Communique -- April 2016

In this issue
  >>  Timely payroll deductions
  >>  Electronic contributions
  >>  Excess contributions
Timely payroll deductions

The IRS has many rules regarding the payroll deduction of 403(b) contributions. The timely deposit of employee contributions is one of them.

According to the Plan Fix-It Guide:

Department of Labor (DOL) rules require that the employer deposit deferrals to the trust as soon as the employer can; however, in no event can the deposit be later than the 15th business day of the following month.

If elective contributions are not made on a timely basis, this can represent an operational mistake and a prohibited transaction. This can put the district at risk for having their plan disqualified by the IRS. There are rules for correcting operational mistakes and rules for fixing prohibited transaction. However, the former falls under the Employee Plans Compliance Resolution System (EPCRS) and the latter falls under the DOL self-correction procedure: Voluntary Fiduciary Correction Program (VFCP).

The IRS expectation is for employee elective deferrals to be forwarded to the vendor as soon as administratively feasible. While they do have methods for making corrections, prevention is the best medicine. If you have any questions regarding this issue, please contact us at 1-800-279-4030.

Electronic contributions

While employers may remit employer 403(b) contributions by mailing checks to our custodian bank, we encourage the use of electronic payments. For those using yourPLAN ACCESS for contribution information, you have the option of sending contributions electronically.

After the payroll and contribution details have been put into yourPLAN ACCESS, you can simply choose to ACH or wire the funds to WEA Member Benefits. This can be set to pull from your bank account on the date of payroll or if you prefer to have the funds pushed from your account, we can provide you with our bank account information.

If you would like to switch to electronic contributions, simply give us a call at 1-800-279-4030 and we can go over the details with you.

Excess contributions

The exact amount a participant can contribute to a 403(b) may vary depending on their eligibility for catch-up contributions and whether catch-up contributions are allowed by the district. The IRS requires that each employer’s plan document specify which catch-up provisions are allowed. This applies to both pretax elective deferrals and designated Roth contributions.

The IRS views these as individual limits. If any employee participates in more than one 403(b), even across different employers, the combined amount of all elective deferrals is subject to the one limit. This is the maximum allowed per calendar year (not the employee’s contract beginning or ending date).

Any amount contributed above the limit is considered an excess. Being in excess could cause all accounts held by a participant to lose their 403(b) status. The IRS places responsibility on the employer to limit deferrals to the plan. Each vendor may keep track of contributions to prevent excesses, but may only be aware of a portion of an individual’s contributions. Compiling a list of participants and deferrals each year, along with establishing procedures with vendors and educating participants of their responsibilities are the best ways to prevent excess contributions.

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