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December 28th, 2021
Information & Insights for the 403(b) Community
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QNEC for a Prior Year and the 415 Limit
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“We made a qualified nonelective contribution (QNEC) in 2020 to correct a missed 403(b) deferral opportunity for one of our employees in 2019. Is the QNEC considered to be a 2019 or a 2020 contribution for 415 limit purposes? Also, since we are making up for a missed elective deferral opportunity, does the QNEC count toward the 402(g) elective deferral limit?” 
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Can Beneficiaries Elect Timing of Payments From Inherited 403(b) Assets?
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“In a 403(b) plan, does a spouse beneficiary have the ability to forgo the payments over his/her life expectancy and opt for the payout under the 10-year rule established by the SECURE Act for designated non-spouse beneficiaries? Would it matter if the participant’s death was before or after their required beginning date? Would other eligible designated beneficiaries who satisfy the exception to the 10-year rule have the ability to choose the 10-year option rather than the life expectancy option?”
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Lifetime Income Illustrations for 403(b) Plans With Annuities
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“We are a health care organization that sponsors an ERISA 403(b) plan that is recordkept by an insurance company. Our plan offers both annuities and mutual funds. I read recently that the SECURE Act requires an annual illustration of the annuity that could be purchased from plan assets. Since our recordkeeper already provides customized statements of the monthly benefit that their retirement plan account balance could purchase in the form of an annuity, is there any additional action we would need to take in this regard?”
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Are Employee Mandatory Contributions to 403(b)s Reported on W-2s?
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“I work at a university where we have an employee mandatory contribution that is pursuant to a one-time irrevocable election as to whether to participate in our 403(b) plan. Our payroll people insist that the mandatory contributions don’t have to be reported on the W-2 at all, but I always thought that they needed to be reported somewhere. Who is correct?”
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Crediting Past Service From an Unrelated Employer for Eligibility Purposes
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“I work at a health care facility that sponsors an ERISA 403(b) plan. We are attempting to recruit some physicians from a hospital in the area who want to join our retirement plan for employer contribution purposes immediately, but our plan has a one-year wait for employer contributions. Is it possible that we could amend our retirement plan to credit services from the physicians’ prior employer when they come work for us, so that they have don’t have to wait a year to receive employer contributions? The physicians’ current employer is unrelated to us.”
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Statutory Limits to Use for Non-Calendar Year Plans
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“Our ERISA 403(b) plan has a non-calendar year plan year: July 1 to June 30. Our recordkeeper insists that in calculating the 415 contribution limit, we should use the dollar limitation for the calendar year in which our plan year ENDS, but for calculating the 401(a)(17) compensation limit, we should use the dollar limitation for the calendar year in which the plan year BEGINS. Could that possibly be correct?”
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Questions About Excluding Some Deferrals From Matching Contributions
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“I currently work with an ERISA 403(b) non-safe harbor plan that matches 100% of the first 3% of elective salary deferrals. The plan sponsor wishes to change the formula so that only employees who defer at least 3% of pay receive the 3% employer contribution. Thus, unlike the current formula, if an employee deferred 1% or 2%, the employee would not receive an employer contribution. Is the proposed formula possible? And, if so, would the 3% employer contribution still be considered a matching contribution for ACP testing purposes?”
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Crediting Service for Plan Participants Covered Due to Acquisition
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“We are a 501(c)(3) health care organization that recently acquired another 501(c)(3) health care organization, which is not part of our controlled group. We plan on covering the employees of the acquired organization, but how do we treat the pre-acquisition service of these employees? Are we required to credit that past service in our 403(b) plan, or required to exclude it? Or do we have the option to credit or exclude?”
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Excluding Part-Time Employees From Employer Contributions
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“I work with an ERISA 403(b) plan at a health care organization. I read your PLANSPONSOR Ask the Experts column indicating that, though in theory it is possible to exclude employees who work fewer than 20 hours per week from the right to make elective deferrals to a 403(b) plan, it is difficult to do in actual practice. But how about excluding such employees from the right to receive employer contributions?”
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Small Balance Cashouts When Annuity Contracts Don’t Allow Them
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“We currently sponsor a single-recordkeeper ERISA 403(b) plan with both mutual funds and annuity contracts among the plan investments. We wish to add an automatic cashout feature for balances of $5,000 or less upon employment termination, but some (not all) of our annuity contracts do not allow for small balance cashouts. Could we just amend our plan to require cashouts for all of our mutual funds and the annuity contracts that allow them?”
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