Agenda - Council - 03/11/2014 - Laserfiche WebLink

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QUICK REFERENCE GUIDE FOR PUBLIC EMPLOYERS safe harbor rules of Revenue Procedure 91-40, must be covered by social security and Medicare under the mandatory coverage provisions of Section 210 of the Social Security Act. 4. RETIREMENT PLANS Various sections of the Code provide for favorable treatment of employee retirement plans. Under IRC section 401, employees may receive tax -deferred treatment of elective deferrals and employer contributions to retirement plans. These are referred to as qualified plans. Employer contributions are also exempt from social security and Medicare tax. In most cases, employee contributions are subject to withholding for social security and Medicare. Section 403(b) Annuity Plans Section 403(b) provides for tax-sheltered annuities for employees of public schools or tax- exempt organizations. These plans may provide for elective, nonelective, or after-tax contributions, subject to annual limits, to an annuity or custodial account. Contributions may be made See Publication 571 for more information on section 403(b) plans. Section 457 (Nonqualified) Plans Nonqualified, or section 457, deferred compensation plans, can be established only by state and local governments or tax-exempt organizations. These plans do not meet the requirements for treatment under section 401, or a tax-sheltered annuity under section 403, but may still provide for deferred compensation. If it meets the requirements of IRC section 457(b), a plan is an "eligible" plan; if not, it is considered "ineligible" and is governed by the rules of IRC section 457(f). The section 457 plan can be used either as a primary retirement plan or as a deferred compensation plan in addition to the employee's retirement system or social security. Governmental 457(b), or eligible, plans must be funded, with assets held in trust for the benefit of employees. Plans eligible under 457(b) may defer amounts from income tax up to an annual limit ($17,500 in 2013). In addition, "catch-up" contributions may be made to employees age 50 or older. Social security and Medicare taxes generally apply to all employer and employee contributions. For further information regarding social security and Medicare tax withholding and reporting on amounts deferred into eligible deferred compensation plans, see Section VI of Notice 2003-20 and the irs.gov Employee Plans site. The government entity holds the funds in trust until the employee is eligible for a distribution (usually at retirement) and withdraws the money. The employer can match the employee's contribution, but is not required to do so. Employer contributions generally vest immediately. See the irs.gov Employee Plans site. 6