9- 403(b) Plan Issues

Question 1

a U.S. tax-advantaged retirement savings plan available for public education organizations, some non-profit employers, cooperative hospital service organizations, and self-employed ministers in the United States. It has tax treatment similar to a 401(k) plan, especially after the Economic Growth and Tax Relief Reconciliation Act of 2001.

Answer 1

A 403(b) plan

Question 2

A qualified employer for purposes of being permitted to offer a 403(b) plan must be either:

Answer 2

• (a) A nonprofit organization
• (b) A public school system or public college or university

Question 3

is the 402(g) limit affected by either employer contributions or employee contributions to other retirement plans?

Answer 3

no

Question 4

How did EGTRRA impact upon

(a) the iRC section 415 limit and
(b) the iRC section 401(a)(17) limit?

Answer 4

• increased both the dollar amount limit and the percentage of compensation limit applicable to defined contribution plans that existed under Internal Revenue Code Section 415.
• (b) EGTRRA increased the previous lower compensation limit of $170,000 to $200,000 in 2002 and indexed its escalation in future years in $5,000 increments instead of the $10,000 increments that existed prior to the enactment of EGTRRA. In 2013, this indexed limit was $255,000.

Question 5

In addition to insurance company annuities, the range of permissible investments was expanded by ERISA in ____. With the addition of Section 403(b)(7), the range of permissible investments includes _______ of regulated investment companies or _______, as well as insurance company separate accounts.

Answer 5

1974

custodial accounts

mutual funds

Question 6

Any lump-sum distribution from a 403(b) plan is taxable to the participant at ________

Answer 6

ordinary income tax rates.

Question 7

What types of annuity contracts may be used to provide a tax-deferred annuity? (3)

Answer 7

Any annuity contract (individual or group)

Question 8

Describe those components of a 403(b) plan that would not be eligible for rollover. (3)

1. Any distribution required to be made as a ________
2. Any distribution that is part of a ____ of substantially equal periodic payments made at least annually over the life or life expectancy of the employee
3. Any distribution made on account of _____.

Answer 8

• required minimum distribution
• series
• hardship

Question 9

How did egtRRA affect the use of eligible section 457(b) deferred compensation plans by tax-exempt employers that were using section 403(b) plans as their primary retirement plans for senior managers and highly compensated employees?

Answer 9

EGTRRA eliminated the requirement to coordinate the limits under both types of plans.

Question 10

A 403(b) plan can be structured in (2) different ways:

Answer 10

• on a fully contributory and elective basis without employer contributions.
• employer contributions with or without employee contributions.

Question 11

______ contributions are those that the employer makes on behalf of the participant to the employer’s basic retirement plan. _____ contributions to 403(b) plans are those voluntary contributions made by an eligible employee to a tax- deferred annuity under a salary reduction agreement made with his or her employer.

Answer 11

Nonelective

Elective

Question 12

EGTRRA also made provision for employees who have attained the age of __ by the end of the tax year to contribute additional elective deferral amounts for years beginning after ____.

Answer 12

• 50
• 2001

Question 13

EGTRRA

Answer 13

economic growth and tax Relief Reconciliation Act of 2001

Question 14

the maximum amount an individual may contribute on an annual basis to all 403(b) plans in which he or she participates (pursuant to a salary reduction agreement) is determined by internal Revenue Code section ____. At the time of egtRRA’s passage in 2001, the limit of elective deferrals was set at ____. egtRRA increased the elective deferral limit for 2002 and scheduled it to increase in subsequent years according to a preset schedule. in 2013, the 402(g) limit had reached ____.

Answer 14

• 402(g)
• $10,500
• $17,500

Question 15

in special cases, an amount above the annual 402(g) limit may be contributed by an employee to a 403(b) plan under a salary reduction agreement. explain which employees are eligible and how much they may contribute

Answer 15

ee’s w/ 15 years of service $15k in additional not but more than $3k in a single year

Question 16

the passage of the economic growth and tax Relief Reconciliation Act of 2001 (egtRRA) considerably simplified administration of 403(b) plans since it eliminated the ______ for years beginning after 2001. the Alternative limits A, B and C, which allowed some employees to make additional contributions, were also _____.

Answer 16

• exclusion allowance
• repealed

Question 17

The essential requirements needed to achieve the desired tax advantages under a 403(b) plan are:

• (a) The employer must be a qualified educational or nonprofit organization or a public school system (or public college or university).
• (b) The participant must be a ______.
• (c) The participant’s rights under the contract must be ______.
• (d) The contributions paid in any year must not exceed:
  
  • (1) The exclusion allowance for the years prior to _____
  • (2) The limits under IRC Section 415
  • (3) The annual limit on salary reduction contributions
  • (4) The maximum amount permitted under the nondiscrimination requirements.
• (e) The plan must meet the ______ applicable to plans involving employer contributions. For plans that include only voluntary employee salary reductions, IRS regulations simply require that the opportunity to make salary reduction contributions be effectively available to essentially all employees.
• (f) The _____ must be purchased by the employer, or the employer must make a deposit to a custodial account that will purchase mutual fund shares.
• (g) The final regulations for 403(b) plans require a _______ for every 403(b) plan. Since many 403(b) plans are administered through outside vendors, the regulations permit a plan document to incorporate by reference other materials, such as annuity contracts, custodial accounts or summary descriptions.

(important)

Answer 17

• bona fide employee
• nonforfeitable
• 2002
• nondiscrimination requirements
• annuity contract
• written plan document

Question 18

Under IRC Section 403(b)(8), distributions from a 403(b) plan are not includable in an employee’s gross income if they are properly rolled over. The basic requirements for a valid rollover are:

• (a) The employee, pursuant to the plan’s usual distribution rules, receives _______ of his or her interest in the plan in an eligible rollover distribution.
• (b) The employee rolls any portion of the distribution into another eligible plan or to an individual retirement account (IRA).
• (c) If property other than _____ is distributed, the employee transfers the same property he or she received.
• (d) The rollover must be completed within ___ days of receipt of the eligible rollover distribution.

Answer 18

• all or a portion
• money
• 60

Question 19

In order to be eligible for participation under a 403(b) plan, an employee may be a seasonal, part-time or full-time employee but must be a bona fide employee—not ________

Answer 19

an independent contractor.

Question 20

An employee generally must begin receiving distributions from a 403(b) plan by the later of (2):

If sufficient records are maintained to segregate an employee’s pre-1987 account balance, however, and if the 403(b) plan so provides, any amounts credited prior to January 1, 1987 need not be distributed until the age of _____.

Answer 20

• (a) April 1 following the year after turning 70 1⁄2
• (b) The calendar year following retirement
• 75

Question 21

403(b) plans, except for church plans, generally are subject to the nondiscrimination rules enacted by the Tax Reform Act of 1986 (TRA ‘86). TRA ‘86 enacted three nondiscrimination rules that affect 403(b) plans:

• The same coverage rules that apply to qualified plans are applicable to _______ made to 403(b) plans.
• Employer contributions must meet the _____ test
• __________

Answer 21

1. nonsalary reduction contributions
2. actual contribution percentage (ACP) test
3. Salary reduction contributions

Question 22

403(b) Employer contributions come in three varieties:

Answer 22

• Fixed contributions without mandatory employee contributions
• Fixed contributions on a matching basis requiring employee contributions
• Variable contributions where an employer contributes to the 403(b) and may use it

Question 23

limits an employee’s elective deferrals into a 401k or 403b plan to $17,000 in 2012.

Answer 23

402(g)

Question 24

A 403(b) plan can be structured involving employer contributions with or without employee contributions. Employer contributions come in three varieties:

(important)

Answer 24

1. Fixed contributions without mandatory employee contributions
2. Fixed contributions on a matching basis requiring employee contributions (meaning that an employee will not receive an employer match unless the employee makes a contribution).
3. Variable contributions where an employer contributes to the 403(b) and may use it, in a sense, as a means of rewarding employees for achieving performance targets much like a profit-sharing plan is used.

Question 25

Under most 403(b) plans, participating employees can elect to have their salaries reduced, pursuant to a salary reduction agreement with the employer, and have the amount of the reduction applied to purchase ______ within the limits established by law. Often referred to as a ______ or _______, this type of 403(b) arrangement is intended as a voluntary tax-deferred savings plan utilizing salary reduction, and it generally does not involve employer contributions.

Answer 25

403(b) annuities (or mutual funds)

tax-deferred annuity (TDA) plan

supplemental retirement annuity (SRA) plan

Question 26

(in relation to 403b plans) As a practical matter, it would appear that nonforfeitability would require that ownership ordinarily be vested solely in the _______, thus leaving him or her free of any restrictions or problems that might arise as a result of insolvency or change of management of the employer.

Answer 26

employee

Question 27

EGTRRA increased the previous lower compensation limit of $170,000 to $200,000 in 2002 and indexed its escalation in future years in $5,000 increments instead of the $10,000 increments that existed prior to the enactment of EGTRRA. In 2013, this indexed limit was ______.

Answer 27

$255,000

Question 28

Historically 403(b) account owners were permitted to engage in tax-free contract exchanges, commonly referred to as a _____________ .

Contract exchanges were permitted under this Revenue Ruling as long as the successor contract’s _________ were the same or more stringent than the distribution restrictions in the predecessor contract. Effectively the proposed regulations would have limited tax-free exchanges to situations in which the new contract was provided under the plan.

Answer 28

“90-24 exchanges,”

distribution restrictions