Now WHY would the IRS recently issue guidance on terminating public pension plans?

[antigop]

http://www.investopedia.com/university/retirementplans/403b/

A 403(b) plan is a retirement plan for certain employees of public schools , tax-exempt organizations and ministers. Individual 403(b) accounts are established and maintained by eligible employees.

http://www.plansponsor.com/IRS_Provides_Guidance_on_403b_Plan_Terminations.aspx

The Internal Revenue Service has provided guidance clarifying how the section 403(b) plan termination provisions apply.

Revenue Ruling 2011-7 spells out four situations in which different plans funded in different ways terminate.

A § 403(b) plan is permitted to contain provisions that provide for plan termination and that allow accumulated benefits to be distributed on termination. In order for a § 403(b) plan to be considered terminated under §1.403(b)-10(a), all accumulated benefits under the plan must be distributed to all participants and beneficiaries as soon as administratively practicable after termination of the plan.

The Revenue Ruling says for this purpose, delivery of a fully paid individual insurance annuity contract is treated as a distribution. The mere provision for, and making of, benefit distributions to participants or beneficiaries upon plan termination does not cause a contract to cease to be a § 403(b) contract.

Why now?

[HereSince1628]

1. Because the gov't doesn' t expect an economic recovery

They are preparing for a future of austerity.

[OhioChick]

2. +1 n/t

[antigop]

3. Aren't 403(b) plans in public education?

Is this Wisconsin's next step?

[nebenaube]

12. yes n/t

[Poboy]

4. Recommend

[sufrommich]

5. I think this is for individuals who want to cash out their

403s.

[antigop]

6. Is it for cashing out or for being cashed out (as in terminating the entire plan)?

I read it to mean terminating the entire 403(b) plan.

[dixiegrrrrl]

7. I am missing the point of your question/concern.

One of my retirement funds was a 403-b. It was an annuity.
When eligible, I cashed it out.
It was treated as a distribution of a retirement plan.
Just as the above IRS statement says.

am I missing something?

[antigop]

8. It looks to me that (maybe) they are providing a way to terminate a 403(b) plan.

Terminate the WHOLE plan -- for everyone in the plan.

<edit to add> This way they can get rid of public pension plans???

[dixiegrrrrl]

10. I don't see it that way.

Usually I am pretty alert when it comes to IRS/money issues, this is not ringing my alert bell, but I could be missing something.
It sounds to me as if they are clarifying the tax nature of an annuity contract in a retirement fun.

[antigop]

11. I really think it's a PLAN TERMINATION. Here is the IRS doc....

http://www.irs.gov/pub/irs-drop/rr-11-07.pdf

It refers to terminating the WHOLE PLAN, not just an individual cashing out.

[antigop]

14. according to this site, it's a PLAN termination,..

http://www.relius.net/News/TechnicalUpdates.aspx?ID=302

[Smarmie Doofus]

16. And do ( gulp) what with the $$$ ?

Lump sum pay-out or.....???

They can't avoid paying up, can they? i.e. thru bankruptcy or other legal machinations?

[spooky3]

9. 403bs are usually voluntary salary reduction plans funded by

Employees not employers.

The state pensions are qualified under a different IRC section. Those are the ones the states are trying to cut back.

[antigop]

13. Employer contributions are allowed...do any states provide a contribution?

http://www.irs.gov/publications/p571/ch01.html

How Can Contributions Be Made to My 403(b) Account?

Generally, only your employer can make contributions to your 403(b) account. However, some plans will allow you to make after-tax contributions (defined below).

The following types of contributions can be made to 403(b) accounts.

1.

Elective deferrals . These are contributions made under a salary reduction agreement. This agreement allows your employer to withhold money from your paycheck to be contributed directly into a 403(b) account for your benefit. Except for Roth contributions, you do not pay income tax on these contributions until you withdraw them from the account. If your contributions are Roth contributions, you pay taxes on your contributions but any qualified distributions from your Roth account are tax free.
2.

Nonelective contributions . These are employer contributions that are not made under a salary reduction agreement. Nonelective contributions include matching contributions, discretionary contributions, and mandatory contributions from your employer. You do not pay income tax on these contributions until you withdraw them from the account.
3.

After-tax contributions . These are contributions (that are not Roth contributions) you make with funds that you must include in income on your tax return. A salary payment on which income tax has been withheld is a source of these contributions. If your plan allows you to make after-tax contributions, they are not excluded from income and you cannot deduct them on your tax return.
4.

A combination of any of the three contribution types listed above.

[Smarmie Doofus]

15. This is the case in NYC. It's deferred comp. City...

... contributes nothing.