QDROphile

Not so fast on the guilt button. We have a ruling that confirms that a match can be a money purchase plan contribution.

It does not work for elective deferrrals unless the participant has attained age 59 1/2.

jsb is correct. See the first sentence in my first response. If you have the proper alignment of tax treatment with definitions, you can have a broader definition of eligibility for benefits than what is eligible for tax favored benefits. When you get mistaken tax treatment or mismatches between what the plan says and what it does, then you have trouble.

Internal Revenue Code sections 105, 106 and 125 and related regulations. ERISA sections 102 and 402 and ERISA regulation section 2520.102-3.

If your plan definition of what or who is eligible is broader than what is eligible under the tax code, amounts that are ineligible for the favorable treatment under the tax code and that are paid under ther terms of the plan will be be taxable. Under certain circumstances, the bad definition could threaten the favorable treatment of other amounts because the document would be noncompliant. If your document has a broader definition than the tax code and by operation you refuse to pay amounts that are allowed by the document but not the tax code, you have ERIAS/contract problems becuase the plan has to pay what the plan says it will pay. So your plan document needs to say what the plan will do, and if your plan will pay ineligible amounts (e.g. benefits for ineligible persons), you will have problems. The SPD must fairly describe material terms of the plan. Eligibility is a material term. If there are limits on eligibility, the SPD should describe them. You would want to do so anyway as a practical matter to avoid disappointment even if the omission did not have legal consequences.

It appears that employees have a choice between medical benefits under the HDHP and cash. That is what section 125 is all about. If you don't offer the arrangement under a section 125 plan, all persons who elect the HDHP will have taxable income to the extent of the amount available if they had not chosen the HDHP coverage, even though they don't get any cash. Of course, all persons who choose no HDHP will be taxed on the cash they receive.

If you simply send another tax notice you will have to wait a minimum of 30 days to distribute and you need to tell the recipient what will happen if the recipient does not contact you with other instructions before the distribution. All this is subject to plan terms and policies that may bear on the question.

So what about the arrangement is not compatible with 409A?

I am sure that the CPA who insists that you file will be willing to specify the state law source of the requirement.

Service to an unrelated and nonparticpating employer can be credited under a plan as "imputed service," subject to limitations and conditions. See the 401(a)(4) regulations. Your arrangements may run afoul of the limits. Seems to me that if the former subsidiary has not adopted and is not "sponsoring" the plan you would not have a multiple employer plan.

So are you going to get your law degree and be admittted to practice this week so you can substitute for the lawyer? There is a special class in law school about the legal doctrine of "because we have always done it this way." The New York law firms in particular make use of the doctrine. TPA firms also rely on it heavily when advising clients about what is required. That doctrine allows TPAs to say that the law requires elective deferrals to be suspended after a hardship distribution. Sarcasm aside, you did things right. You checked the plan document and you did not presume that your practice is mandated by law. While it is a common plan design to make some exception along the lines you have described, it is not required by law.

Distributions have to be in accordance with plan terms and QDRO trems. Among other things, that means certain acts by certain persons have to be performed at certain times in a certain order. Certain documents with certain terms have to be generated and delivered at certain times. When things are not done or are not done in the proper time frame or do not comply with plan terms or QDRO terms, you have some sort of violation, omaybe more than one. This is all the more important when you are dealing with owners, who are the most inclined to disregard the rules and least likely to get sympathy from the IRS. How you fix things depends on the circumstances and may involve only making sure that the right documentation is prepared to fit what happened, assuming what happened can be reconciled with what is legally permitted and everyone involved agrees with the outcome. Corrections almost always should be done in accordance with the IRS procedures; a filing is sometimes necessary and sometine desirable even if not necessary. Attaching "retroactive" to what is done, by itself, is meaningless. This looks jumbled enough that legal help is a good idea.

See 457(e)(18). No section 414(v) catch up unless the employer is a government or instrumentality. But 457(b)(3) provides for a higher limit that some people refer to as a "catch up." See 457© and compare it to the provisions of 457© before amendment to answer your first question.

If you have any responsibility for legal compliance or investment management for the plan, don't touch it.

I don't presume that plans are looking for a fight, but I suppose that a plan might refuse to cooperate if it had withheld amounts and does not want to deal with the adjustment, e.g. if the recipient elects a rollover. If the plan will simply cut a new check, the plan would then still take the position that the distribution occurred when the distribution occurred, not when the new check was issued. If the plan will acknowledge and fix a problem with notice, even if it can show it is not at fault, I think that is firm ground. While the practical risk of problems with a new check is low, the only way to be sure about the outcome under these facts is to get an IRS ruling. I am not aware of any free pass on destruction of a check, but the IRS should be sympathetic in its ruling position.

You cannot get a rollable distribution without warning, maybe unless it is $200 or less. You should claim that you never received the tax/rollover notice and that you do not want to receive the distribution until you have have a chance to read the notice and give instructions concerning the distribution. If the plan is smart, it will send you the notice and then you can decide what to do. The clock should start over.

If Dad or Son are involved in conducting the business or are employees of the business or are otherwise compensated for their services to the business, they are playing with fire.

See section 415©(3)(D) and the revised 415©(1). What you are reading is obsolete.

If it is not an amendment, what is it?

Please explain why a dependent care spending account cannot pay eligible expenses incurred after termination of employment and within the same year.

Yes. No, unless the plan terms specify that the eligible expenses will be as stated in the SPD, but that would not be a good idea for plan design.

Does one type of mistake make you suspect another? Are you responsible for compliance, or is someone else responsible?

Look at Rev. Rul. 2002-27. I think there is some other IRS guidnace that is related.

Perhaps there is no formula or other instruction for determining the amount of the contribution but there is a formula for allocation of the amount once it is determined. How the amount of discretionary contribution is arrived at is a matter of plan terms, and if the plan is silent, then a matter of corporate governance.

UBTI