10/17/2016. Agenda Workshop #36

Transcription

1 Agenda Workshop #36 Different Types of Plans available to Nonprofit Employers 403(b) Plans ERISA 403(b) or Non-ERISA 403(b) or Keeping the Non-ERISA status of Nonprofit Plan Comparison/Contrast ERISA 403(b) to 401(k) Comparison/Contrast 457(b) to 457(f) Controlled Groups, Other Issues, Plan Designs 1

2 Non-Profit Organizations Plan Options and Opportunities Speakers: Bill Grossman McKay Hochman Consulting, DST Systems Inc. Sue Diehl President, PenServ Plan Services, Inc. What is a Tax-Exempt Organization? Section 501(c) of the IRC contains 29 different nonprofit organizations For example: 501(c)(6) includes Business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues. 501(c)(3) includes certain hospitals, educational organizations, etc. 2

3 What Types of Plans can they Establish? 401(k) Profit-sharing/Money Purchase 401(a) 403(b) Only for 501(c)(3) Organizations 457(b) 457(f) SEPs SIMPLE-IRAs MEPs Multiple Employer Plans 501(c)(3) Organizations are Unique! Only tax-exempt that can establish a 403(b) Plan. 501(c)(3) are Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office. 3

4 A word about Charter Schools Also unique in that they typically have dual taxuality They are both a governmental entity and a tax-exempt organization under 501(c)(3) State law will determine how they are treated for State law purposes and what plans they may adopt A word about Charter Schools For Example in Pennsylvania Charter Schools are treated as a governmental employer Employers are required to either cover them under the State Retirement System or cover them with a comparable 403(b) plan. 4

5 A word about Charter Schools In Michigan if there is a management company that is used the plan is typically set up as a Multiple Employer Plan Plan typically adopted by the Plan Sponsor (management org) and the Charter schools participate in that plan. 403(b) Plans 5

6 Types of 403(b) plans 403(b)(1) - Annuity Contracts investments through Insurance Annuities 403(b)(7) - Custodial Accounts investments through mutual funds 403(b)(9) - Church Plans (RICAs) investments limited in Plan agreement not necessarily limited to annuities and mutual funds Trustee(s) may be Church official(s) Retirement distributions available for housing allowance 6% penalty for excesses does not apply Previously referred to as Wrap 403(b)(1)/(b)(7) Document combined annuity/mutual fund investments in a single document Today this is merely a 403(b) Plan (no longer needs reference to (b)(1) or (b)(7) 403(b) Plan Documents Beginning in tax year 2009, IRS regulations required a plan to be established by the employer. The definition is the same as applies under the Qualified Plan rules. See ERISA 403(b) vs. NonERISA 403(b) later. See 401(k) vs. 403(b) later. RICAs must be maintained pursuant to a Plan as well. The plan document must state the intent to constitute a retirement income account. A RICA that is treated as a annuity contract is NOT a custodial account even if the investments are solely in mutual funds. This allows for the more liberal distribution rules under a RICA. 6

7 4 types of Qualified Employers 403(b) Programs may be offered by: 1. Tax exempt organizations under 501(c)(3) IRC "organized and operated exclusively for religious, charitable, scientific, public safety testing, literary, educational purposes to encourage national or international amateur sport competition, or for the prevention of cruelty to children or animals. Examples hospitals, nonprofits, Universities/Colleges 4 types of Qualified Employers 2. Public Educational Institutions Includes primary, secondary, preparatory, or high schools, colleges and universities, and federal state and other public supported schools. Examples public schools, charter schools treated as public schools, State Colleges/Universities 3. Self-Employed Ministers (must have a 403(b)(9))! 7

8 4 types of Qualified Employers 4.Church/Church Related Organizations - With and Without a Steeple With a Steeple A church, place of worship Without a Steeple: QCCO (Qualified Church Controlled Org) For example, a Church School Non QCCO (Non-Qualified Church Controlled Org) For example, a Nursing Home run by the Church. More than 25% of income comes from non church resources. 403(b) Plan Required Provisions A plan must describe all material terms and conditions regarding: 1. Eligibility, 2. Contributions and benefits, 3. Applicable limitations, 4. Timing and form of benefit distributions, 5. Including distribution events, hardship withdrawals, loans, etc. 6. Available investment arrangements 7. Amendment procedure Plan provisions must satisfy 1. Universal availability (m) test (a)(17) limit for contributions other than deferrals 4. All applicable limits, e.g Vesting, if applicable 8

9 403(b) Plan Required Provisions Incorporation of Investment Contracts Plan must incorporate the terms of the investment arrangements by reference. Plan must provide that its terms govern over any inconsistent terms of the investment contracts. A Plan must contain an Appendix that: Identifies the parties responsible for various administrative functions. Lists all investment vendors offered. Includes sufficient information to identify the approved investment arrangements. 403(b) Plan Optional Features Plan may include optional features: Employer contributions Roth contributions Hardship withdrawals Loans Acceptance of rollovers In service withdrawals Exchanges to 403(b) products approved within the plan (for contributions or just exchanges) Plan to plan transfers (in or out) 9

10 Compliance Exchange Agreements Post-Employment Employer Contributions Universal Availability for Elective Deferrals Financial Hardship Distributions Frozen and Terminated Plans Timely Contribution Remittance/Deposit Catch-up Ordering Rule Information Sharing Agreements Other Unique Features Post-employment Employer contributions Universal Availability Does not apply to steeple churches or QCCOs ERISA VS NonERISA Adding a Top Hat 457 Plan 457(b) 457(f) 10

11 Post-employment Employer Contributions Non-elective employer contributions to retirees accounts after death are limited to lesser of: Monthly compensation to be determined based on 1/12 of final contract salary times number of months elapsed in the year of death Total contributions that would have been made on retiree s behalf if s/he had survived to end of 5-year period 415 limit for relevant year (final 12 months of compensation before severance) Non-ERISA 403(b) Coverage and Nondiscrimination Nondiscrimination Rule For Elective Deferrals Universal availability All employees must have an effective opportunity to defer. Permitted exclusions: Those who normally work less than 20 hrs/wk Those who are nonresident aliens Student providing services (usually to a school) described in 3121(b)(1) Eligible to participate by salary reduction in other deferral plans sponsored by the employer, i.e. 403(b) 457(b), or 401(k) Who do not wish to contribute at least $200 per year to a 403(b) account. 403(b)(12)(A)(ii) Violation of the universal availability rule results in plan failure Correction under EPCRS 11

12 Universal Availability Requires meaningful written notice to employees of eligibility to participate at least annually Employees must have reasonable opportunity to make deferral elections 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 Universal Availability Effectively requires schools to count actual hours of service for all employees if they want to exclude employees with fewer than 20 hrs/week (or less than1000 hours per year) Most TPAs encourage employers not to exclude any employees, especially if they can t/don t count hours. Failing Universal Availability can cause plan disqualification! New Annual 415 notice for years after pre-approved plans approval 12

13 401(k) 403(b) SARSEP 402(g) Limit Taxpayer limit for 2016 $18,000 SIMPLE-IRA (limit = $12,500) Limited on calendar year basis. 457(b) not subject to 402(g) limit 401(k) v. 403(b) The major differences between 403(b) and 401(k) plans are: 1. Universal Availability - Eligibility rule applies to 403(b) elective deferrals whereas the ADP test applies to elective deferrals under a 401(k). Immediate eligibility to defer. Limited exclusions to Universal Availability 2. Types of Employers 403(b)s limited to: Public Educational Organizations, 501(c)(3) Organizations and Churches 401(k)s available to: all employers except state/local governments. 3. Investments 403(b)s (Other than church 403(b)(9) plans) can only be invested in annuities or mutual funds; 401(k)s allows for all types unless a prohibited transaction. 4. ERISA v. Non-ERISA 401(k)s subject to ERISA 403(b)s Governmental and Churches not subject to ERISA (unless church elects ERISA) 501(c)(3) Entities may be exempt from ERISA if meet the requirements 13

14 403(b) Catch up Rules One Catch-up limit for all 403(b), 401(k), SARSEP ($6,000) & SIMPLE-IRAs ($3,000) Separate Catch-up for 457(b) governmental No Age 50 Catch-up permitted for tax exempt 457(b) Both Age 50 Catch-up and 15-year rule available in the same year for 403(b)s. Catch-ups first treated as the 15-year catch-up and then age 50 catch-ups 403(b) allowable distributions But Check the plan! Provision Elective Def ER-Annuity ER- Custodial Attainment of 59 1/2 Severance from employment Death Disability under 72(m)(7) Disability other than 72(m)(7) Plan Termination Financial Hardship Attainment of stated age Stated event or # of yrs. If group custodial agreements Unless contract has diff definition If group custodial agreements 14

15 403(b) Allowable Distributions Hardship (must follow 401(k) rules) - Hardship distributions may only include principal amount of elective deferrals, not including earnings thereon. IMPORTANT TO RECEIVE THIS INFORMATION WITH TRANSFERS/EXCHANGES/TAKEOVERS! - Exception for pre-1989 monies, excluding earnings. - Employer must have written hardship policy or custodial agreement/annuity has language 29 ERISA 403(b) or Non-ERISA 403(b) or Keeping the Non-ERISA status of Nonprofit Plan 15

16 What is an ERISA Plan? An ERISA Plan is generally a retirement plan that benefits employees. Therefore owner-only plans are not subject to ERISA standards. Generally all qualified plans, SEPs and SIMPLE- IRAs that cover common-law employees (other than the spouse) are ERISA Plans 403(b) Plans of tax-exempt entities are ERISA plans but may be considered Non-ERISA if certain conditions are met Non-ERISA 403(b) NEVER SUBJECT TO ERISA GOVERNMENTAL EMPLOYERS, INCLUDING: PUBLIC SCHOOLS STATE COLLEGES/UNIVERSITIES CHURCHES (WITH AND WITHOUT A STEEPLE!) CAN ELECT TO BE COVERED BY ERISA WITHOUT STEEPLE INCLUDES QCCOs AND NON- QCCOs 16

17 Non-ERISA 403(b) TAX-EXEMPT EMPLOYERS UNDER 501(c)(3) CAN GENERALLY REMAIN NON-ERISA IF: Elective Deferrals Only (No employer contributions) NO employer involvement, except investments and vendor selection Cannot assist in calculating available loans, hardship distributions, etc. Employers push all responsibilities on vendors Must have reasonable choice of investments, unless choice is offered through open architecture, one vender is generally not acceptable. What Does Being Subject to ERISA Mean? If Non-ERISA Plan Becomes Subject to ERISA, then These Rules Apply Spousal Rights: Beneficiary, QJSA, etc. Eligibility and Participation ERISA Fiduciary Standards and Liability ERISA Selection and Monitoring ERISA Bonding Requirements Prohibited Transaction Protection from Creditors Protection of Employee Benefits, Rights and Features If Non-ERISA Plan Becomes Subject to ERISA, then These Rules Apply Disclosure Requirements: SPS, SMM, SAR Benefit Statements 404(a)(5); 408(b)(2) QDIA, Blackout Notice, etc. Form 5500 Reporting Large Plan Audit Penalties for Non-Compliance with ERISA Requirements, such as, Not Having Provided Disclosures 17

18 How does a 501(c)(3) Maintain NonERISA Status? In order for 501(c)(3) Organizations to be considered Non-ERISA, the Department of Labor has provided safe harbor criteria listing what employers may and may not engage in as part of the day-to-day administration of the Plan. Non-ERISA 403(b) Guidance ERISA Regulation (f) Limited Employer Involvement FAB Employer may adopt a written document and other clarifications of what employer may and may not do FAB Employer must have more than one vendor Exceptions to more than one vendor Additional issues of what employer may and may not do Advisory Opinion A Non-ERISA status lost if 403(b) deferrals receive a 401(k) match 18

19 ERISA Regulation (f) Limited Employer Involvement Limited involvement exemption available if All of the following conditions are satisfied: Participation is completely voluntary for employees Employee can enforce contract Employer gets no direct or indirect benefit other than reasonable expenses actually incurred Employer s involvement is limited to: A. Allowing product providers to publicize their products to employees B. Requesting information about the products C. Summarizing or compiling information provided for employees D. Collecting or remitting employee contributions E. Maintaining records, e.g. holding group contracts in employer s name F. Selecting annuity contractors, limiting to a reasonable number selected to offer reasonable choice ERISA Exemption Safe Harbor Clarifications under FAB What employer actions are permitted under FAB and the 403(b) still be in the Non-ERISA 403(b) safe harbor? Establish a written plan Review operation of plan for discrimination, limits and tax issues Correct failures; EPCRS: Rev. Proc , and 28 Transmit to vendor information employer knows, i.e. address, service, compensation; doctor s certificate e.g. for hardship Terminate the 403(b) plan Limit the funding media or products available to employees, or the annuity providers who may approach employees to a number designed to afford employees a reasonable choice Identify in the plan the parties that are responsible for administrative functions, including those related to tax compliance 19

20 FAB : Employer MAY NOT Employer may NOT negotiate with annuity/custodian providers to change product terms, i.e. conditions for hardship withdrawals Employer may NOT be responsible for, or make discretionary determinations. For example: Authorizing plan-to-plan transfers Processing distributions Satisfying the QJSA requirements Determining a hardship Determine eligibility for, or enforcement of, loans QDRO determinations Automatic Enrollment FAB ERISA Exemption from Safe Harbor Under FAB , the Employer MAY: Limit available providers to those who assume responsibility for discretionary decisions Include optional features such as participant loans in 403(b) plan, but only if handled by the investment provider. Could refuse to include contracts if they are either too costly, or if they would involve ER in discretionary decision making Discontinue the use of a vendor who is not complying with Section 403(b)/final 403(b) Regulations and still be a non- ERISA plan 20

21 FAB ERISA Exemption from Safe Harbor The Employer may NOT: Limit investments to one provider. Permits reasonable choice for cost considerations where for example multiple investments are available under a broker-dealer or an open architecture program. FAB ERISA Exemption from Safe Harbor The Employer may NOT: Unilaterally move from one provider to another. If an employer does this, the plan will be an ERISA 403(b) Hire a TPA to make discretionary decisions without losing the ERISA exemption. However, the employer may assign discretionary determinations to the annuity provider, who may in turn hire a TPA without the plan losing safe harbor status. 21

22 How does a 501(c)(3) Maintain nonerisa Status? The Employer may: hold one or more group annuity contracts in the employer s name covering its employees and exercise rights as representative of its employees under the contract, at least with respect to amendments of the contract ERISA 403(b) vs. NonERISA 403(b) Provision ERISA Plan NonERISA Plan Deposit of Elective Deferrals Required to be made into the Plan as soon as the employer can reasonably segregate the assets from their general assets but no later than the 15 th day of the month after the month the amounts were deducted from pay. As soon as administratively feasible. (No 15 day rule applies, however State law will apply and may have a quicker deposit rule NJ is 3 days!) Annuity Distributions for Spouse 7-day safe harbor rule applies to ERs with less than 100 participants Requires that the Employee s Not required. spouse receive an annuity distribution or opt out. QJSA and QPSA rules apply 22

23 ERISA 403(b) vs. NonERISA 403(b) Provision ERISA Plan NonERISA Plan Employer Responsibilities in Administration Employer is responsible as Plan Administrator of the Plan to make any administrative decisions with respect to the Plan s operations. Employer may not make any administrative decisions regarding the day to day operations of the Plan. If the Employer does the Plan will automatically be subject to ERISA. Protection from all Creditors ERISA protects all assets from all creditors (except the IRS). Department of Labor (DOL) Disclosures Mandates SPDs, SMMs, SAR Benefit statements; Fee Disclosures; Many Practitioners have stated that they believe that it will be impossible for an Employer not to fall into the trap of answering a question that will make them subject to ERISA. No federal protection from creditors. State law would apply. DOL does not have jurisdiction over NonERISA 403(b) Plans, so that no DOL disclosures are required. Comparison/Contrast ERISA 403(b) to 401(k) 23

24 ERISA 403(b) vs. ERISA 401(k) FEATURES OF ERISA 403(b) Plan ERISA 401(k) Plan Which Types of Businesses may Establish Educational organizations and nonprofit organizations under 501(c)(3)IRC, and certain church organizations. Appropriate For Individuals and Generally ERISA protects all assets from Businesses That Have Earnings all creditors (except the IRS). Which... Sole Proprietor, Partnership, S-Corporation, C-Corporation; and all nonprofit organizations (including 501(c)(3)). Govts also grandfathered 1986 Generally ERISA protects all assets from all creditors (except the IRS). Continued Existence of Plan Permanency must be intended Permanency must be intended Annual Contribution Not Required Not Required Maximum Annual Deduction Up to 100% of each participant s compensation not to exceed $53,000. Employers do not receive deduction Up to 25% of total covered compensation ERISA 403(b) vs. ERISA 401(k) FEATURES OF ERISA 403(b) Plan ERISA 401(k) Plan What is Compensation? Eligibility/Participation Vesting (Employer) Vesting (Employee Deferrals) If you are an employee, compensation is generally your salary reported to you on your Form W-2. If you are a self-employed minister your compensation is your "earned income" All employees except nonresident aliens; employees who work less than 20 hours per week; professors on sabbaticals; certain students;. Under most plans the following choices are available for employer contributions: Full and immediate vesting. 100% vesting after 1, 2, or 3 years of service. 6 year graded vesting schedule 100% immediate 100% immediate If you are an employee, compensation is generally your salary reported to you on your Form W-2. If you are a self-employed minister your compensation is your "earned income" All employees who are age 21 and have completed 1 year of service must be able to elect to defer (For employer contributions, 2 years, if 100% immediate vesting.) Nonresident aliens and union employees covered under collective bargaining agreements Same 24

25 ERISA 403(b) vs. ERISA 401(k) FEATURES OF ERISA 403(b) Plan ERISA 401(k) Plan Emergency withdrawals Permitted for hardships only, if provision is adopted Same Taxation of Distributions Generally as ordinary income Potential favorable tax treatment for 10 year averaging, capital gains, NUA Contribution Deadline Due date for employer s federal income tax return, including extensions Note: Tax exempts file Form 990, which is due the 15th day of the 5th month after tax year end (also referred to as report year ). For 415 purposes contributions must be made by the 15th day of the 6th month after tax year end. Due date for employer s federal income tax return, including extensions ERISA 403(b) vs. ERISA 401(k) FEATURES OF ERISA 403(b) Plan ERISA 401(k) Plan Safe Harbor Nonelective Not permitted Yes 3% of compensation Safe Harbor Match Yes - $1 for $1 Match up to 3% of comp plus 2% on the next 2% of comp. No ACP testing Same Form 5500 Required Required Funding Deferrals by Employees max - $18,000 (2016) or $21,500 for long term employees. Deferrals by Employees max - $18,000 (2016) Age 50 Catch-up -$6,000 Employer Matching permitted Employer Discretionary Contribution permitted. Age 50 Catch-up -$6,000 Employer Matching permitted Employer Discretionary Contribution permitted. 25

26 ERISA 403(b) vs. ERISA 401(k) FEATURES OF ERISA 403(b) Plan ERISA 401(k) Plan Top Heavy Rules Do not apply Applies Permitted Disparity Available Same Nondiscrimination Tests Deferrals Universal Availability Matching ACP Nonelective 401(a)(4) Deferrals ADP Matching ACP Nonelective 401(a)(4) Annuity Provisions Applies Applies RMDs Generally 4/1 of year following later of 70 1/2 or retirement. Special rule for pre-1987 account Generally 4/1 of year following later of 70 1/2 or retirement for non 5% owners. For 5% owners, generally 4/1 of year following attainment of age 70 ½. Why would an Employer adopt a 401(k) in lieu of a 403(b) Plan? Lack of understanding Eligibility of 1 or 2 years would reduce eligible employees and may not subject the Plan to an audit Employer should compare Universal Availability rule to the ADP test to see which one may work better. 26

27 Comparison/Contrast Tax exempt 457(b) to 457(f) 457(b) vs. 457(f) FEATURES OF Tax-Exempt 457(b) Gov./Tax-exempt 457(f) Participation Select/Top Hat Group Select/Top Hat Group Contribution Limit $18,000 for 2015 No Limit Types of Permitted Pre-Tax only, No Roth deferrals N/A Deferrals Age 50 Catch-up Not applicable Not applicable Special 3-year catch-up Up to 2 X the normal deferral limit Not applicable Responsibility for Tax-exempt Entity Employer Withholding Rollovers to other Plans No No Transfers Yes. To another tax-exempt 457(b) No Transfer to State Plan to purchase service credits No No 27

28 457(b) vs. 457(f) FEATURES OF Tax-Exempt 457(b) Tax-exempt 457(f) Distributable Events Based on document and employee elections Generally lump sum or over 5 years; based on document Loans Permitted No No RMD Rules Yes. Later of 4/1 after 70 ½ or retirement Not applicable Vesting Permitted for Employer Contributions Not applicable FICA Tax Yes. Applies later of: when services are performed or when no longer substantial risk of forfeiture Yes. Applies later of: when services are performed or when no longer substantial risk of forfeiture FUTA Tax Yes, except 501(c)(3) Organizations Yes, except 501(c)(3) Orgs Reporting Contributions N/A N/A Reporting Distributions Form W-2, except decedents Form W-2, except decedents Form 5500 One-Time Top-Hat Declaration 120 days after establishment One-Time Top-Hat Declaration 120 days after establishment 457(b) vs. 457(f) FEATURES OF Tax-Exempt 457(b) Tax-exempt 457(f) Curing Excess Deferrals Similar to 401(k) N/A Curing other Excesses Waiting for EPCRS update Waiting for EPCRS update Investments Depends on document; hypothetical investment direction Depends on document; hypothetical investment direction Deemed IRAs Not permitted Not permitted Savers tax credit available No No 10% premature tax No No QDRO rules Applies No Subject to 15 day Plan asset rule Trust required No Not permitted unless a Rabbi or secular trust is established No Not permitted unless a Rabbi or secular trust is established 28

29 Controlled Groups Other Issues Plan Design Special Control Group Rules for 501(c)(3) Orgs New rules applied beginning for years after 12/31/08 with respect to controlled groups of businesses If there is commonality in directors, trustees, or individuals on boards of directors in multiple organizations, such organizations may need to be treated as one employer. 29

30 Special Testing Rules for 403(b) plans For controlled groups, where 2 plans are maintained: 410(b) Coverage and 401(a)(4) tests are combined ADP is separate for any 401(k) Universal Availability is separate for any 403(b) ACP is separate Late contributions to 403(b) Plans 403(b) plans are not subject to the excise tax under 4975 They may be subject to a 5% excise tax under ERISA section 502(i) Form 5330 cannot be used to pay the 5% tax Most employers will deposit the late contributions along with the earnings and then file under the DOL s VFCP to pay the 5% excise tax 30

31 PTO Contributions Revenue Rulings and permitted deposits of unused sick and vacation leave to only 401(k) Plans. Many 403(b) plans are written to offer this option IRS indicated that this may be added for 403(b) and 457 plans, but as of this date has not had official guidance! Although IRS permitting in pre-approved plans. Now lets look at Plan Design Non-Profit Employers (501(c)(3)) 403(b) 457(b) 457(f) 401(a) Profit-Sharing, Money Purchase 401(k) SEP/SIMPLE-IRA (but not with Model SEP) 31

32 Church Plan Design Churches 403(b) 401(a) 401(k) Careful not always advantageous! SEP (not with Model 5305-SEP) SIMPLE-IRA Might include: Churches with a steeple; QCCOs or nonqccos. Nonelecting Churches default to pre-erisa rules. Not subject to ERISA unless they elect, but nonqccos will be subject to testing Miscellaneous Adjunct Professors Challenging endeavor for years Affects all retirement plans not just 403(b) plans Can affect eligibility and vesting A part-time professor hired on a contractual basis Cannot exclude by class Violation of Universal Availability Rule Affordable Care Act and ACA regulations and preamble Counting hours can be any reasonable method May not be added to Plan Document Accepted by IRS auditors 32

33 Miscellaneous One reasonable method that is acceptable under IRS audit is an employer would credit hours as follows: 2.25 hours per week for each hour of teaching or classroom time PLUS 1 hour of service per week for each additional hour of service outside the classroom performing required duties (e.g., office hours, department meetings). Special Employee/Employer Contributions FICA Replacement Plans 7.5 % required between Employer and Employee Depends on Government Employer s State, type of Employee, etc. I.e., Part time individuals in PA can participate in a FICA replacement Plan PTO Contributions Mandatory Employee Contribution vs. Auto Enrollment Mandatory Employee Contribution Treated as a Non Elective Employer Contribution Is Subject to FICA tax 33

34 Special Employee/Employer Contributions FICA Replacement Plans 7.5 % required between Employer and Employee Depends on Government Employer s State, type of Employee, etc. I.e., Part time individuals in PA can participate in a FICA replacement Plan PTO Contributions Mandatory Employee Contribution vs. Auto Enrollment Mandatory Employee Contribution Treated as a Non Elective Employer Contribution Is Subject to FICA tax Structure of Multiple Plans (2016) Now let s look at a few plan designs to maximum benefits. John, age 40 is the CEO of a private school and earns $75,000. He anticipates retiring in 20 years. His contract also requires the Employer to contribute to a 457(f) for John in the amount of $15,000 per year. 403(b) Defers the maximum $18,000* 457(b) Defers the maximum $18,000* 457(f) Employer Contribution $15,000 ESTIMATED TOTAL FOR YEAR 2016 $48,000 * These amounts reduce the annual compensation 34

35 Structure of Multiple Plans (2016) Jane, age 60 is the CEO of a non-profit and earns $100,000. She is retiring next year (2017) and will be receiving a post-employment amount of $10,000 in Her contract also has required the Employer to contribute to a 457(f) for Jane in the amount of $20,000 per year since (b) Defers the maximum $24, (b) Employer Contribution $10,000 (added in 2017) 457(b) Defers the maximum $24, (f) Employer Contributes $20,000 ESTIMATED TOTAL FOR YEAR $78,000 Structure of Multiple Plans (2016) Why are we layering these types of plans? Remember that one plan 403(b) or 401(a) cannot accept more than $53,000 (for 2016). By establishing multiple plans the employees can maximize their contributions and not run afoul of the limitations. By law, 401(a) plans and 403(b) plans are not aggregated when looking at the $53,000 cap. 35

36 Questions Copyright 2016 PenServ Plan Services, Inc