Randy Watson Posted August 20, 2007 Share Posted August 20, 2007 The IRS requires assets of a plan to be distributed as soon as administratively feasible after a terminating amendment is adopted. As I undertand things, the IRS will give an employer one year to distribute assets that are more difficult to liquidate (e.g., real estate, partnerships etc...). Is this an unspoken rule or is there actually legal authority out there? Link to comment Share on other sites More sharing options...
John Feldt ERPA CPC QPA Posted August 20, 2007 Share Posted August 20, 2007 In Revenue Ruling 89-87, in the second paragraph of the analysis section: "Whether a distribution is made as soon as administratively feasible is to be determined under all the facts and circumstances of the given case but, generally, a distribution which is not completed within one year following the date of plan termination specified by the employer will be presumed not to have been made as soon as administratively feasible." Link to comment Share on other sites More sharing options...
Guest mjb Posted August 21, 2007 Share Posted August 21, 2007 Distribution does not require sale of the asset- it merely requires that the interest be distributed to participants by the plan. For example, if the plan holds an illiquid asset such as RE which cannot be sold, the plan can distribute the RE to a taxable trust which will hold title to the asset and give each participant a certificate of interest in the RE which can be rolled over to an IRA with a custodian who will hold such an interest until the asset is sold and proceeds paid to the participant's IRA. Link to comment Share on other sites More sharing options...
Belgarath Posted August 21, 2007 Share Posted August 21, 2007 mjb - as someone who doesn't know beans about a "taxable trust" I find this solution interesting, but also confusing. I'm presuming that a taxable trust is non-qualified - so what happens to any interest/earnings? And if it is non-qualified, and hence a distribution from the plan, how is it then eligible for rollover by the participant unless it is liquidated in time to allow a rollover within 60 days? And what if the participant doesn't want a share in a RE trust - suppose this is a DB plan that allows lump sum distributions, and all the participants want a lump sum, etc.. I'm not seeing how all the parts work together here. Is there some citation (RR, Notice, PLR) that discusses and approves this method? If plan subject to PBGC, will the PBGC approve this? Thanks in advance for educating me a bit on this subject! Link to comment Share on other sites More sharing options...
Guest mjb Posted August 21, 2007 Share Posted August 21, 2007 yes it is a taxable trust but the particpant has 60 days from reciept of the certificate of interest to roll over the interest to an IRA. Any income would be tax deferred if it was paid to the IRA custodian. Participants who do not roll over their interest in the taxable trust will be taxed on the fmv on the date of distribution. The taxable trust is used when the plan wants to dispose of an illiquid asset such as RE that is going through bkcy or is encumbered by liens and claims that have not been resolved as of the time the plan terminates. Dont know about DB plans because participants would be subject to PBGC rules. IRS has issued Plrs on transfers to taxable trust qualfying as interest that can be rolled over to IRA. Link to comment Share on other sites More sharing options...
Bird Posted August 21, 2007 Share Posted August 21, 2007 Sounds like withholding would be required. (Along with other impracticalities.) Has anyone in the world ever done this for a plan distribution? Ed Snyder Link to comment Share on other sites More sharing options...
Kimberly S Posted August 21, 2007 Share Posted August 21, 2007 Sounds like another good reason why a prudent fiduciary doesn't purchase an illiquid investment in a retirement plan! Link to comment Share on other sites More sharing options...
Guest mjb Posted August 22, 2007 Share Posted August 22, 2007 what is the whitholding problem? yes its approved by the IRS Link to comment Share on other sites More sharing options...
Bird Posted August 22, 2007 Share Posted August 22, 2007 If these distributions are eligible for rollover, then they're subject to withholding. The taxable trust is not an IRA, so withholding would be required before any amounts could be sent to the taxable trust. Ed Snyder Link to comment Share on other sites More sharing options...
Guest mjb Posted August 22, 2007 Share Posted August 22, 2007 Is withholding required if the only asset distributed is property? Link to comment Share on other sites More sharing options...
J2D2 Posted August 22, 2007 Share Posted August 22, 2007 My recollection is that there are withholding exceptions for employer securities and participant loans, but no such exception for any other distribution in-kind. Link to comment Share on other sites More sharing options...
Bird Posted August 22, 2007 Share Posted August 22, 2007 That's my recollection too, plus insurance policies. Ed Snyder Link to comment Share on other sites More sharing options...
Guest mjb Posted August 22, 2007 Share Posted August 22, 2007 If the property is illiquid how can it be sold or disposed of to collect the 20% tax? The sole point of transferring it to a taxable trust is because it can not be disposed of and the proceeds distributed to participants. Link to comment Share on other sites More sharing options...
Bird Posted August 23, 2007 Share Posted August 23, 2007 I don't know; that's my point - it doesn't work. I'm also wondering how a participant who elected a direct R/O gets that accomplished. Ed Snyder Link to comment Share on other sites More sharing options...
masteff Posted August 23, 2007 Share Posted August 23, 2007 One would hope that the assets of the Plan included both liquid and illiquid assets. Reg 35.3405-1, Q&A F-3, says if you distribute both cash and non-cash assets, you don't have to sell the non-cash assets if there is sufficient cash to provide for the withholding. IRS has issued Plrs on transfers to taxable trust qualfying as interest that can be rolled over to IRA. And since the IRS has said it's rollover eligible, the best option is to do it as a direct rollover, so mandatory withholding is bypassed. Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra Link to comment Share on other sites More sharing options...
Randy Watson Posted August 30, 2007 Author Share Posted August 30, 2007 In Revenue Ruling 89-87, in the second paragraph of the analysis section: "Whether a distribution is made as soon as administratively feasible is to be determined under all the facts and circumstances of the given case but, generally, a distribution which is not completed within one year following the date of plan termination specified by the employer will be presumed not to have been made as soon as administratively feasible." Any idea what kind of facts and circumstances would be enough to overcome the presumption? Link to comment Share on other sites More sharing options...
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