...This comes across to me as supremely arrogant. ...There are other examples, but I'm not going to identify them all. However, this should be sufficient to demonstrate that I'm not making a bald assertion.
Hi kkbmustang,
Thank you for your reply. I can tell you put a lot of effort into it. However, with the greatest of respect, you have not succeeded in identifying an error in what I wrote. Before I respond to each of your alleged errors, let me add some initial comments:
When I engage with posters on this forum, I read each post in an incredibly charitable fashion. I always try my best to extract a salient argument and find something of value in each and every post. I pride myself on that, in fact. In no case do I assume that other posters are clueless. My only goal is to help people, in whatever ways I can. I feel like you have taken a much different approach to my posts than what I would take to yours. In particular, you have tried so hard to find errors that you haven't attempted to find a charitable reading of the message, and in doing so, you've also overlooked what I literally said.
I think you and I could make good friends in the future, but such a relationship should start by reading each others' posts charitably.
With those remarks said, I will respond to each of your alleged errors.
Second, there is a limitation based on the calendar year. A trust shall not constitute a qualified trust unless the document governing the trust provides that elective deferrals made by an employee during the calendar year to all plans to which such deferrals can be made together sum to an amount no greater than the limitation specified in 26 USC § 402(g)(1)(A) for that year, which is again $18,000 for 2015. 26 USC § 401(a)(30). This second limit is purely a requirement as to the form of documents governing the plan and does not directly impose any obligations on the employee.
Here is what Code section 401(a)(30) actually says: "In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year, such trust shall not constitute a qualified trust under this subsection unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year."
The interplay between the 402(g) limit and this provision is nuanced. However, you skip over an important part in your summary of the statute. I will break it down for you:
- In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year: This refers to the trust that holds the assets of the plan participants, here their employee contributions (also referred to as elective deferrals or elective contributions)
- Unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan: This is what requires employers to include in the plan provisions that in determining the total elective deferrals made by a participant include any elective deferrals made to any plans sponsored by that particular employer. In other words, the employer can't sponsor three different 401(k) plans and allow employees to defer $18k to each of the three plans
- May not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year: This is the part that establishes the limit (i.e., $18k which is adjusted for inflation)
Here you have merely restated what I already said, using a lot more words. You have not identified any error.
If a plan (or plans, if there is more than one plan sponsored by the same employer) allows contributions that exceed $18,000 (the 402(g) amount), it will no longer remain qualified for tax purposes. If a plan finds that it has allowed an employee to defer more than this amount, it is required to make a corrective distribution equal to the amount in excess of the 402(g) limit. If it does not, there will be consequences. These consequences can include correction, excise taxes, or disqualification.
This is true, but it's not inconsistent with my post. It's just more information.
However, you state that this limit is "purely a requirement as to the form of documents governing the plan and does not directly impose any obligations on the employee."
This is also incorrect.
This was not incorrect. The direct function of that statute is to impose a requirement on the form of documents governing the plan, namely requiring them to include a limit on elective deferrals. See below for more clarification on this.
See specifically in the 401(a)(30) language that references other plans sponsored by the same employer. (See this specific language -- "deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan.")
This was specifically mentioned in my post already, in particular the portion of the sentence where I said
"to all plans to which such deferrals can be made together sum" (emphasis added).
EXAMPLE: Assume Employee A works for Employer ABC from January 1 to June 30 and defers $15,000 to the ABC 401(k) Plan. Further assume that Employee A quits working for Employer ABC, and instead goes to work for Employer XYZ. From July 1 to December 31, Employee A defers another $15,000 to the XYZ 401(k) Plan. Both plans will assume that Employee A complied with their plan because they otherwise have no way of knowing. Employee A has an obligation to notify one or both plans so a corrective distribution can be made. This is an obligation of the employee - i.e., to notify the plan(s). If you had actual hands-on experience in this area, not just access to the internet, you'd know this.
Despite your gratuitous insult, this is not inconsistent with my post. The obligation to notify the employers, as you you describe, is not imposed by the statute, but is imposed by the terms of the plan(s). The terms of the plan are in turn controlled by the statute. This is what I meant when I said that this statute does not "
directly impose any obligations on the employee" (emphasis added). What you are describing here is a way that the statute can
indirectly impose requirements on the employee, namely by requiring the plan to contain certain terms which the employee must then comply with.
Most importantly, if you simply assumed that I am not a fool, you would have easily extracted a charitable meaning of what I meant by "does not directly impose any obligations on the employee". Instead, you have assumed I am a fool and taken the least charitable interpretation possible.
"May not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year" - For plan taxable years beginning in such calendar year: this means that if a plan has a fiscal year that is not the calendar year, the 402(g) limit that applies for the plan year is the 402(g) limit applicable in such calendar year.
Here I am not sure what you are trying to say, but let's just review the statutes and clarify the import of this language. Here is the full text of 26 USC § 401(a)(30):
| In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year, such trust shall not constitute a qualified trust under this subsection unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year.
|
The first and second bolded part explains that this statute is concerned with "elective deferrals ... made ... during a calendar year" and with imposing a limit on "such deferrals" (namely, deferrals made during a calendar year), i.e., this limit is concerned with counting contributions during a calendar year. The language in the third bolded part is a bit tricky, and it might make you wonder why it uses the convoluted phrase "for taxable years beginning in such calendar year". However, the reason it uses that language is not because this provision is concerned with a year other than a calendar year, but rather because it is mirroring the language from § 402(g)(1)(A). Specifically, § 402(g)(1)(B) contains a table that specifies a dollar amount "For taxable years beginning in calendar year:". The requirement at 26 USC § 401(a)(30) then mirrors this language, i.e., it's asking us to look in that table. The function of mirroring that language is not that § 401(a)(30) is concerned with something other than a calendar year, but rather that it is referring to the table of § 402(g)(1)(B).
First, there is a limitation based on the employee's taxable year. An individual's elective deferrals are included in gross income for a taxable year "to the extent the amount of such deferrals for the taxable year exceeds the applicable dollar amount" for the calendar year beginning in that taxable year. 26 USC § 402(g)(1)(A). For any taxable year beginning in 2015, the applicable dollar amount is $18,000. For the vast majority of US individual taxpayers, the taxable year is also the calendar year, although theoretically almost any year can be used. However, this limitation is based on the employee's taxable year, not any year specified by the employer or the plan.
This statement that elective deferrals are only based on the employee's taxable year is not correct.
The reporting of an employee's income on a W-2, which considers amounts deferred by the employee (i.e., what is referred to as an election in accordance with a cash or deferred arrangement), is based on the employee's taxable year (the calendar year). However, the 402(g) limit is a plan limit which is based on the plan year, not each individual employee's tax year. A plan year can be a calendar year or a fiscal year. Again, the 402(g) limit is a plan limit. It is not determined by reference to the employee's taxable year.
The employee's taxable year and the plan's plan year are two very different things.
The § 402(g) limit is an individual (i.e. employee) limit, not a plan limit. This statute is concerned with limiting the amount of contributions that an individual can exclude from income, not with limiting contributions to a plan. See, e.g.,
KH Company v. Commissioner, TC Memo 2014-31,
slip op at 14 ("Section 402(g) provides general limitations on the amounts of elective deferrals
an individual may exclude from gross income."). Limitations on contributions to plans are found in other statutes.
I don't doubt that you spend hours researching. However, in this particular area, it's much more instructive to research IRS guidance, not case law. While of course case law plays a role, the majority of these issues are hashed out through IRS guidance. These can come in many forms, not just statute or regulations, but also Revenue Procedures, Revenue Rulings, Notices, Private Letter Rulings, etc.
I have discussed documents of this nature in countless past posts, so I am obviously aware of them. I have even discussed the relative authority of them in the context of US administrative law. The thing is, not every post I make here is a law journal article. These posts are just intended to provide a basis for future research. That is also explicitly stated in many of my posts, e.g., my first post here says "My intent is just to provide you with some things
that you may want to research" (emphasis added).
For example, in this particular area, I would consult the latest Rev. Procs. regarding EPCRS for guidance. If you want to dig in there, here are the cites: Revenue Procedure 2013-12, 2013-04 I.R.B. 313, modified by Revenue Procedure 2015-27, 2015-16 I.R.B. 914, and Revenue Procedure 2015-28, 2015-16 I.R.B. 920. If you're interested, turn your attention to the correction method where an employer doesn't allow an employee to defer the correct amount. This is called an operational error (i.e., the failure to follow the terms of the plan).
This is additional information, but it's not inconsistent with anything I said. In fact, in my first post, I specifically mentioned that there were options open to the employer to correct this situation, namely when I said "If the employer wants to facilitate your ability to enjoy your full 26 USC § 402(g)(1)(A) limit for 2015, there may be options open to the employer to allow that". I did not describe those options, but that is not an error. It just means that I provided a basis for further research, which was actually the stated purpose of the post.
Again, let me say that I think we could be good friends. However, I think you would get more value out of my posts if you read them charitably.