HR says Wisconsin Teachers Ineligible for 457 Plans

[rageth]

I have been talking back and forth with our HR/payroll department and they have been telling me that I am ineligible to contribute to a 457 plan because I am eligible for the Wisconsin Retirement System (WRS) pension.  Here is the latest explanation I received from HR:


The 457 plan is offered in the District to those employees who are not eligible for the WRS/etf pension.  The IRS has rules about employees contributing/not contributing to FICA-Social Security.  The IRS does not just "allow" a business entity to open a 457 plan for its employees.  Many, many rules and regulations safeguard this plan which is available to very few entities on a limited basis.

Employees of the District fall into one of two categories:

1) Full time status --> WRS/pension eligible - contributions through state-mandated payroll deductions.  If an employee is FT, they MUST contribute to FICA-SS.  These employees are NOT eligible to the 457/Alternative FICA.  FT employees contribute the state-designated percent to their WRS pension which is 100% matched by the School District.

2)  Part time status --> NOT WRS/pension eligible.  These employees contribute to 457/Alternative FICA.  This means that they do NOT pay the 6.2% FICA-SS tax.  Instead, 7.5% of their income is deducted/contributed to the government allowed 457/Alternative FICA plan which is solely in their name, unlike FICA-SS that is more-or-less a black hole.

An employee cannot have it both ways.  Either you are full-time and have the benefit of contributing to the WRS pension (which is wholly matched by the District), or, you are part-time, not eligible to the WRS pension and are allowed, by IRS regulations, to contribute to a 457 plan (ALTERNATIVE FICA).

Does anyone have any experience with this or could you speak to the truth in this?  I've read of many other teachers in other states that have pension programs that are allowed to pay into a 457.  Seems fishy to me.

[seattlecyclone]

I know of no law that would cause an employee to become ineligible for a 457 plan just because they also participate in a pension plan.

However I also know of no law that would prohibit an employer from restricting 457 eligibility only to those employees who don't participate in the pension.

[seattlecyclone]

Looking into it further, I am seeing references to "alternative FICA" plans allowed by the Omnibus Budget Act of 1990. Apparently certain part-time employees can become exempt from FICA taxes if they're provided an alternative plan to participate in. Sounds like your district has a 457 for this purpose only, and so you can't participate since you're full time?

[rageth]

Looking into it further, I am seeing references to "alternative FICA" plans allowed by the Omnibus Budget Act of 1990. Apparently certain part-time employees can become exempt from FICA taxes if they're provided an alternative plan to participate in. Sounds like your district has a 457 for this purpose only, and so you can't participate since you're full time?

That's what HR is saying.  Why would that stop a regular full-time teacher then, legally, from participating in a 457 plan?  It seems like their argument is that it is IRS-related, not simply their own choice to offer a 457 to full-time employees or not.

[seattlecyclone]

Looking into it further, I am seeing references to "alternative FICA" plans allowed by the Omnibus Budget Act of 1990. Apparently certain part-time employees can become exempt from FICA taxes if they're provided an alternative plan to participate in. Sounds like your district has a 457 for this purpose only, and so you can't participate since you're full time?

That's what HR is saying.  Why would that stop a regular full-time teacher then, legally, from participating in a 457 plan?  It seems like their argument is that it is IRS-related, not simply their own choice to offer a 457 to full-time employees or not.

I don't think it stops you from participating in a 457 plan, but it does stop you from participating in this 457 plan, since this plan was created specifically to be the alternative FICA option for part-time employees. If they wanted to, they might be able to create a separate 457 plan for full-time employees, but they have not done so.

[arebelspy]

It's their choice to allow it, or not. You'd probably have to petition some committee to change it.

I definitely contributed to a pension and 457, as a teacher in NV.  You'd need to dig for more specifics on why they say it's not allowed, beyond their rules. (And that's probably the only reason.)

[crazy jane]

My guess is it is because in Wisconsin, where my sister teaches, they pay into both social security and the pension so no 457. I teach in Illinois and don't pay into social security but do pay into a pension. I have 457 option. Nevada is similar to Illinois Rebs.

[MDM]

I have been talking back and forth with our HR/payroll department and they have been telling me that I am ineligible to contribute to a 457 plan because I am eligible for the Wisconsin Retirement System (WRS) pension.  Here is the latest explanation I received from HR:
The 457 plan is offered in the District to those employees who are not eligible for the WRS/etf pension.  The IRS has rules about employees contributing/not contributing to FICA-Social Security.  The IRS does not just "allow" a business entity to open a 457 plan for its employees.  Many, many rules and regulations safeguard this plan which is available to very few entities on a limited basis.

You might point HR to https://www.law.cornell.edu/uscode/text/26/457 and ask where in there is the language that prevents the district from allowing you to participate in a 457 plan.

As others have suggested, this is likely a district policy.  You might at least get them to admit that, and even better might get them to change the policy if they can't hide behind "the IRS says so".

Good luck!

[arebelspy]

My guess is it is because in Wisconsin, where my sister teaches, they pay into both social security and the pension so no 457. I teach in Illinois and don't pay into social security but do pay into a pension. I have 457 option. Nevada is similar to Illinois Rebs.

Ah, that may have something to do with it.

[Rural]

My guess is it is because in Wisconsin, where my sister teaches, they pay into both social security and the pension so no 457. I teach in Illinois and don't pay into social security but do pay into a pension. I have 457 option. Nevada is similar to Illinois Rebs.

Ah, that may have something to do with it.

 No, I pay into Social Security, a pension, and a 457 myself. It's not a complication involving Social Security, other than the fact that Wisconsin seems to have set up a 457 plan only for those who do not pay Social Security.  Or at least the OP's district seems to think that they have.

[Psychstache]

Yeah, these things vary not only state to state, but district to district. Here in Texas, some districts do TRS, some do SS, and some do both.

As another data point, I pay into TRS (Texas state pension system)  and max my 403b and 457, so it ain't the IRS who disallows this.

Sent from my SM-G900V using Tapatalk

[rageth]

My guess is it is because in Wisconsin, where my sister teaches, they pay into both social security and the pension so no 457. I teach in Illinois and don't pay into social security but do pay into a pension. I have 457 option. Nevada is similar to Illinois Rebs.

Ah, that may have something to do with it.

 No, I pay into Social Security, a pension, and a 457 myself. It's not a complication involving Social Security, other than the fact that Wisconsin seems to have set up a 457 plan only for those who do not pay Social Security.  Or at least the OP's district seems to think that they have.

Thanks for the feedback everyone!  I'm going to use this to talk to HR.  I knew something wasn't quite right as soon as they said that I couldn't contribute to any 457 especially not with all of the teacher mustachians I read about here maxing out both a 457 and 403 along with paying into a pension.

I'll keep this updated once I've put some pressure on HR.

[JZinCO]

Just to pile on, this does not appear to be a rule set up to comply with federal regulations.
In my case, my employer has opened up the possibility to do SS + state pension OR 401a + 403b + 457.
Time to start rabble rousing..

[rageth]

Time to start rabble rousing..

The person in HR probably knows me better and resents my emails and phone calls more than any other employee in the district.  I suppose there's no love to be lost, so why not right?

[randymarsh]

My time at a Colorado school district had me paying into Colorado's state pension (no SS) and the option of a 401k and 403b. A 457 was technically allowed, but my specific employer did not have one while other school districts did.

[Ebrat]

From the deferred compensation website (https://wisconsin.gwrs.com/preLoginContentLink.do?accu=WisconsinWR&contentUrl=preLogin.programInfo.landing&specificBundle=preLogin):

"The Wisconsin Deferred Compensation (WDC) Program is a supplemental retirement savings program regulated by Section 457 of the Internal Revenue Code. It is available to all State and University of Wisconsin employees, as well as employees of local governments and school districts in Wisconsin that have elected to offer the WDC."

Maybe your district has chosen not to offer it?  Or the HR person is misinformed.  But there's a form to sign up online and a number to the WDC office on the website.  You might get further talking directly to them.

[rageth]

From the deferred compensation website (https://wisconsin.gwrs.com/preLoginContentLink.do?accu=WisconsinWR&contentUrl=preLogin.programInfo.landing&specificBundle=preLogin):

"The Wisconsin Deferred Compensation (WDC) Program is a supplemental retirement savings program regulated by Section 457 of the Internal Revenue Code. It is available to all State and University of Wisconsin employees, as well as employees of local governments and school districts in Wisconsin that have elected to offer the WDC."

Maybe your district has chosen not to offer it?  Or the HR person is misinformed.  But there's a form to sign up online and a number to the WDC office on the website.  You might get further talking directly to them.

The district has finally responded and I either scared or annoyed the person in HR enough that she got the CFO to email me directly.  Apparently offering a 457 plan was never in the district's overall plan document and not following the document could apparently cause them tax issues in the future.

The CFO has stated that they will be looking into voluntary benefit offerings in the near future.  I asked when I could expect to hear an update on their progress.  I also said that I would be more than happy to participate in a committee to look at voluntary benefit offerings (mostly so I can get what I want) and/or would be lobbying either his office or the school board in the case that a 457 plan was not decided for.

Rabble rabble rabble!

[MDM]

The district has finally responded and I either scared or annoyed the person in HR enough that she got the CFO to email me directly.  Apparently offering a 457 plan was never in the district's overall plan document and not following the document could apparently cause them tax issues in the future.

The CFO has stated that they will be looking into voluntary benefit offerings in the near future.  I asked when I could expect to hear an update on their progress.  I also said that I would be more than happy to participate in a committee to look at voluntary benefit offerings (mostly so I can get what I want) and/or would be lobbying either his office or the school board in the case that a 457 plan was not decided for.

Rabble rabble rabble!

Well done!

Now they are at least making defensible statements.  An employer is required to file plan documents with the government and then abide by those.  Of course, the plan can be changed....

See https://www.bogleheads.org/wiki/How_to_campaign_for_a_better_401%28k%29_plan and http://403bwise.com/index.html for some ideas, although you seem to be doing very well on your own.

[rageth]

The district has finally responded and I either scared or annoyed the person in HR enough that she got the CFO to email me directly.  Apparently offering a 457 plan was never in the district's overall plan document and not following the document could apparently cause them tax issues in the future.

The CFO has stated that they will be looking into voluntary benefit offerings in the near future.  I asked when I could expect to hear an update on their progress.  I also said that I would be more than happy to participate in a committee to look at voluntary benefit offerings (mostly so I can get what I want) and/or would be lobbying either his office or the school board in the case that a 457 plan was not decided for.

Rabble rabble rabble!

Well done!

Now they are at least making defensible statements.  An employer is required to file plan documents with the government and then abide by those.  Of course, the plan can be changed....

See https://www.bogleheads.org/wiki/How_to_campaign_for_a_better_401%28k%29_plan and http://403bwise.com/index.html for some ideas, although you seem to be doing very well on your own.

Thanks for the great resources MDM!  I'll check those out and update this again when I've gotten this figured out moving forward some more down the line.  Hopefully I could get this set up before next school year but one never knows with how slow business offices some times work.

[JZinCO]

Rabble rabble rabble!

Indeed! Rageth against the machine