Section 403(b) plans must be maintained pursuant to a written plan document that meets detailed requirements set forth in IRS regulations.  If a plan contains a defect as to form (e.g., a provision does not comply with the regulations or a required provision is missing), the plan can be at risk for losing its qualification for favorable tax treatment.  The IRS allows a “remedial amendment period” to correct form defects in individually designed plans that…

For a discussion of section 403(b) plan compliance, please see the post on Proskauer’s Employee Benefits & Executive Compensation Blog.…

On March 15, 2019, the U.S. Court of Appeals for the Seventh Circuit held in Gaylor v. Mnuchin that the tax exemption for “ministers of the gospel” (defined below) under Section 107(2) of the Internal Revenue Code (the “Code”) does not violate the Establishment Clause[1] of the First Amendment and, therefore, is constitutional, overruling the district court decision.[2] In Gaylor, the Freedom From Religion Foundation (the “FFRF”)[3] sued the Treasury Department after…

As we have previously discussed, the 2017 tax reform act created a new excise tax under section 4960 of the Internal Revenue Code that will affect many tax-exempt employers.  The tax is 21% of certain compensation and can be triggered if an employee receives more than $1 million of compensation or an employee receives certain post-termination payments (“parachute” payments).  The tax can apply even if the tax-exempt employer never pays $1 million in compensation. …

On December 31, 2018, the Department of the Treasury (“Treasury”) and the Internal Revenue Service (the “IRS”) released Notice 2019-09 (the “Notice”), which provides interim guidance under Section 4960 of the Internal Revenue Code. Very generally, Section 4960 imposes a 21% excise tax on certain tax-exempt entities (and certain related organizations) that pay remuneration in excess of $1 million to certain highly-paid individuals or that make certain “excess parachute payments” to this class of highly-paid…

December 10, 2018 saw significant activity with respect to Section 512(a)(7) of the Internal Revenue Code (the “Code”), which requires tax-exempt employers to increase their unrelated business taxable income (“UBTI”) by amounts paid or incurred for qualified transportation fringe benefits provided to employees, including the provision of parking and public transportation benefits. Section 512(a)(7) was enacted pursuant to the 2017 U.S. tax legislation known as the “Tax Cuts and Jobs Act,” and caused concern amongst…

Last week, the IRS released Notice 2018-95 to provide transition relief to 403(b) plans that improperly excluded certain employees.  Specifically, Notice 2018-95 targets employers that may have erroneously excluded part-time employees from eligibility to make elective deferral when the employees should have been eligible to participate under the “once-in-always-in” requirement (“OIAI”).  According to the OIAI requirement, once an employee becomes eligible to make elective deferrals, an employer may not exclude the employee from eligibility in…