Assignment 9 - 403(b) plans

Question 1

section of IRC describing the salary deferral plan structure available to non-profit orgs.

Answer 1

403(b)

Question 2

ERs who can sponsor 403(b) plans

Answer 2

• non-profits under 501(c)(3)

- qualified educational or public school system

Question 3

Section sets limits on salary reduction amt

- $16,500

Answer 3

402(g)

Question 4

annuity contract used with a 403(b) plans

• generally doens’t involve ER contrib.
• voluntary tax-deferred savings plan utilizing salary reduction

Answer 4

tax deferred annuity

Question 5

ownership of plan assets and decision making resides solely w/ the EE

Answer 5

nonforfeitability

Question 6

403(b) and 457 plan interaction

Answer 6

EE can make a full salary deferral contrib. into both 403(b) and 457 plan

Question 7

requirements to achieve tax adv. under 403(b) plan

Answer 7

• must be qualified ER
• partic. must be bona fide EE
• rights are nonforfeitable
• contribs. pd must not exceed: exclusion allowance; limits under section 415; annual limit on salary reduction contribs.; nondiscrim. reqirements on max amt permitted
• meet nondiscrim. requirements applicable for ER contribs.
• annuity contract purchased by ER
• written plan doc

Question 8

EGTRRA impact on Section 415

Answer 8

incr’d contrib. limit and percentage of compensation applicable to DC plans (2007)
- $45,000
OR
- 100% of compensation

Question 9

EGTRRA impact on Section 401(a)(17)

Answer 9

incr’d compensation recognized limit to $225,000 (2007)

Question 10

EGTRRA impact on Section 457(b) plans

Answer 10

• eliminated the requirement to coordinate the limits of 457(b) plans with 403(b) plans
• results in making 457(b) plans more like a supplemental retirement plan for senior mgrs and HCE’s of tax-exempt ERs

Question 11

nondiscrimination rules that apply to 403(b) plans

Answer 11

• same coverage rules that apply to qualified plans are applicable to nonsalary reduction 403(b) contribs.
• ER and nonsalary reduction EE contribs must meet the ACP test (compares HCEs to NHCEs)
• w/ salary contribs = must be available to all EE’s (except for: nonresid. aliens, EE’s cov’d under another plan under same ER, workers under 20hrs/week, collectively bargained EE’s, students performing certain services)

Question 12

required distributions

Answer 12

EE must begin receiving distribs. by the later of:

1. April 1 following the year in which the indiv. attains age of 70 1/2
2. calendar year following the year in which EE retires

Question 13

how are lump-sum distribs. taxed

Answer 13

• at ordinary income rates

Question 14

types of transfers permitted under 403(b) plans

Answer 14

• move some or all of plan assets among different funds

- allowed to transfer plan assets to another 403(b) plan w/o fed’l income tax consequences

Question 15

requirements for valid rollover of 403(b) plan distribs.

Answer 15

• *distribs. are not includable in an EE’s gross income if they are properly rolled over
  1. EE receives all or a portion of interest in the plan in an elig. rollover distrib.
  2. EE rolls any portion of the distrib. into another elig. plan or to an IRA
  3. EE transfers the same property he or she recieved
  4. must be completed w/in 60 days of receipt of the elig. rollover distrib.

Question 16

403(b) and ERISA

Answer 16

• only subject to ERISA if assets in the plan are salary deferrals of the EE’s