Ed.Salyersirs.gov. Topics. Benefits of a 403b Final 403

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• Final 403(b) Regulations

What has changed for Public Schools? Paris
April 16, 2008 Fall Creek Falls April 24,
2008 Sevierville April 30, 2008
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Contact Information
Ed Salyers TE/GE Nashville, TN 615-250-5330 Ed.Sal
yers_at_irs.gov
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Topics

• Benefits of a 403(b)
• Final 403(b) Regulations
• Additional guidance under Revenue Procedure
  2007-71
• Model plan language for public schools
• Other Items of Interest
• Internal Revenue Code (IRC)

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Benefits of a 403(b)

• Overall Limit ER EE- IRC 415(c)
• 46,000 for 2008
• Employee Elective Deferral limit
• General limit - 15,500-2008
• 15 year Employee up to additional 3,000
• lesser of three prong test
• Age 50 or older - 5,000-2008
• Does not impact other limits for 403(b)
• Non-elective contributions after severance

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Audits Other Initiatives

• Employee Plans Compliance Unit
• Actual Audit
• Like winning the LOTTERY ALMOST
• Visit WWW.irs.gov/ep -
• EP Examination Process Guide
• Correction programs
• Technical/Procedural Guidelines
• EP Compliance Trends Tips
• Common violations
• Outreach

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IRC 403(b) Changes Under Final Regulations

• Impact- plan administration
• Impact- IRS audit process

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403(b) Regulations Published 7/26/2007
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• Generally effective for taxable years beginning
  after 12/31/2008 -
• Certain delayed effective dates
• Certain grandfathered items
• Taxpayers can rely on Regulations
• Reliance must be on a consistent and reasonable
  basis

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Regulation Highlights
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• First and Foremost
• A 403(b) program must be maintained pursuant to a
  written DC plan
• Both form and operation satisfy 403(b) and the
  regulations
• RP 2007-71-Section 2.04

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What is a Written plan?
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• Does not have to be a single document
• Must contain
• All the material terms and conditions for
  eligibility, limitations and benefits
• Form Timing of distributions
• Contracts available
• Responsible party for administration
• May have optional benefits
• Hardship distributions Loans

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Who is Responsible for Plan Administrative
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• Plan may allocate responsibility
• Must identify responsibility for compliance with
  IRC requirements that apply on the basis of
  aggregated contracts
• The employee may not be assigned the
  responsibilities

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Revenue Procedure 2007-71

• Issued 11/27/07-IRB 2007-51
• Model Plan Language for Public Schools
• Not Mandatory Use as Applicable
• Satisfies Form Requirement
• Reliance
• Operational Compliance Still Needed

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Regulation Highlights
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• In addition to the written plan requirement
• Underlying annuities/custodial accounts
• In addition to language on 401(a)(30),
  401(a)(31), and 401(g) (annuities only)
• Funding contract must also have language
  satisfying 401(a)(9) and the incidental benefit
  requirements.

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Regulation Highlights

• Elective deferral ordering 402(g)(1),
  402(g)(7), 414(v)
• 402(g)(7) formula required
• See examples
• Disaggregation 401(a)/403(b)
• Post-severance elective deferrals
• Regular, sick and vacation pay

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Regulation Highlights
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• Determining years of service
• 402(g)(7) 15 year catch-up
• Includible compensation for contribution limit
  (lesser of 100 of includible compensation or
  overall limit)
• Years of service (with the ER) Employees
  annual work period/not taxable year

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Regulation Highlights

• Non-elective contributions for the 5 taxable
  years after employment plus end-of-taxable year
  when employment ceases
• No additional contributions after death

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See examples cited in Addendum
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Regulation Highlights

• For 403(b) and 402(g) purposes, elective
  deferrals are limited to contributions under a
  cash or deferred election as defined under 401(k)
  
• Hardship distributions follow 401(k) rules and
  safe harbors

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Regulation Highlights Elective
Non-Discrimination/Universal Availability
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• Effective opportunity needed to satisfy universal
  availability
• Meaningful notice
• Election timing
• Universal availability generally applies
  separately to each common law entity

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Regulation Highlights Universal Availability
Permissive Exclusions

• Employees eligible under other deferral plans
• Non-resident aliens
• Students IRC 3121(b)(10)
• Those who normally work less than 20 hours per
  week

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Regulation Highlights
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• For determining if an employee works hours/week so that they can be permissively
  excluded from universal eligibility
• On date of hire, employer must reasonably expect
  employee to work
  12-month period AND
• Every subsequent plan year or 12 month period
  worked
• ERISA plan- see 1.403(b)-5(b)(4)(iii)(2)

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Regulation Highlights
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• Regulations DO NOT adopt permissive exclusions
  for universal availability concerning
• Collective bargaining employees
• Visiting professors
• Employees who have taken a vow of poverty
• Employees who make a one-time election to
  participate in a governmental non-403(b) plan.

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Regulation Highlights Non-Elective
Non-Discrimination
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• Governments only IRC 401(a)(17)
• Dollar limit on Compensation
• 2007 - 225,000
• 2008 - 230,000

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Regulation Highlights
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• Contribution amounts must be transferred to
  providers within a period no longer than is
  reasonable for proper plan administration.

Transferring elective deferrals within 15
business days following the month in which these
amounts would have been paid to the participant
EXAMPLE
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Regulation Highlights
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• Amounts not subject to 403(b)(7) and 403(b)(11)
  distribution restrictions may be distributed
  only
• After severance
• Occurrence of an event
• After a fixed number of years
• Attainment of a stated age, or
• Disability

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Regulation Highlights

• No more separate contracts of incidental life
  insurance with 403(b)
• Exception contracts issued up to 60 days after
  publication of the regulations are grandfathered
• Incidental benefits permitted
• Death
• Disability

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Regulation Highlights
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• Old
• Revenue Ruling 90-24 annuity-to-annuity
  transfers with no employer involvement

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Regulation Highlights The New Transfer Regime
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• Exchanges within same plan
• Plan permits
• Benefit not diminished
• Undiminished distribution restrictions
• Employer and issuer enter into information
  sharing agreement

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Regulation Highlights The New Transfer Regime
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• Plan-to-plan
• Participant is employee or former employee of
  employer for receiving plan
• Transferor and receiving plans permit
• Benefit not diminished
• Undiminished distribution restrictions

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RP 2007-71-Contracts 1/1/2005 1/1/2009

• Orphan Plans/Post 9/24/07 RR 90-24 Exchanges
  Current Employees
• Employers Reasonable Good Faith Effort of
  Information Sharing
• Collect available information regarding issuers
• Contact notification
• Includes issuers making contact and exchanging
  information
• Before distributions
• Before loans

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RP 2007-71-Contracts Issued Before 1/1/2009

• Orphan Plans/Post 9/24/07 RR 90-24 Exchanges
  Former Employees or Beneficiaries
• No Action Unless Loan Requested
• Re-exchanges into Plan Contracts or Contracts
  with Information Sharing Agreements
• Up Until 6/30/09
• No Information Sharing for interim contract

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Delayed Effective Dates
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• Collective bargaining situations
• Removal of certain permissively excluded groups
  for universal availability purposes
• Certain governmental 403(b)s
• For limited universal availability exclusions

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Grandfathered Items
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• Annuities In-service distributions
• Incidental life insurance contracts
• Rev. Rul. 90-24 contract exchanges
• On or before 09/24/2007
• See Rev Proc 2007-71

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Plan or Contract Failure
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• Generally a contract failure
• Exception excess contributions
  nonforfeitability
• Failure to operate under plan terms
• All contracts with respect to which the
  operational failure occurred
• Impacts all contracts
• Non-Discrimination
• Ineligible employer
• Failure to have contracts issued pursuant to a
  written plan-All impacted contracts

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Questions-403(b) Regulations

• ?

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IRC 409A Public Schools

• IR-2007-142 Annualized salaries
• Will not be applied for school years beginning
  before 01/01/2008
• Notice 2007-86
• Extends time for almost all compliance actions
  until 01/01/2009
• Notice 2007-89
• Reporting withholding rules

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IRS Publications of Interest

• Publication 4482- TSA for Participants
• Publication 4483- TSA for Sponsor
• Publication 4484 Choose a retirement plan
  Comparison chart
• Newsletters

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• Retirement Plans Community
• Topics
• Newsletters
• Published Guidance
• EP Forms Publications
• Correcting Plan Errors
• Examination/Enforcement
• EP FAQs
• Types of Plans
• Contact EP/Services
• More Topics..

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Addendum

• 1. 1.403(b)-11(a)
• 2. 1.403(b)-11(b)-(d)
• 3. 1.403(b)-11(e)-(g)
• 4. 1.403(b)-3(b)(3) and 1.403(b)-3(d)(1)(i)(ii)
• 5. 1.403(b)-3(a)(4)-(8)
• 6. 1.403(b)-3(d)(2)
• 7. 1.403(b)-4(c)(3)(iv)
• 8. 1.403(b)-4(c)(5) examples 4, 11 and 12
• 9. 1.403(b)-4(b)(2)
• 10. 1.403(b)-3(b)(4)(ii)
• (Right click and select Open Hyperlink to go
  to regulation site)

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Addendum

• 11. 1.403(b)-4(e)(2)
• 12. 1.403(b)- 4(e)(5) 1.403(b)- 4(e)(9)
  examples 12
• 13. 1.403(b)-4(d)(1)
• 14. 1.403(b)-4(d)(2) examples 1, 2, and 3
• 15. 1.402(g)(3)-1(b)
• 16. 1.403(b)-6(d)(2)
• 17. 1.403(b)-5(b)(1)
• 18. 1.403(b)-5(b)(2)
• 19. 1.403(b)-5(b)(3)
• 20. 1.403(b)-5(b)(4)(ii)(A)
• (Right click and select Open Hyperlink to go
  to regulation site)

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Addendum

• 21. 1.403(b)-5(b)(4)(ii)(E)
• 22. 1.403(b)-5(b)(4)(iii)(B)
• 23. 1.403(b)-11(d)(1)(2)
• 24. 1.403(b)-8(b)
• 25. 1.403(b)-8(c)(2)
• 26. 1.403(b)-6(g)
• 27. 1.403(b)-10(b)(1)
• 28. 1.403(b)-10(b)(2)
• 29. 1.403(b)-10(b)(3)
• (Right click and select Open Hyperlink to go
  to regulation site)

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Addendum

• 31. 1.403(b)-6(b)
• 1.403(b)-3(d)1.403(b)-3(b)(1)1.403(b)-4(f)1.403
  (b)-3(d)(2)1.403(b)-3(b)(3)1.403(b)-3(d)(ii)1.4
  03(b)-51.403(b)-2(b)(8)
• 1.403(b)-5(a)(1)