Ask the Experts September 11, 2012

(b)lines Ask the Experts – Contributions as a Condition of Employment

September 11, 2012 (PLANSPONSOR (b)lines) – “How are 403(b) contributions made as a condition of employment (i.e., as defined under Treasury regulation 31.3121(a)(5)-2(a)(3)) reported on a W-2?  Since they are subject to FICA but aren’t ‘elective deferrals’ presumably they are included in boxes 3 & 5 of the W-2 and not in box 12.
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“If you know of any source to review for this information (we checked the W-2 instructions), it would be appreciated!”  

Michael A. Webb, Vice President, Retirement Plan Services, Cammack LaRhette Consulting, answers:  

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Good question, since you are quite correct that Box 12 of the W-2 limits reporting to 403(b) ELECTIVE deferrals, and not contributions from salary that are mandatory as a condition of employment under Treasury regulation 31.3121(a)(5)-2(a)(3). However, the contribution is indeed included in FICA and Medicare wages in Boxes 3 and 5, respectively, and, since it is not an employer contribution, presumably must be reported somewhere on the W-2.    

So where is there an opportunity in the W-2 to report contributions as a condition of employment? Box 14 appears to allow for reporting of such contributions, as the following excerpt from the Form W-2 instructions indicate:   

“In addition, you may enter the following contributions to a pension company plan: (a) nonelective employer contributions made on behalf of an employee, (b) voluntary after-tax contributions (but not designated Roth contributions) that are deducted from an employee’s pay, (c) required employee contributions (our emphasis), and (d) employer matching contributions.”   

Now, the Experts would have preferred a reference to the specific Treasury regulation in the Box 14 instructions here. However, as a practical matter, in our experience we have seen employers utilize this Box for reporting contributions as a condition of employment, often with a specific identifier to indicate that these are mandatory 403(b) contributions as opposed to elective deferrals, such as “M403B”.    

And, as a reminder to all readers, these contributions made as a condition of employment, though withheld from salary, are NOT elective deferrals and are thus NOT subject to the 402(g) elective deferral limits.    

Thanks for the question!  

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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Administration September 10, 2012

Milliman 100 Funded Ratio Improves in August

September 10, 2012 (PLANSPONSOR.com) – Funded ratios for the nation’s 100 largest corporate pension plans improved modestly in August.
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Pension liabilities of the 100 largest corporate defined benefit pension plans fell by $23 billion in August while their corresponding assets improved by $11 billion, bringing the Milliman 100 Pension Funding Index (PFI) funded status deficit to $498 billion and a 72.4% funded ratio. Despite the improvement, the August 31 funded ratio remains well below its December 31, 2011, value of 78.7%.  

The funded status improvement was primarily due to an increase in corporate bond interest rates, the benchmarks used to value pension liabilities. August’s discount rate increase comes after four consecutive months of interest rate declines. The projected benefit obligation (PBO), or pension liabilities, decreased by $23 billion during August, lowering the Milliman 100 PFI value to $1.808 trillion from $1.831 trillion at the end of July 2012. The change resulted from an increase of seven basis points in the monthly discount rate to 3.99% for August, from 3.92% for July.  

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The Milliman 100 PFI asset value increased by $11 billion during August, raising the value to $1.309 trillion from $1.298 trillion at the end of July. The increase was due to investment gains of 1.02% for the month.   

If the Milliman 100 PFI companies were to achieve an 7.8% median asset return expected for their pension plan portfolios and the current discount rate of 3.99% were to be maintained during years 2012 through 2013, Milliman forecasts the funded status of the surveyed plans would increase. This would result in a projected pension deficit of $479 billion (funded ratio of 73.6%) by the end of 2012 and a projected pension deficit of $403 billion (funded ratio of 78.0%) by the end of 2013.   

For purposes of this forecast, Milliman assumed 2012 aggregate contributions of $67 billion and 2013 aggregate contributions of $81 billion. The contribution assumptions have not been adjusted to reflect the potential impact of the Moving Ahead for Progress in the 21st Century Act (MAP-21), which includes pension funding stabilization provisions.  

More information is at www.milliman.com.

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