How Many 457(b) Plans Do You Need?

By Jeff Chang

Many cities and special districts establish and maintain more 457(b) plans than they really need. We routinely see public agencies with as many as two, three or four 457(b) plans. How and why does this happen? And, are there any advantages or disadvantages to doing this?

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Public Agency Board Members’ Worker Classification Matters for Tax Purposes

By Jeff Chang

Due to the IRS’ different treatment of private sector and public agency boards of directors, it comes as little surprise that many California special districts and public agencies continue to classify their board members as independent contractors and report their compensation on Form 1099-MISC — despite the fact that the IRS takes a contrary position.

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When a Section 115 Pension Stabilization Trust is “Too Good To Be True”

By Jeff Chang

To prepare for and manage significantly increased CalPERS employer contribution rates in the coming years, California public agencies  approved the establishment and funding of so-called “pension rate stabilization trusts.” Clients have asked for evaluations of the various turn-key programs being offered for this purpose. In doing so, we have found that many, if not most, agencies are setting aside funds on an “irrevocable” basis. They are doing so exclusively for pension funding purposes, but with an “understanding” that they can gain access to these monies for general agency purposes if needed later. Unfortunately, they can’t — and should not — use these trusts in this way.

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Money Purchase Pension Plans with an “Opt-in” Feature

By Jeff Chang

Almost 4 years ago, we discussed an IRS private letter ruling that raised serious concerns about public agency money purchase pension plans. The ruling allowed employees to “opt-in” to, or elect, their own rate of employee contribution. It was expected that the employee contributions would be treated as pre-tax contributions because they were being “picked-up” by the sponsoring agency. Of course, to be picked-up, the contributions also needed to be “mandatory” employee contributions.

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“It Just Keeps On Going:” The Problem with a Money Purchase Pension Plan that a Public Agency Just Sets Aside

By Jeff Chang

Like the Energizer Bunny, some retirement plans continue to “run,” even though the employer believes they are “no longer in use.” This problem is particularly prevalent with public agencies that have a tendency to switch from one provider to another without merging the prior provider’s plan into the new one. This frequently occurs in the context of public agency 457(b) plans, where it is common to see an agency with two or three 457(b) plans – all operating at the same time with different providers.

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