2Contact InformationRobert J. ArchitectTEGEWashington, DC(Feel free to change this slide to include your own information as a presenter.)
3Current Exam Issues – 403(b) Ineligible EmployerExcess Elective Deferral contributionsReview of payroll records & HR records & W-2Universal availabilityReview of payroll records and HR recordsPlan Loans violate IRC 72(p)Review of account records & 1099-RImpermissible distributions-bad hardshipsReview of account records & HR records & 1099-RContract provisionsReview of contract
45 Year Post-Severance Contributions No CODA must be employer contributionsAudit stepsWill review planWill review employment contractsWill review all documents for any cash optionsWill review for guaranteed payouts upon death
5Sick & Vacation Pay Issues Sick & Vacation PaymentsAvoiding constructive receiptPayroll records; Benefits Handbook; Union ContractsElective Deferrals to 403(b), 457(b), or 401(k) – Timing 415 regulations
6Sick & Vacation Pay Issues (cont) Contributions to 401(a) planIf have cash option – Impermissible CODA -GovernmentalContributions to 403(b)If subject to a cash optiontreated as elective deferral and not eligible for special 5 year post-retirement contributionsConverting to employer contributionsAttempts to avoid FICASeek expert advice – many pitfalls
7How 403(b) Regulations may impact exams –Based on Current content of proposed regulations- Caution (a work in progress)
8Plan In Form & Operation Must be maintained pursuant to a written DC planBoth form and operationFuture timely amendmentsAudit StepsWill review plan provisions for form and compare to plan operation
9Universal Availability – 20 hour requirement ER must reasonably expect employee to work < 1000 hours for ensuing 12-month periodSubsequent plan year or 12-month period the employee actually worked < 1000 hours in the preceding 12-month periodAudit steps – Must track hours
10Universal Availability (cont) Permissive exclusions - not allowedCollective bargaining employeesVisiting professorsEmployees who have taken a vow of povertyEmployee with a one-time election to participate in a governmental non-403(b) plan
11Form Requirements -Contract 401(g) – Transferability of annuities401(a)(30) – Elective deferral limit401(a)(31) – Direct rollover401(a)(9) – Required minimum distributionIncidental benefit requirementAudit IssueCurrent audit issue – first 3 aboveNow plan form requirement
12Timely Payment of Elective Deferrals Contribution amounts must be transferred to providers within a period no longer than is reasonable for proper plan administration. – 15 day exampleAudit – Review operation
13New Elective Deferral Requirement 401(k) Hardship suspensionEffective opportunity to make cash or deferred electionAnti-conditioningAudit StepsWill compare form and operation
14Life Insurance No separate life insurance contracts Incidental death and disability permittedAudit stepsWill review contract provisions
15Non-Taxable Contract Exchange In the past – Rev. ProcPotential changesTransfer language must be in planTransfer must be related to the planAudit StepsWill review the form & the operation
16Excess Contributions – IRC 415 Old rules – did not impact contract going forwardPotential rulesMust have separate accountNo separate accountContract does not qualify for exclusion in current and future years.
18457(b) Exam IssuesMisunderstanding employer contribution limits & payroll taxes:Dollar limit for 2006 is $15,000 for both employer and employee contributionsIRC 415(c) limit does not apply(FICA applies to both types of contributions.)
19457(b) Exam Issues Final 3-year catch-up causing excesses: Counting under-utilized limit for years before the plan existed.Using the year of retirement rather than the 3 years before year of normal retirement age in the plan.
20457(b) Exam Issues Final 3-year catch-up causing excesses: Errors in counting prior contributions to determine underutilized limit.Especially years before 1/1/02 when limits were coordinated.
21457(b) Exam Issues Multiple plan document issues: More than one normal retirement age.Attempt to use multiple 457(b) limits.Contribution limits apply to the individual.
22457(b) Exam Issues Abuse of unforeseeable emergency withdrawal rules: Attempting to apply the less restrictive 403(b)/401(k) hardship withdrawal rules.Not monitoring requests.
23457(b) Exam Issues Failure to monitor loan limits: Often due to multiple 457(b) plans or 457(b) providers, orLoans in multiple plans.E.g., 403(b) and 457(b).Loan limits apply to all plans of the current employer.
24Violations in Non-Governmental Plans Permitting loansPermitting rolloversPermitting the age 50+ catch-up
25Exam Issues – 457(f)No substantial risk of forfeiture or risk has expiredReview Employment contactsReview of benefits handbookInadvertent 457(f) arrangementsReview of union contractsAnnouncementSeverance pay arrangements
27Deferred Compensation Under 409A 409A added by American Jobs Creation Act of 2004Notice – Guidance on scope of coverage – Q&A- 6,10,15 particularlyNotice –Suspends 2005 Reporting previously set out inAnnouncementW-2 Box-12, Code Y – Report deferralsAnnouncementW-2 Box-12, Code Z – Report income
28Application of IRC 409A to IRC 457 Plans Eligible 457(b) PlansIRC 409A does not apply – Notice Q&A -3IRC 457(f) plansIRC 409A applies when vested but 409A and 457(f) work independentlySatisfying 409A may not satisfy 457(f) – 2 ½ month ruleGrandfathered arrangements under 457No exception for 409A