Discriminatory Governmental §403(b)
Many school districts would like
to provide greater benefits for their:
- superintendents, principals and other highly compensated administrators, and/or
- retiring employees receiving lump sum payments of accrued sick pay, accrued vacation pay and retirement incentives.
As you may know, only a set amount may be deferred by any individual in any year to his/her §403(b) account.
However, an employer can make non-elective contributions to each employee’s account, up to the employee’s §415 limit.
But ERISA rules prohibit an employer from being discriminatory, i.e., making contributions for only selected employees.
Legend has a Solution.
- The Taxpayer Relief Act of 1997 granted governmental plans
a permanent moratorium from the ERISA nondiscrimination rules.
This means that your written §403(b) plan can contain provisions to make contributions for only your superintendent and/or principals.
This also means your plan document can provide that you can use as much as the limits allow out of a retiring employee’s accrued sick/vacation
pay and/or retirement incentive to make an employer contribution to his/her §403(b) account.
(This must be set up as non-elective. If the employee
has the right to receive the money in cash, the contribution would be classified as an elective salary deferral subject to the maximum contribution limit.)
- The Economic Growth and Tax Relief Reconciliation Act of 2001
The Economic Growth and Tax Relief Reconciliation Act of 2001 has also provided employers who are eligible to maintain a §403(b) program with the ability
to make employer contributions to an individual’s §403(b) account for five years past that individual’s retirement. This means you will be able to shelter
each retiring employee’s entire lump sum! This benefit could facilitate the structure of contracts that can attract and keep quality administrators and teachers for your district.
If your current plan document does not have a provision for employer contributions, Legend can provide a plan document to establish this new program at no cost to the district.
All you need to do is restate your existing plan by adopting the new document. Multiple plan documents are not recommended.
As a leading provider of retirement plan services, Legend can assist your organization
in adding a Discriminatory Governmental §403(b) feature to your §403(b) plan.
The Legend Group/ADSERV offers a comprehensive array of plan administration and compliance services that have enabled numerous organizations to better manage their retirement programs and ensure compliance with government regulations.
View Legend's §403(b) plan support services
The Legend Group/ADSERV's §403(b) recordkeeping and compliance services can effectively reduce an employer's risk of non-compliance with the rules and regulations affecting their plans.
The Legend Group/ADSERV can:
- Provide a
written plan document conforming to the provisions of the Final Regulations
- Monitor optional features
that are adopted in an employer's plan, including loans, plan-to-plan transfers, exchanges
- Monitor each vendor's adherence
to the distribution restrictions
- Monitor contribution limits
and vendors' adherence to the prescribed treatment of excesses
- Review and approve
Qualified Domestic Relations Orders
- Provide guidance on compliance with the
Universal Availability requirements
- Review
annuity contracts and
custodial agreements for appropriate §403(b) language
- Provide extended
cooperation and
administrative support in the event of an IRS audit
- Provide guaranteed
Maximum Annual Contribution (MAC) Calculations
Visit Legend's §403(b) Regulations website
Legend Equities Corporation and its affiliates do not provide tax information or advice.