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Dr. W cannot receive his full benefit under the hospital’s DB plan and forfeited a large pension benefit to take his current position with the hospital. What type of plan could the hospital offer to Dr. Welby to “make up” the lost pension benefits A 457f plan could be used since there are no contribution limits.. an eligible 457 top hat plan could be used to fund Dr. Welby’s benefit if he is highly compensated or key management personel but would be subject to contribution limits.
Are 457 plans subject to ERISA? YES unless the sponsoring employer is exempted from ERISA. 457 plans sponsored by state or local governments; their political subdivisions or instrumentalities thereof are NOT subject to ERISA.
Are distributions from 457 plans subject to the 10% early distribution penalty? Why? No because 457 plans are not qualified retirement plans; they are not subject to the 10% early distribution penalty unless required under state laws
Are eligible 457 plans considered as tax-qualified retirement plans? Why? not subj to same rules due deferred comp instead of retire. plans. gvt 457 plans now similar in tax trmt between gvt 457b plans and 403b plans or 401a qual plans; w/new 403(b) regs ERs responsibilities for op of the 2 plan types is similar.
Are non-governmental eligible top hat plans subject to ERISA fiduciary requirements? If yes; describe. No
Are non-governmental eligible top hat plans subject to ERISA participation requirements? If yes; describe. No
Are non-governmental eligible top hat plans subject to ERISA reporting and disclosure requirements? If yes; describe. Yes but ER may file 1 time stmt w/DOL w/ER name; address; tax ID; # of plans; # of ees; that plan primarily for deferred comp benefits to a select group of HCE /mgmt. And agrees to give docs to the DOL upon request.
If ER for non-gvt elig. Top heavy plan does not file the 1x stmt with the dol then what are the ERISA rpt rqmts? the full reporting and disclosure requirements of ERISA must be satisfied.
Are non-governmental eligible top hat plans subject to ERISA vesting requirements? If yes; describe. No
Are QCCOs exempt from ERISA? No
Are transfers permitted from a governmental 457(b) plan to a governmental 457(b) plan? Yes
Are transfers permitted from a governmental 457(b) plan to a non-governmental 457(b) plan? No
Are transfers permitted from a non-governmental 457(b) plan to a governmental 457(b) plan? No
Are transfers permitted from a non-governmental 457(b) plan to a non-governmental 457(b) plan? Yes but only following severance from service.
Are transfers permitted from an ineligible 457 plan to another ineligible 457 plan? No.
Can a 457b plan offer loans? Yes if gvt trusteed plan. must satisfy 72p + facts & circumstances test. may not make the Loan to a ee if not in best interest of plan parts.
What rqmts apply to loans for military service ees? If loans are offered; loan repayments may be suspended for participants serving in the U.S. armed forces and returning employees that were in military service must be given an extended period to repay the loan.
Can an eligible 457 plan cover an independent contractor performing services for the employer? Generally; any employee and independent contractor performing services for an eligible employer may be permitted to participate in an eligible 457 plan.
Can employers for ineligible 457 plans be required to follow participant direction of investments? No. Such direction must be advisory only.
Can ineligible 457 plan assets be transferred to another ineligible 457 plan? No. Eligible 457 plan assets are transferrable …
Compare coverage of NHCEs for a governmental versus non-governmental 457 plan In general; unless the sponsoring organization is a governmental employer; the 457 plan must discriminate in favor of key management personnel and highly paid employees.
Compare how the universal accessibility requirement applies to a 403(b) versus eligible 457 plan? unlike 403(b) plans; there is no rqmt for universal accessibility under IRC §457. ers not required to make the plan equally available to all employees.; because of ERISA; nongovernmental er can only offer an elig 457 plan to select group of HCE/mgmt
Contributions to ineligible 457 plans are grandfathered under the old tax rules if made prior to what date? For governmental plans; deferrals made prior to July 14; 1988 are grandfathered. For non-governmental employers; deferrals made on or before August 16; 1986 are protected.
Discuss employer responsibility for investment performance in a non-trusteed 457(b) plan er has no responsibility for invest performance under federal law UNLESS they choose to create liability for themselves in the contract or plan document. However; governmental employers must still adhere to state trust law and state fiduciary laws.
Do QDROS apply to both eligible and ineligible 457 plans? Yes
Do state taxation rules apply to both eligible and ineligible 457 plans? Yes
Does a gvmt 457b plan offer any protection from Creditor? Under SBJPA assets are held for the excl. benefit of parts/bene in trust or protected vehicle It is unclear if would also be protected under fed.law from creditors of the EE since t exempt from ERISA. state law may offer some protection f
Does a nongvmt 457b plan offer any protection from Creditor? For nongovernmental 457b plans; the assets belong to the employer. However; a recent law protects assets held in a 457b from bankruptcy creditors of the sponsoring entity.
Does ERISA apply to both eligible and ineligible 457 plans? Yes; unless otherwise exempt. Plans may be designed to avoid coverage under ERISA.
Duval county would like to establish a plan to supplement the state funded pension plan of the mayor and other key management positions. Which plan is more likely a better fit -- 457(b) or 457(f)? 457(f) like nonqual deferred comp plans frequent in corp. sector for addl benefits to the executive/mgmt ; 457(b) typical of gvts to allow ee to supplement their gvt db plan or by 501(c)(3) orgs as tophat for execs.
dr w defers 10 k his 457 each yr for 10 yr. its worth $162;000 and he is vested upon nra of 62 or separation from service. He is 62 in June but will work 3 more yrs What are the tax consequences 457(b) plan: Reduced tax plus chance of c/u; 457f - taxed when vested
For all eligible 457 Plans sponsored by governmental employers; may plan assets be held in CDs outside of a trust? Yes - any 457(b) plan asset that is NOT held in an annuity contract or custodial account (such as credit union accounts; CDs; T-bills; etc.) MUST be held under a trust and be protected from the employer's general creditors.
How are contributions to eligible 457 plans reported on the W-2? as ss wages and medicare wages ( amounts are subject to FICA and Medicare) but excluded for federal income tax purposes. Amts reported : employee deferrals and vested employer contributions. State and local income tax rules vary.
How are distributions from eligible 457 plans to participants reported on tax forms for non-governmental plans? To beneficiaries? distr to ee from nongvt 457(b) plans reported on the Form W-2 as “wages; tips and other compensation” and in the box labeled “nonqualified plans.” Distributions to beneficiaries (death benefits) from all 457(b) plans should be reported on Form 1099-MISC;
How are distributions from eligible 457 plans to participants reported on tax forms for governmental plans? To beneficiaries? Distributions from governmental 457(b) plans are reported on Form 1099-R using the appropriate code for such distributions. Distributions to beneficiaries (death benefits) from all 457(b) plans should be reported on Form 1099-MISC;
How are payroll taxes including fica different for top hat plans versus 403b qualified plans? Payroll taxes (including FICA) will apply to both employer contributions and employee salary reduction contributions. Unlike 403(b) plans; employer contributions to 457(b) plans are not relieved of payroll tax obligations.
How do non-governmental 457 plans avoid ERISA? To avoid ERISA; non-governmental 457 plans may NOT be made available to all employees or to any employees who are not “top hat” employees. This is how eligible 457 plans avoid conflict with ERISA.
How does a top hat plan design avoid being subject to the requirements under ERISA? Because the plan is not offered to a broad group of employees; it avoids many but not all of the ERISA requirements.
How often must the non-governmental top hat plan file reporting and disclosure statements with the DOL? If the employer files the minimum requirement statement; this statement need only be filed once for each employer maintaining the plan
If a 457b plan participant is eligible for both the age 50+ catch-up option as well as the special catch-up option; may the participant use both catch-up options? can only use the c/u that permits the greater contribution. This is different than 403b plans where the participant cannot use both catch up limits in the same year. Only governmental 457b plan participants could have both catchup options in the plan.
Is a 457 plan a qualified plan No they are never qualified (top hat or not)
Is a 457 plans required to provide direct rollovers? Participants in governmental 457(b) plans must be offered a direct rollover option
John’s normal retirement date as defined under the eligible 457 plan is age 62. John will be 62 on June 30; 2011. In which year is he eligible to use the special catch up limits In 2008; 2009 and 2010 calendar years. The 2011 calendar year is too late! Even if John does not actually retire until 2011; his opportunity to use the special catch up limits expires in 2010!
May 457 plans hold plan assets in a trustee account protected from creditors? Only governmental plans may do this.
May 457f plans be transferred to another 457f plan? No. Ineligible 457 plan assets cannot be transferred to another ineligible 457 Plan.
May a 2010 calendar plan year 457 plans include a Roth option? No. But as of 2011 if the plan is an eligible 457 plan (457b) and if it is a governmental plan then it can offer Roth contributions and in-plan Roth conversions beginning with the 2011 plan year.
May a 457 plan be participant directed? Yes.
May a governmental 457(b) plan allow participant loans? Yes.
May a governmental 457b plan have assets held in a qualified annuity contract in lieu of a trust? Yes.
May a governmental 457b plan have assets held in an a credit union account in lieu of a trust? Yes.
May a governmental 457b plan have assets that are not in a qualified annuity contract; a custodial account or a trust? No. if not in qualified annuity contracts and/or custodial accounts (such as credit union accounts; CDs; T-bills; etc.) MUST be held under a trust and be protected from the employer's general creditors.
May a participant elect to transfer assets from one plan to another after the date benefits would have been payable under the terms of the plan? No.
May a participant in a governmental 457b plan who is still employeed transfer only part of the assets? Yes if the plan's assets are being transferred to another governmental plan within the same state; or the transfer is being used to purchase service credits from a state sponsored defined benefit plan.
May a participant in an ineligible 457 plans avoid taxation of vested benefits if he annuitizes his 457(i) benefits? No; he will be taxed on the full value of his account in the year in which he is vested in his benefit unless the contributions are grandfathered.
May an irrevocable election restriction for distribution begin date be changed by a participant in a non-governmental 457 plan? participants may be given the right to elect when distributions begin and may change that election one time so long as the change occurs before the distributions begin.
May eligible 457 plan assets be rolled over to another qualified plan? Only governmental 457b plan assets can be rolled over to other plans (any qualified plan). Otherwise; rollovers are not allowable to a qualified plan.
May employees elect to receive payment deferred compensation made to a 457fplan before the time selected on the initial form? After? may not be made prior to initial date. ee may elect to defer beyond the date on the initial electionif election must be made 12+ mths before init date and delaed date not a nearer than five (5) years from the originally scheduled payment date.
May governmental 457 plans be rolled to a 403b plan? To an IRA? To a qualified plan? After EGTRRA; under the new Portability rules; rollovers from governmental 457 plans may be rolled into another governmental 457 plan; a 403(b) Plan; an IRA or any other tax- qualified retirement plan.
May governmental 457b plans accept rollovers from other governmental 457b plans? Yes. if from a plan that is not a 457(b) plan; then must track such amounts separately for purposes of reporting the 10% early distribution penalty required under IRC §72(t) that may still apply to the amounts rolled into the 457(b) plan.
May participants modify the irrevocable distribution election in a nongovernmental 457b plan? ees have one opportunity to modify distribution elections; provided that the participants have not already begun to receive distributions from the plan. Once distributions nave begun; a participant may NOT again modify prior distribution elections.
Must a governmental 457 plan be held in a trust? Any eligible 457(b) governmental plan asset that is NOT held in an annuity contract or custodial account (such as credit union accounts; CDs; T-bills; etc.) MUST be held under a trust and be protected from the employer's general creditors.
Must a top hat plan subject to ERISA fully fund the benefits? No -- the top hat design allows the plan to avoid many but not all of the ERISA requirements. This includes the requirement to fully fund the benefits and protect them in a trust.
Must a trust; custodial account or annuity contract holding the 457 assets allow for transfers out? No.
Must the distribution commencement date be identified in the plan document? Some plans provide for this distribution commencement date in the plan document and other plans give the participants the right to make an irrevocable election as to when distributions shall begin.
T/F: non-governmental eligible top hat plans must satisfy the full reporting and disclosure requirements of ERISA. not if er submits the one time stmt option.
T/F: The IRS and the DOL have the same definition for HCE The DOL has not adopted the same definition of “highly compensated employee” as the IRS. Thus; status as “highly compensated” for IRS purposes does not mean that the employee is also highly compensated for purposes of participating in a 457 plan.
To which types of 457 plans does the irrevocable election requirement apply? It applies to all 457 plans of non-governmental employers but no longer applies to governmental 457(b) plans since EGTRRA exempted governmental 457 plans from the constructive receipt rules.
True or false: participants in eligible governmental 457 plans are taxed whenever amounts in the plan are paid out or otherwise made available to them. False: participants in governmental 457 plans are only subject to taxation when amounts are actually paid to them.
True or False: 403(b) plans are qualified plans under section 401(a) False.
True or False: 403(b) plans are tax-qualified retirement plans? Why? Although not “qualified” plans under Section 401(a) of the Code; they are tax-qualified retirement plans that share the same tax advantages as other qualified retirement programs. Thus; they are considered to be “qualified’ plans for tax purposes.
True or false: 457b plans are subject to universal accessibility requirements for participation similar to 403b plans False: unlike 403(b) plans; there is no requirement for universal accessibility under IRC §457. Therefore; employers are not required to make the plan equally available to all employees.
True or false: all EE in eligible 457 plans may take advantage of the full contribution limits in a 457(b) plan AND any other deferral program in which they are eligible to participate; thus effectively doubling their deferral opportunities. True.
True or false: Only eligible governmental 457 plans may permit the special 3 year special catchup contributions False. Both governmental and tax-exempt employer may permit the special catch-up election in an eligible 457 plan.
True or false: Sec. 457(b) generally cannot provide significant deferred compensation value to executives. True.
True/False: Most state trust laws hold the trustee responsible for investment performance. False: many state trust laws do not hold the trustee responsible for investment performance UNLESS it is so stated in the trust agreement.
Under what conditions would non-governmental 457 plan sponsors have fiduciary responsibility over the plan investments? Only if they choose to create liability for themselves in the contract or plan document.
What are the consequences if deferred compensation contributions to a 457f plan fail to meet the requirements under 409A? “affected participants” are immediately taxed on the total amount deferred and are subject to a 20% penalty plus interest as of the earliest date the participant became vested in the benefit.
what are the contribution limits for Ineligible 457 Plans? NONE
What are the USERRA rights and who do they apply to? all 457b subject to it. er must fund benefits that would have accrued while in armed forces and ee has 5 yrs to make c/u deferrals missed while out.
What are the withholding requirements on a distribution of from a 457b a plan? For a governmental plan; any amount that could have been rolled over but is not is subject to a 20% withholding. For non-governmental plans; no mandatory withholding applies (because it cannot be rolled over)
What catch-up options may be in a 457b plan? Both gvt/nongvt 457b plans can provide for a special 2 yr cu (200% of contr limit in 3yr ending yr prior to plan Nra). In addition; the age 50+ year catch up contribution rule is available for governmental 457b plans but not nongovernmental 457b plans.
What conditions must be met to transfer assets from one governmental 457b plan to another 457b plan for active participants ? permitted by the trust and the other plan mustis gvt 457b plan and ee is active with receiving plan sponsor and xfer election made prior to benefits payable date under the terms of the plan.
What fiduciary laws must governmental laws adhere to for an eligible 457b plan? They are exempt from ERISA but may have some fiduciary duties under state law. If the assets are held in a trust; they may be subject to state trust laws.
What happens if a 457 plan does not satisfy the requirements of IRC 457a-e The plan is automatically an ineligible 457 plan and must satisfy the special restrictions under IRC 457f
what investments are permitted in governmental 457(b) plans and in 457(b) top hat plans. no fed restrictions but plans of gvt er may be subj to restrictions under state law
what is a “Top Hat” Plan? discriminatory plan not available to anyone other than select group of HC/Key/Mgmt EEs - a tax-exempt er may not offer eligible 457 plans to any employee who is not an executive or highly compensated employee.
What is a non-governmental 457(b) plan? A top hat plan.
What is Heroes Earnings Assistance and Relief Tax Act of 2008 and how does it apply to 457 plans? gvt 457(b) plans are subject HEART; plan may opt to treat active duty military with differential wage pmts from plan sponsor as active ees and treat those payments as comp under the plan.
What is the irrevocable election requirement for 457 plans identify? It identifies a fixed or clearly identifiable time or event that triggers the participant's right to begin to receive distributions from the plan.
What is the maximum amount of compensation that can be deferred into a 457f plan? There is no limit.
What is the purpose of the irrevocable election in 457 plans? It is used to avoid “constructive receipt” issues related to deferred compensation plans.
What kind of sponsor could have a trusteed 457 plan? Governmental employers -- otherwise a trusteed plan would fall under ERISA coverage.
What kinds of employers are currently showing significant interest in top hat 457(b) plans? hospitals; larger tax-exempt charities and private colleges and universities.
What rate restriction applies to life insurance used in a 457 plan? If life insurance is used in a 457 plan; premium and mortality expense charges must be based on gender neutral rates.
What requirements under 409A must compensation deferred under a 457f plan meet? For deferrals of performance based compensation; such as bonuses calculated on performance standards; the deferral election must be completed no less than six (6) months prior to the end of the period in which the performance is measured.
may only 3. Timing of Distributions. Amounts deferred to 457f may be paid or made available to the employee upon: • Severance from service• Disability• Death• An unforeseeable emergency (if the plan allows); or• After a specified period of time or under a fixed schedule of payments specified in the plan.
discuss rule for No Acceleration of Benefits in 457f plan. Generally not paid prior to the initial election date but ee may defer beyond initial election if election is made at least 12 mth before scheduled date and is at least 5 yrs after pay date.
What rules pertain to participant loans in a 457 plan? gvt trusteed plan can make loans if satisfy 72p and facts& circumstances test. the plan may not make the Loan to a participant if the loan is not in the best interest of plan participants.
What should a governmental employer with an eligible; trusteed 457(b) which allows participant directed investments do to help avoid fiduciary responsibilities for investment performance? They won't be subject to ERISA; but to avoid fiduciary responsibilities under state trust laws (where applicable) ; the plan and trust documents should clearly state the participants have the responsibility for investment performance.
What special concern might a social club having a 457 plan funded through an annuity have about the investment performance? Although not restricted by IRC §457; orgs exempt from tax under IRC§501(c)(7) (social clubs ) do have UBTI (unrelated business taxableincome) issues on the growth inside annuity contracnot held by a “natural” person.
What special rules for military service apply to loans in a governmental 457 b plan? If loans are offered; loan repayments may be suspended for participants serving in the U.S. armed forces and returning employees that were in military service must be given an extended period to repay the loan.
What types of employers other than governmental agencies can offer a 457 plan? Tax-exempt employers. However; they are not automatically exempted from ERISA as governmental plans. Plans can be created to exempt them from ERISA such as a well crafted top hat plan.
When calculating the 3 year period for the special catchup election in a 457b plan; what date is used? one or more of the three tax years ending in the calendar year before the participant's 'normal retirement date (not term date) as defined in the plan.
When may distributions be paid out for contributions made to a 457f plan? "• Severance from service• Disability• Death• An unforeseeable emergency (if the plan allows); or • After a specified period of time or under a fixed schedule of payments specified in plan
When must a 457 plan sponsored by a tax-exempt organization distribute excess contributions to avoid loosing its status as an eligible 457b plan? no later than4/15 of the cal yr after excess yr to stay 457(b) deferred compensation plan. That means; participants in the plan would be taxed on their frill account values if there is no “substantial risk of forfeiture.”
When must a deferral election be made in a 457f plan? before tax yr or by dec31 of preceding yr (spec 30 day rule for new ees). Includes comp deferral and when/how will be distributed. If nonelective plan; time/form of pmt and when ee is vested is specified.
When must a governmental 457 plan distribute excess contributions to avoid loosing its status as an eligible 457b plan? as practicable; but the plan does not lose its status as an eligible 45 7(b) plan unless it fails to distribute the excess amounts within a reasonable time following discovery of the excess
When must deferral elections be in place in order to defer compensation for a performance based bonus no less than six (6) months prior to the end of the period in which the performance is measured.
When must distributions be made in an ineligible 457 plan? ee may leave their in the plan w/o time limits. proceeds from 457(f) plans are taxed as soon as there is no substantial risk of forfeiture to the participant.
Which type of 457 plan is commonly referred to as an eligible 457 plan? 457b
Which type of 457 plan is commonly referred to as an ineligible 457 plan? 457f.
Which type of 457 plan is more commonly offered by state and local governments as a means to allow employees to supplement their state funded pension plans? 457(b) plans
Which type of 457 plan is more commonly used by 501©(3) organizations as top hat plans for their executives. 457(b) plans
Which type of 457 plan is most similar to the nonqualified deferred comp plans often used in the corporate sector to provide additional benefits to highly paid executives? 457(f)
Who is covered by a top hat plan? Highly compensated or select groups of management which Must not represent a wide range of employees.
Who owns the assets of a 457(b) non-trusteed plan? the assets still belong to the employer until they are actually paid out or made available to the participant.
Why can a governmental sponsor but not a non-governmental sponsor offer an eligible 457 plan to a broad base of employees? if available to a broad base of ee, ERISA requires fully funded and trusteed. that violates 457(a) which requires nongvt 457(b) plan assets to be unfunded to avoid taxation.
Why might a non-profit employer need to limit contributions to a 457f plan to an amount smaller than what it would otherwise be willing to contribute? non-profit employers must always be aware of “excessive compensation” issues to preserve their tax-exempt status.
Why should employers carefully consider whether to use Life insurance contracts in 457 plans employer (or trust in a governmental plan) retains all ownership rights including naming a beneficiary and the employer is under no obligation to transfer the contracts or pass through any proceeds to the participant or beneficiaries.
Why types of deferred comp plans are exempt under IRC 457(f)? someearly retire plans; ee retention plans of public K-12 ers; tax-exempt educational associations treated as welfare plans exempt from IRC 457(f) and taxed upon receipt instead of vesting. but Still subj to accelerated tax &penalties under 409a
Created by: alkstudy