Are there any states that do not allow catchup contributions? I found an article dated 2002 that indicates that Massachusetts did not allow catchup contributions, but I'm thinking that only applies for "state tax" purposes; I have never seen anything to indicate that any state doesn't allow for catchup contributions for federal tax purposes. I have a Relationship Manager posing this question to me...

Situation:

A husband and wife are getting a divorce before Dec 31, 2004. As part of the divorce settlement, the husband is required to pay $50,000 to wife at the time of the divorce. The husband is 68 and the wife is 63. The husband has an IRA, from which the funds will be used for the settlement.

The husband has 3 options;

A: Withdraw the money from the IRA and pay the ex-wife.

What is the tax liability for the husband and ex-wife?

B: Roll the money over to the ex-wife's IRA.

What is the tax liability for the husband and ex-wife?

If the ex-wife withdraws a lump sum amount from the IRA, what is her tax liability?

C: Roll the money over to the ex-wife's Roth IRA.

What is the tax liability for the husband and ex-wife?

If the ex-wife withdraws a lump sum amount from the Roth IRA, what is her tax liability?

Which one favors the wife and which one favors the husband?

Just trying to get a sense of what is industry practice here...

I work for a bundled service provider (both DC and DB), and our typical process on placing trades for new plans to us who's assets are transitioning to us is to have the prior service provider place "sell" trades on day one, wire us the proceeds of those trades on day two, and (provided the wire "hits" in time), for us to place "buy" trades the afternoon of day two, settling those trades the following morning. Essentially, the plan is "out of market" for the one day (selling out at the close on day one, and buying back in at the close on day two).

A new client wants us to place the "buy" trades simultaneously with the sell trades that the prior provider is making (on day one) and settling those buy trades on day two with the proceeds that the prior provider will be wiring to us that same day. At issue are 1) the fact that we won't know what the proceeds of the sale trades are until after the market close (they are daily valued funds, traded at the closing NAV), and hence we won't know the amount to place the buy trades for (unless we would engage in after hours trading - WHICH WE WON'T!) - so we'd have to do an estimate on the buy trades (90% or so) with a true-up on day two; 2) by placing the buy trades prior to receipt of assets, are we extending credit to the plan (even though we theoretically don't have to settle those trades until after we're expecting to receive the proceeds from the sell trades), and if so, is this "incidental" such that it isn't a PT under various DOL guidance, including Advisory Opinion 2003-02A; and 3) what happens if for some reason: a) the sell trades don't settle on day two; b) the sell trades don't settle early enough on day two for us to wire those funds out in settlement of the buy trades; or c) the wire to us just doesn't happen on day two.

The new client (a money manager, by the way) and their consultant (a rather well respected regional player) both "insist"" that "everybody" does same day trades on conversions and we should as well. Interesting that the three service providers I've spent my career with thus far have never done same day trades on conversion. Of course, in the day today operation of a plan, we routinely place sell orders and buy orders for plans simultaneously (per participant direction), but in those cases, we typically are functioning as sub-transfer agent for each side of that transaction, and have a process in place for routine settlements. In the conversion in scenario, we're somewhat at the mercy of the prior to do that which they say they will do (and I have no reason to doubt them).

Any viewpoints?

I am working with a 403(b) plan that is required to file an annual Form 5500, although just the limited information. Due to administrative chaos in 2003, a Form 5500 was not filed for 2002. The error was discovered with the HR person called the Department of Labor for help with the 2003 Form 5500. This person was new and was looking for some general information and how-tos. The DOL agent told the HR person that the 2002 Form 5500 was not filed. Immediately, the HR person filed the Form 5500, but did not mark that it was filed under DFVC. This probably raised a red flag with the IRS who sent a letter assessing penalties.

Do you think DFVC is still available since they never got a writing from the DOL that the Form 5500 was late (i.e. they can file an amended Form 5500 and comply with the DFVC program)? Or do you think the only hope is to to write a reasonable cause letter to the IRS and beg forgiveness?

Any ideas?

If a prototype plan uses a 6 month of service requirement to enter the plan, can they later amend that to 1 year of service and actually start counting hours (eg 1000) to enter the plan?

Similarly, can the plan be amended to do away with elapsed time for measuring service for elilgiblity and vesting, and go to a 1000 hours counting method?

Thanks

Does anyone have any comments/concerns on the Principal Financial Group product, both bundled and unbundled? Any trouble getting data needed to complete reports, web site comments?

The plan participant who died was under 70.5 so no RMD issues exist. The non-spouse beneficiary wants to delay the distribution of the death benefit. The plan only allows for lump sum distributions, and the document states that the benefit will be paid "as soon as administratively feasible". How much risk is there if the plan sponsor delays payment?

How is the PFEA interest rate change applied to lump sums calculated under Q 14 of RR 98-1? Is the wearaway amount considered to be calc'd using the interest rate in effect at 12/31/04? Is the wearaway amount protected after 12/31/04?

What if the plan uses the "sum of" method? Is the A portion protected? What about the B? Are amounts accrued after 12/31/04 now a "B' " portion that is calc'd under PFEA?

A 401(k) plan requires participants to have a 1-year BIS before becoming eligible for a distribution. The plan has an early retirement provision of age 55/6 years of service with 6-year vesting. The plan is a Corbel prototype with this language:

"Distribution of the funds due to a Terminated Participant shall be made on the occurrence of an event which would result in the distribution had the Terminated Participant remained in the employ of the Employer (upon the Participant's death, Total and Permanent Disability, Early or Normal Retirement). However, at the election of the Participant, the Administrator shall direct that the entire Vested portion of the Terminated Participant's Combined Account be payable to such Terminated Participant provided the conditions, if any, set forth in the Adoption Agreement have been satisfied."

The condition in the Adoption Agreement is the 1-year BIS requirement.

Also, does this condition apply to a participant at NRD, age 65 in this plan? How about LRD? The requirement that a participant be paid no later than 60 days after the end of the plan year containing the latest of NRA, 10 years of participation, and termination of employment could delay payment to the 1-year BIS date for someone with short service at termination on/after NRD.

It seems that the first sentence in the above plan language may override the 1-year BIS provision for participants who die, are disabled or reach Early or Normal retirement, but I'm just not sure. Anyone?

I know that a DB and 401k plan can be implemented together without triggering 404a7 limits on deductibility. I cannot find a cite that permits matching contributions for a 401(k) plan implemented with a DB plan. I know that the Code does not permit matching contributions as an offset, even though they are Employer Contributions (treas reg 1.40(a)(4)-8(d)(1(vii)). Are matching contributions permitted with a DB/401(k) arrangement?

Does the testing methodology need to be stated within the plan document for plans which demonstrate compliance with IRC 401(a)(4) via "cross-testing"?

Thanks

May an FSA be offered outside a cafeteria plan? We have a salary-reduction FSA (at least, that's what we call it), and I've always heard it referred to as part of a cafeteria plan, but the question was raised when I read a sentence in the 1996 Tax Act Blue Book (where it is discussing the addition of section 106©) that said FSA may be offered outside a cafeteria plan (but did not elaborate on the point).

If the FSA is outside the cafeteria plan rules, what tax rules control the taxation of benefits to the employee?

Thanks,

Ken Davis

Univ. of South Alabama

My understanding is that if a plan uses the 30-year treasury for lump sums, then with no amendment to the plan it is possible that a participant can get a lump sum less than the 415 limit if the lump sum were based on a life annuity equal to the maximum life annuity for plan years beginning in 2004 or 2005. This would occur if the 30-year rate went above 5.5%.

My feeling, to avoid this potential scenario, amend the plan to base lump sums on the lesser of 5.5% or the 30-year rate for 2004 and 2005, then if the participant receives a lump sum based on the maximum life annuity under 415 he will receive the 415 lump sum limit.

Any observations?

Thanks.

Gary.

Group does "employment contracted" business and provides "staff employees" to work these contracts. Group doesn't currently offer coverage to domestic partners and has decided to wait until January 2006 to open plans up to dp's.

Group is bidding on a contract with a municipality that requires any businesses under contract to offer benefits to domestic partners.

What are your thoughts on this group only opening up domestic partner coverage to those staff employees working on this municipality contract. Group would not extend dp offering to all others until January 1, 2006 as originally planned.

Thoughts, feedback?

Any thoughts on whether state laws that prohibit an employer from putting an employee's social security number on a benefit card will be preempted by ERISA? We are self insured and recently discovered that a law prohibits putting an employee's social security number on any card required for the employee to obtain services. Any thoughts?

Thanks

A db plan allows for an unmarried participant to designate a beneficiary to receive a "return of contributions" death benefit in the event he passes away prior to retirement. Participant was inactive but vested and died in 1996. Per the terms of the plan, his son would have received the benefit. HOWEVER, the Plan did not learn of the death until last month...8 years after the fact.

The terms of the Plan cite the distribution requirements of 401(a)(9). Pursuant to this section of the Code, a death distribution to a non-spouse must begin no later than 1 year after the death.

What does this mean for the beneficiary? Does he forfeit the benefit? Is the Fund allowed to make the payment?

Your assistance is appreciated.

I'd like to hear your thoughts on restraining orders. Facts are as follows:

Plan is sent copies of restraining order restraining the Plan from paying the participant pension benefits and restraining the participant from "accessing" his pension benefits. No QDRO, and divorce decree states that participant gets pension benefits--nothing assigned to the ex-wife. Participant applies for benefits, and plan responds saying that there is a restraining order restraining the plan from paying benefits. Participant doesn't respond (perhaps because he reads his restraining order which states he can't "access" his benefits).

Do you think the participant could make a reasonable claim that ERISA preempts the state court restraining order (or the underlying law)?

Apparently the ex-wife may be attempting to secure a QDRO.

Under AJCA, distributions are permissible upon "death". Whose death is the statute referring to? Is it only the participant's death? If so, why? The statute refers to the "participant's disability" ((2)(A)(ii)), but simply uses the term "death" ((2)(A)(iii)). Presumably, it could be the death of someone else, but then would it be a specified event which is not allowed? In the case of an arrangement that covers employees, could it be the sole shareholder's death (the shareholder does not participate in the plan)? The committee reports appear to be silent on this (unless I missed the discussion).

Thanks in advance for your thoughts.

Where can I purchase a brochure with the 2005 maximum benefit and contribution limits?