange under the final 403(b) regulations is that the participant must have an accumulated benefit immediately after the exchange that is at least equal to the accumulated benefit of the participant immediately before the exchange. The rules for a plan to plan transfer contain the same rule. Does a surrender fee or other type of market value adjustment that results from liquidating the existing contract violate this requirement, essentially prohibiting a contract exchange or a plan to plan transfer?
Although some IRS officials have indicated that they believe that such these types of fees do not violate the "at least equal" retirement, there is no formal guidance providing as such.
NOTE: This feature is to provide general information only, does not constitute legal advice as part of an attorney-client relationship, and cannot be used or substituted for legal or tax advice.