H retired and elected a 100% J&S annuity under his pension plan. H currently receives about $5,000 per month. H is divorcing W, but wants to provide for her as much as possible, and is willing to provide that, upon his death, W will remain as the beneficiary (based on age, current health and genes, it is more likely that H will die first). Basically, the intent is for each party to receive $2,500 for the rest of H's life, and then upon his death, W will receive $5,000 for the rest of her life.

H's attorney has drafted a proposed QDRO as a separate interest QDRO, giving each party 50% of the present value of the accrued benefit as of the date of divorce, with W to receive a life annuity (or any other optional form under the plan other than a J&S with a future spouse). The QDRO says that "W will be treated as the surviving spouse of H solely to the extent necessary to provide W with a death benefit under the provisions of this Order, and to the same extent any future spouse of H shall not be treated as a spouse of H for such purposes. This provision shall have no effect after W has been paid the amount of plan benefits due to her pursuant to this Order. The death benefit payable to W under the terms of the Plan shall be calculated based on the accrued benefit of H awarded to W in this Order."

The quoted language seems a bit unclear and I'm not sure it clearly states the parties' intent. In any event, wouldn't it be better to do this as a shared interest QDRO, giving each party 50% of the current distribution and provide that W will be treated as H's surviving spouse for all purposes? Not only would it accomplish the intent described above, but it would also allow H to recoup 50% of the benefit in the event that W were to die first, rather than having W's interest go away at her death.

Any thoughts?

We have a participant (HCE / owner) in a 401(k) Plan that has attained NRA. The plan allows for in-service distributions upon attainment of NRA. One of the investments in his earmarked account is a piece of undeveloped land. The property is (and has always been) appraised annually by an independent third-party appraiser. The participant would like to purchase the land (personally) at the current fair market / appraised value so he can develop the land and eventually live on it.

Can he do the following:

1. Take a distribution of the property from the plan @ FMV (taxed as ordinary income on a Form 1099-R).

OR

2. Apply for a prohibited transaction exemption, and if approved, he can purchase the land outright from personal funds.

Are there any other options? Comments? Thoughts? Red flags?

Any input would be greatly appreciated.

Thanks!

6-1999 Consent decree prepared through mediation. Second opinion legal advice obtained. Wife obtained BS, MS, PhD during marriage with no offsets in decree. Wife retains her business with no offsets in decree. Parties to equalize Husbands 401k, Husbands Rollover, Husbands Pension and Wifes IRA.

8-1999 401k split completed.

5-2000 Wife's accountant unable to complete Rollover QDRO.

11-2002 Wife files 3 Motions of Contempt including failure to complete QDRO.

3-15-2003 Judge rules against Wife on all motions, Court assigns attorney to prepare QDRO.

3-18-2003 Husband informs Wife he has retained attorney to prepare QDRO.

8-2003 Husband informs QDRO attorney Wife's IRA account is empty. Wife fails to resolve issue.

1-2008 Wife retains unqualified attorney to complete 2003 QDRO. Attorney seeks to "insert valuation date of 3-21-2003" and demands Husband to sign.

1-2008 Husband retains impartial QDRO lawyer and personal attorney. Attorney finds Husband received faulty legal advice regarding allocation of assets that favor Wife in consent decree.

6-2008 Husband discovers Wife transferred personal IRA subject to a QDRO to her corporate investment account on 3-22-2003.

8-2008 Husband discovers Wife withdrew corporate investment funds to pay personal attorney fees with a corporate check on 4-02-2003.

9-2008 Husband discovers Wife deducted $30,000 of personal attorney fees on her 2004 corporate tax return through a discussion with Wife's second ex-husband. Why did he reveal that when he could be liable for tax evasion? Well, he depreciates himself and he too was easily duped into a decree that favored Wife with nearly all the assets and gave him $50,000 of her credit card debt.

10-2008 Wife's attorney reaffirms valuation date of 3-21-2003 and asks for gains on Husbands asset since that date.

10-2008 Husband's attorney sends letter declaring discovery of 3-22-2003 transfer, 4-02-2003 withdrawal, corporate payment of personal legal fees, and corporate deduction of personal legal fees.

7-2009 Wife files Motion asking Court to approve QDROs with a marital community termination date of 3-21-2003 and without gains after 3-21-2003.

How shall Husband respond to the motion? May Husband request discovery beyond 3-21-2003? If Wife's asset to be divided was spent, does that render a QDRO on that asset void? Shall Husband ask Court to order Wife to produce documents beyond 3-21-2003, such as cancelled checks and corporate tax returns to prove tax evasion? Will the Court dismiss Wife's money laundering and tax evasion as out of their jurisdiction? Husband realizes he was duped in 1999. How may Husband void one or both of the remaining QDRO's (Rollover/IRA and pension)?

Thanks, Doug

Apparently, in an argument against the use of sex-based premiums, the state of Maryland's actuary argued:

"We cannot conclude from data showing that women as a group live on average longer than men as a group that any individual woman lives longer than a man of the same age^*."

An extrapolation of this argument would suggest that using any mortality table for any individual actuarial calculation has no basis. Certainly, because a mortality table shows a 1% mortality rate at age 65 does not mean a particular individual has a 1% chance of croaking.

^*p 249, True Odds, James Walsh, Merritt Publishing, 1996.

Plan has a self-employed individual who deferred monthly from his guaranteed payments. Match was calculated at the time the deferrals were made based on the guaranted payment amount.

From 1/1-5/31 the match formula was 100% of SD up to 1% of compensation.

From 6/1/-12/31 the match formula was 100% of SD up to 1.5% of compensation.

Now that we have the information from the K-1 to calculate actual compensation, we need to determine what his match contribution should actually be versus what the client calculated throughout the year.

Any idea how to compensate for the match formula that changed throughout the year?

I have considered pro-rating the earned income and applying the match formula that was in effect at the time each deferral was made to the pro-rated amount.

Or can we say that since compensation is deemed paid as of the end of the year, that the match can be based on 100% of SD up to 1.5% of compensation?

Another person in my office suggested calculating the average amount of compensation that was matched throughout the year and applying that match formula (i.e. 100% of SD up to 1.29% of compensation).

Any thoughts on the most accurate way to calculate this match?

Thank you!

Laura

A large company sponsors a 401(k) deferral only plan. In order to be eligible to participate, a person needs to be "scheduled" to work 1000 hours. Participation is immediate as long as the employee's work schedule is for 1000 or more hours.

If someone is a participant in the plan and making deferrals, and her schedule changes so that her scheduled hours are less than 1000 hours, her deferral election is turned off by the employer because she is no longer considered eligible due to the reduction in scheduled hours.

I'm a DB guy and its been a few years since I've worked in the 401(k) arena, but that does not sound legitimate to me. Since it is a deferral only plan, I thought the rule of thumb was "once in always in".

I'm interested in hearing comments from people who are closer to 401(k) eligibility issues than myself. I citation would be extraordinary. Thx.

A small defined benefit plan has been making required minimum distributions to the 100% owner for the past three years. The RMD was based on a 100% J & S annuity. In November 2008, after receiving the 2008 RMD, the participant made his living trust the primary beneficiary rather than his wife who had been, although she is a beneficiary of the trust and is just two years younger than him. He then died 10 days later.

The 401(a)(9) final regulations indicate that RMD's after death continue to be distributed in the same manner they commenced.

Assuming the participant did not accrued a benefit in 2008, the RMD payable to the living trust would be the same RMD he received in 2008 just prior to his death.

Does anyone disagree with this?

what are the barriers, if any, to Congress taxing Roth IRA "earnings" distributions ( as opposed to already-taxed contributions) in the future?

If a plan (10 employee plan) is frozen say 1/1/08 is it required that emplyees still receive vesting years of service after 1/1/08?

My recollection is yes and that this is fairly fundamental, but I did not observe anything explicit on this at this time.

After reading IRC Sec. 416©(1)©(iii) I understand that the TH min benefit stops accruing once a plan is frozen, but it also seems that vesting also stops since years of service are to be disregarded - is that correct?

Going on to 416©(1)(D), even though it appears that YOS may be disregarded under subsec. ©, comp from such disregarded years can still be used for the high-5 average. So, it would be possible for a frozen benefit to actually increase due to a new, larger high-5 that occurs after the plan's benefits are frozen? This can't be right, can it? All help is greatly appreciated.

We know the stimulus bill allows individuals covered by group health plans (GHPs) who pay in full out-of-pocket for covered plan services to bar providers from disclosing PHI to the GHPs. Do these new restrictions apply if the source of funds for 100% payment is pre-tax (e.g., FSA, HRA, HSA or 401(k))?

If an individual takes K-1 distributions from the S-Corp, no W-2 income, would he even be eligible to make an IRA contribution based on this income?

I work primarily with 401(k)s & ESOPs, but was trying to help my kids' private school set up a 403(b) plan for their teachers. We recently established a garden variety salary deferral ERISA 403(b) plan with a major mutual fund provider, and everything is good. Four teachers are participating. I recently learned that another teacher has been making contributions to a 403(b) account that she established when she worked for another school. It is not an employer-sponsored plan in any sense of the term. She prefers the investments under "her" plan, rather than those in the "new" plan, although I believe it's more a matter of intertia than anything else. She has the opportunity to participate in the new plan, but simply would rather not do so. Can she continue to make contributions to that 403(b) arrangement, or must we put her contributions in the new plan? There are no HCEs at the school. Many thanks, Joe

As we redoc our 401(k) plans, up until now, we have filed a Form 8821 with the IRS submission package. On the 8821 we had been reporting the plan sponsor & plan sponsor EIN in the Taxpayer section until one IRS agent called our office and told us we should be entering the plan information & trust ID number on the 8821.

Now we have an ERPA on staff so we are completing 2848’s going forward. But we want to make sure we are reporting the correct information in the Taxpayer section. Are we supposed to enter the plan sponsor & plan sponsor EIN on the 2848 or the plan name & trust ID number? Or maybe it depends on the IRS agent reviewing the plan?

Any thoughts on this would be greatly appreciated. Thanks!

OK, this is picky. If there is already guidance on this point, please point me to it.

I have not found any direct guidance on this, so I'm suggesting some:

Section 101© or WRERA amended IRC 436(d)(5) by adding this sentence:

"Such term shall not include the payment of a benefit which under section 411(a)(11) may be immediately distributed without the consent of the participant."

411(a)(11)(A) reads"

"If the present value of any nonforfeitable accrued benefit exceeds $5,000 a plan meets the requirements of this paragraph only if such plan provides that such benefit may not be immediately distributed without the consent of the participant."

The WRERA summary by the Congressional Research Service, http://assets.opencrs.com/rpts/R40171_20090129.pdf,

and the Technical Explanation by the Joint Tax Committee, http://www.jct.gov/publications.html?func=...own&id=1252,

both refer to "$5,000".

However, many plans have been amended to change the default payout limit from $5,000 to $1,000.

Once can read the statute very "tightly" and suggest that the 436 restriction applies to the dollar limit in the plan, even if less than $5,000. Alternatively, one can read the committee reports and suggest that Congress meant $5,000, even if the plan uses a lower limit.

I suggest the latter approach. Any thoughts?

I recently took over a plan from another administrator in our office and have sound that apparently a QDRO was done for this 401(k) plan that covered the owner and his spouse (now ex). A distribution for the alternate payee was processed in Novmeber, and apparently no 1099-R was issued for her, and no 945 was submitted. She took a lump sum and a tax check was submitted to the government.

I figure we need to get her a 1099-R asap so that she can file or refile her 2008 tax return.

In regards to the 945, is there another form that needs to be submitted, since it's late? As far as I know, the company has not received anything for the government about the taxes paid, but i want to try and get this taken care of asap.

Thansk for your thoughts on this mess!

PS: does anyone else here use TAG Data? We submitted three questions to their service last week and haven't heard back. We call and only get their voice mail. We have not received a daily update since 7/14, and our account is current.

I have a 48 year old professor who makes annual contributions to his university sponsored 403(b). He also operates a consulting business organized as an LLC, which I assume for retirement plan purposes will be treated as a sole proprietor. He would like to make a maximum contribution to his solo-401(k). His Schedule C net income will be about $40,000 for 2009. His university job (he's a department head) pays $108,000.

I know to reduce his employee 402(g) maximum contribution to his solo-401(k) by the amount he contributes to his employer sponsored 403(b). But because he already maxes out his 6.2% Social Security contribution from his employement income, can the maximum solo-401(k) employer contribution be modified to

.20 X (net SE income - 1/2 (.029 X SE income)) ?

And another thing I've always wondered about......(this does not apply to this professor, as he has a group helath plan through the University)....for SE individuals who deduct their health insurance premiums, would this ATL deduction also have to be added to the 1/2 SE tax, and then this sum deducted from the net SE employment per the above equation?

thanks

BruceM

looking for commentary on a loan for a participant in a plan which allows loans for foreclosure. However the foreclosure notice is in the spouse name becuase the loan is in the spouse name. However they have the deed which lists both names.

The plan sponsor is holding back allowing the loan becuase the foreclosure does not name the participant?

Does the deed suffice for supporting documentation to provide a loan to prevent foreclosure?

Individual is 90% partner in LLC

Plan sponsored by LLC is 401k Plan with dferrals and match only.

K-1 for this partner shows box 4 guaranteed pmts of $240,000 and box 14A self employment earnings of +$240,000.

For purposes of my plan compensation calculation, i believe i add box 4 and 14A together. It just seems odd that they are identical and have been for many years. (As an asided, prior TPA used box 14A for plan comp).

Thanks.

Employee incurs dental expense in December 2008, but not paid until January 2009. Out-of-pocket costs exceed balance in 2008 Limited FSA. Employee has balance in HSA at the end of 2008 (and the full further addition in 2009) and wants to use the HSA to reimburse the out-of-pocket dental expenses that exceeded the amount available in the 2008 Limited FSA.

Further complication is that the company switched from using PayFlex as the 125/HSA third party administrator in 2008 to WageWorks in 2009.

WageWorks has twice denied the claim on the basis that the plan can "only reimburse expenses that are incurred during the coverage period." Prior brochures from PayFlex explicitly state that once the Limited FSA is exhausted that further claims may instead use the HSA balance and the employee relied upon this representation.

Any IRS reference on this question? Suggestions?