PORTFOLIO

Employee Benefits for Tax-Exempt Organizations (Portfolio 373)

Tax Management Portfolio, Employee Benefits for Tax-Exempt Organizations, No. 373-4th, focuses on the special issues that arise in connection with the design and administration of deferred compensation, welfare benefit and incentive plans maintained by private organizations that are exempt from federal income tax under §501 of the Internal Revenue Code.  

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DESCRIPTION

Tax Management Portfolio, Employee Benefits for Tax-Exempt Organizations, No. 373-4th, focuses on the special issues that arise in connection with the design and administration of deferred compensation, welfare benefit and incentive plans maintained by private organizations that are exempt from federal income tax under §501 of the Internal Revenue Code. Special rules that only apply to plans maintained by churches and church-controlled organizations also are addressed. In addition, background information respecting generally applicable rules is provided.


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AUTHORS

DANIEL J. SCHWARTZ
Daniel J. Schwartz, University of Missouri at Columbia (A.B. 1974, cum laude); University of Missouri at Kansas City (J.D. 1977); Member of the Bar Association of Metropolitan St. Louis, the Missouri Bar, and the American Bar Association Section of Taxation, Committee on Employee Benefits; Charter Fellow of American College of Employee Benefits Counsel.

TABLE OF CONTENTS

Detailed Analysis

I. Scope of Portfolio

II. Deferred Compensation

A. Qualified Retirement Plans Under § 401(a)

1. Background

2. Types of Qualified Plans

a. Pension Plans

b. Profit-Sharing Plans

3. Plans with Cash or Deferred Arrangements

a. General Description

b. Nondiscrimination Testing

c. Safe Harbors

d. Tax-Exempt Employer Sponsorship

4. Who May Participate

5. Ownership of Assets; Investment Media

6. Nondiscrimination Requirements

a. Highly Compensated Employee

b. Minimum Age and Service Requirements

c. Minimum Coverage Rules

d. Minimum Participation Rule

e. Nondiscrimination with Regard to Contributions and Benefits

f. Other Nondiscrimination Requirements

g. Vesting Requirements

7. General Limitations on Contributions and Benefits

a. Defined Benefit Plans

b. Defined Contribution Plans

c. Combined Limitation

8. Distribution Requirements

a. Restrictions on Early Distribution

b. Restrictions on Delay in Distribution

c. Other Requirements Respecting Form and Time of Distribution

d. Loans to Participants

e. Spendthrift Rules

9. Funding Requirements

10. Prohibited Transactions

11. Federal Income and Employment Tax Treatment of Employer Contributions

a. Federal Income Tax Treatment

b. Federal Employment Tax Treatment

12. Excise Taxes on Employer

13. Pension Liability Overstatement Penalty

14. Federal Income and Employment Tax Treatment of Distributions

a. Federal Income Tax Treatment

(1) Lump-Sum Distributions

(2) Eligible Rollover Distributions

(3) Annuity or Installment Distributions

b. Federal Employment Tax Treatment

c. Excise Taxes on Distributions

d. Excise Tax on Failure to Receive Minimum Required Distribution

15. ERISA

16. Obtaining IRS Approval

a. In General

b. The Employee Plans Compliance Resolution System

17. Remedial Amendment Periods

a. General Remedial Amendment Period

b. Cyclical Remedial Amendment Period

(1) In General

(2) EGTRRA Remedial Amendment Period

(3) Extension of General Remedial Amendment Period

(4) Interim Amendments

18. Special Rules for Plans of Churches, Societies, Orders, VEBAs, Etc.

a. General Description

(1) Nonelecting Church Plans

(2) Plans Maintained by § 501(c)(8) and (9) Organizations

b. Requirements from Which Exempt Plans Are Excused

c. Requirements from Which Exempt Plans Are Not Excused

B. Tax-Deferred Annuities Under § 403(b)

1. Background and 2007 Regulations

2. Tax-Exempt Organizations that May Offer § 403(b) Annuities

a. Tax-Exempt Organizations Under § 501(c)(3)

b. Organizations Related to § 501(c)(3) Organizations

c. Indian Tribal Agency Organizations

d. Former Eligible Employers

3. Who Is Eligible to Participate

a. Active Employees

b. Former Employees

c. Chaplains and Self-Employed Ministers

4. Plan Must Comply in Form and Operation

5. Ownership of Assets; Investment Media

6. Incidental Life Insurance Coverage

7. Nonforfeitability

8. Nontransferability

9. Nondiscrimination Requirements

a. In General

b. Universal Availability for Elective Deferrals

c. Transition Safe Harbor

d. Exception for Certain Church Plans and Ministers

e. Aggregation of Discriminatory Plans

10. Procedures Relating to Salary Reduction Agreements

11. Distributions

a. In General

b. In-Service Distributions

12. General Limitations on Excludible Contributions

a. The § 415 Limit

(1) Includible Compensation

(2) Aggregation Rules

(3) Special Rule for Church Employees

(4) Effect of Exceeding § 415 Limit

b. § 402(g) Limitations on Elective Deferrals

(1) In General

(2) § 414(v) Catch-Up Contributions

(3) Special § 403(b) Catch-up Election

(4) Catch-up Election for Returning Veterans

(5) Effect of Exceeding § 402(g) Limit

13. Excise Taxes Imposed on Employer

14. Income, Excise and Employment Taxes Imposed on Employee

a. General Federal Income Tax Treatment

b. Loans

c. Qualified Domestic Relations Orders

d. Rollovers

e. Contract-to-Contract Transfers

f. After-Death Distributions

g. Federal Excise Taxes on Distributions

15. FICA and FUTA Taxes on Salary Deferral Contributions

16. Plan Terminations and Frozen Plans

17. Obtaining IRS Approval

18. ERISA

a. Church Plans

b. Other § 403(b) Annuities

c. Bankruptcy Considerations

C. Unfunded Deferred Compensation Plans Governed by § 457

1. In General

2. Application of § 457 to Plans Maintained by Tax-Exempt Organizations

3. Eligible Plans

a. Who Is Eligible to Participate

b. Ownership of Assets; Investment Media

c. Deferrals Subject to § 457

d. Procedures Relating to Deferral Agreements

e. Deferral Limitations

(1) Plan Limits

(a) General Rule

(b) § 414(v) Catch-Up Contributions

(c) Special § 457 Three-Year Catch-Up Rule

(d) Catch-up Election for Returning Veterans

(2) Individual Limits

(3) Excess Deferrals

f. Distribution Requirements

(1) Restrictions on Early Distribution

(2) Restrictions on Delay in Distribution

(3) Restrictions on Participant Elections Respecting the Form and Time of Distribution

g. Income, Excise and Employment Taxes

h. Right to Cure

i. Effect of § 409A

4. Ineligible Plans

a. In General

b. Effect of § 409A

c. When § 457(f) Applies

d. Substantial Risk of Forfeiture

e. Alternatives to § 457(f)

f. Participant's Tax Treatment

5. Nondiscrimination Requirements

6. Obtaining IRS Approval

7. ERISA

8. Miscellaneous

a. Transfers Between Plans

b. Qualified Domestic Relations Orders

c. Bankruptcy Considerations

d. Plan Termination

e. Grandfather and Transition Rules

D. IRAs, SIMPLE and SEP Plans

1. IRAs

a. In General

b. Roth IRAs

c. Deemed IRAs

2. SIMPLE Plans

3. SEP Plans

E. Prohibited Tax Shelter Transactions

1. Entity Level Penalties

2. Entity Manager Penalties

3. Disclosure Requirements

III. Restrictions on Total Compensation

A. Private Inurement and Private Benefit

B. Excess Benefit Transactions

IV. Welfare Benefit Plans

A. Background

B. Specific Welfare Benefit Plans

1. Group Term Life Insurance

2. Health and Disability Benefit Plans

a. In General

b. Health Plans

(1) In General

(2) COBRA

(3) HIPAA

(4) Mental Health Parity

(5) Newborns’ and Mothers’ Health Protection

(6) Medicare Secondary Requirements

(7) HMOs

(8) Continued Coverage of Dependent Students

c. Disability Plans

3. Parsonages

4. Educational Assistance Benefits

a. Tuition Reduction Programs

b. Educational Assistance Plans

c. Business Expenses

5. Meals and Lodging Furnished by the Employer

a. In General

b. Meals

c. Lodging

6. Cafeteria Plans

7. Dependent Care Assistance Programs

8. Fringe Benefits Under § 132

9. Adoption Assistance Programs

10. Long-Term Care Insurance

C. Funding Methods

1. Voluntary Employee Beneficiary Associations

2. Supplemental Unemployment Compensation Benefit Trusts

3. § 501(c)(3) Supporting Organization for Charities

4. Grantor Trusts

V. Statutory Benefits

A. Social Security Coverage

1. In General

2. Church Employees Other than Ministers

3. Ministers and Members of Religious Orders

B. Unemployment Compensation

VI. Employer Aggregation and Employment Law

A. Aggregation of Employers

1. In General

2. Which Employees Must Be Aggregated

a. § 414(b) and (c)

(1) Parent-Subsidiary Group

(2) Brother-Sister Groups

(3) Special Considerations Relating to Tax-Exempt Entities

b. § 414(m)

c. § 414(n)

d. § 414(o)

3. Affected Statutory Requirements

a. Nondiscrimination Requirements

b. Funding Requirements

B. ADEA, Title VII, ADA and FMLA

1. ADEA

2. Title VII

3. ADA

4. FMLA


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 IRC Section 403(b) Plan Technical Guidance

Worksheet 2 Sample Company 403(b) Plan (Church Plan)

Worksheet 3 Sample Company 457(b) Plan (Church Plan)

Worksheet 4 Sample University 457(f) Deferred Compensation Plan

Worksheet 5 Computation of General Limitation on Employer Contributions Pursuant to § 415(c) (Updated for EGTRRA, P.L. 107-16)

Worksheet 6 Computation of Limitation on Elective Deferrals Pursuant to § 402(g) (Updated for EGTRRA, P.L. 107-16)

Worksheet 7 Required and Permitted In-Service Distributions from Deferred Compensation Arrangements

Worksheet 8 Permitted Funding Instruments for Tax-Deferred Compensation by Governing Code Section

Bibliography

OFFICIAL

Statutes:

Legislative History:

Treasury Regulations:

Treasury Rulings:

Department of Labor Rulings:

Cases:

UNOFFICIAL

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