The Catholic University of America

Summary of Federal Laws

Tax

Tax Issues Related to Employment

Retirement and Other Deferred Compensation Arrangements

26 U.S.C. § 401, 26 U.S.C. § 403, 26 U.S.C. § 457, 26 USC § 409A;

26 CFR 1.457.1 et seq.

This governs I.R.C. § 401(a) plans, § 403(b) annuities and deferred compensation arrangements (either qualified under I.R.C. § 457 or non-qualified).

IRS Employee Plans Compliance Unit : 403(b) Universal Availability Higher Education
The Universal Availability rule provides that if any employee is permitted to make elective salary deferrals to a 403(b) plan, then all employees, with limited optional exclusions, must be provided the same opportunity.This page describes a compliance project the IRS will undertake with randomly chosen schools to review compliance with the universal availability/written plan document requirements now in effect.

IRS Guidance on 12/9 month payments
The question of whether or not a university policy that allows faculty who work nine months to be paid over 12 months consitutes deferred compensation was addressed by the IRS in Notice 2008-62 and the IRS issued proposed regulations (Deferred Compensation Plans of State and Local Governments and Tax Exempt Entities, 81 Fed. Reg. 40548, (June 22, 2016) that addressed part year compensation for faculty as follows: 

Recurring Part-Year Compensation

"The proposed regulations also provide greater flexibility for recurring part-year compensation. Recurring part-year compensation, which is common for teachers and professors, generally refers to recurring compensation that is earned over a period of service that is less than 12 months, but encompasses two taxable years, such as a 10 month school year. ******The proposed regulations... provide that there is no deferral of recurring part-year compensation if two requirements are satisfied.

First, the recurring part-year compensation may not be deferred beyond the last day of the thirteenth month following the first day of the service period for which the recurring part year compensation is paid (e.g., the first day of the school year). Second, the amount of the recurring part-year compensation (not merely the amount deferred) may not exceed the annual compensation limit under Code section 401(a)(17), which currently is $265,000."

See Newly Proposed Regulations Under Section 457(f) Impact Deferred Compensation Arrangements of Tax-Exempt and Governmental Entities by Steptoe and Johnson. 

  Filing of Annual Information Returns

26 CFR 301.6058-1 sets forth the requirements for the annual information return that must be filed each year on funded plans of deferred compensation. Form 5500 is the form used for this report.

Penalties for Failure to Comply with Certain Information Reporting Requirements

I.R.C. §§ 6721 - 6724

These sections contain the penalties for failure to comply with information reporting requirements on or before the time prescribed, failure to file the correct information required or all the information required, and failure to furnish correct payee statements. The penalty is generally $50 for each return, with opportunity for reduction of the penalty for correcting the error. When filing by magnetic media, the failure must occur with respect to more than 250 information returns. See I.R.C. § 6724(c). This means universities should take care when collecting and reporting social security numbers under various tax related reporting requirements.

Resources and Publications

IRS Notice 2014-19 Effect of Windsor Ruling and Rev. Ruling 2013-17  upon qualifed Retirement Plans

IRS Publication 4483 (Tax-Sheltered Annuity Plan for Sponsors) Fall 2013

403(b) Plans: A Guide for Section 501(c)(3) Organizations (ING January 2011) 

IRS Retirement Plan Products Guide

IRS Plan Checklist

NACUANOTE: Retirement Plans: Compliance with the New 403(b) Regulations

On July 26, 2007, the IRS issued the first comprehensive regulations governing 403(b) plans in over forty-three years.  Key changes/clarifications include a plan document requirement, non-discrimination rules, post-retirement contributions, in-service withdrawals, transfers and exchanges, timely remittance, plan terminiation, and controlled group rules.

 

updated 8-24-18 mlo