Compliance can be a challenge for any employee benefit plan. But throw in additional factors and it can be even more complex.Susan Diehl, President of PenServ Plan Services, Inc., takes a look at just such complications: status as church, governmental and tribal plans.
“You see a lot of different, unique combinations,” said Diehl. And she’s not kidding. Plans in this category, she noted, include 403(b)s, government 401(a) profit-sharing/money purchase plans, 457(b)s, 457(f)s, SEPs, SIMPLE IRAs, and multiple employer plans (MEPs) serving public school systems, state universities, colleges, charter schools, non-electing schools, church plans and Native American tribal groups. The kinds of entities these plans serve, and the plans themselves, are not the only aspects that are unique — the way the law governs them can be, as well.
For instance, Diehl observed, governmental employers are not subject to ERISA, nor are they subject to nondiscrimination testing. In addition, she noted, employer contributions to governmental plans include:
- those based on employment/union contracts
- 5-year post-employment contributions
- mandatory employee contributions
- pick-up employer contributions
- FICA replacement plans
Additional characteristics unique to governmental employer plans include:
- special catch-up for long-term employees — an additional $3,000 added to the $24,500
- plan-to-plan transfers
- transfers to state retirement plans to purchase service credits
- incorporation of investment contracts (403(b)(1) annuities and 403(b)(7) custodial accounts)
- exclusions from elective deferrals
The way elective deferrals are handled is another distinction of governmental employer plans Diehl identified. These, she said, include:
- no ADP testing
- the universal availability rule applies, and all employees must have an effective opportunity to defer
- requires “meaningful” written notice to employees of eligibility to participate at least annually
- IRS will want to see UA notices that are sent to employees and the method by which they are provided
- some employers use multiple avenues to provide these notices
- violation of the universal availability rule results in plan failure
- correction under EPCRS
Once in, Always in
Another key factor Diehl discussed is the 20-hour/once-in, always-in rule. “In practice, employees have used this rule in all kinds of different ways,” she said. Some employers, she observed, have continued to follow the year-by-year approach that was most frequently used in IRS examinations.
“We have come full circle,” said Diehl, noting that the IRS approves 403(b) documents that do not offer such options as accommodating look-back years, following the year-by-year approach, and handling rehires. “The industry requests relief for employers,” she said. She told attendees that attendees that the IRS has agreed to a page replacement to add the real meaning of these rules to a pre-approved 403(b). After the IRS approves language, sponsors will be able to replace that language in already-approved plan documents.
Charter schools have an aspect that adds to their being unique, Diehl said — they are both governmental entities as well as tax-exempt organizations under Internal Revenue Code Section 501(c)(3). But state law determines how they will be treated for purposes of state law, which, in turn, determines which retirement plans they can adopt. And state law, she noted, varies widely.
Not only are church plans unique, Diehl noted, are three kinds of churches for purposes of church plans, with their own distinctions: “churches with a steeple,” associations, and “churches without a steeple” (i.e., qualified church-controlled organizations (QCCOs) and non-QCCOs).
Among the unique aspects of church plans are that they are not subject to ERISA unless they elect to be. To be covered by ERISA, Diehl said, a church plan must file an irrevocable statement along with the Form 5500.
Church plans of all kinds can establish the following kinds of plans:
- non-electing 403(b) for faith-based organizations — typically used by QCCOs and non-QCCOs
- church 401(a) profit-sharing/money purchase plans
- 409A plans for churches
- SIMPLE IRAs
There are some distinctions between the different kinds of church plans; for instance:
- Churches with a steeple can adopt a 403(b)(9) plan, but churches without a steeple cannot; the latter typically establish non-electing 403(b) plans for faith-based organizations
- Only non-QCCOs can establish 457(b) and 457(f) plans
- While plans for churches with a steeple and those for QCCOs are not subject to the nondiscrimination rules, non-qualified church-controlled organizations are subject to them
Pre-Approved 403(b) Plans
Diehl also touched on the all-new pre-approved 403(b) plans. She told attendees that one of the most important sections of the new plan will be the “reconciliation page,” which employers must be sure is completed based on what they did in any given year. New features such as entry dates are brand new, she said, but may not be what was used prior to the new pre-approved plan. And. she added, the deferral rule of “once in always in” is a new interpretation by the IRS.
Susan Diehl, President of PenServ Plan Services, Inc., made these comments in an Oct. 24 session at ASPPA’s Annual Conference.