QDROphile

Bad idea and probable prohibited transaction and lots of people do it. The prohibited transaction occurs with the self dealing that is involved with the IRA buying the stock from a party in interest. Even if you could avoid the party in interest transaction, the transaction could be prohibited because the fiduciary (the IRA benficiary who has authority to direct investments) is realizing a personal benefit outside of the IRA by funding something that the fiduciary will use in a personal capacity -- the new company, that among other things will pay a salary to the fiduciary. The DOL has several advisory opinions on the subject.

404(h)(3)doesn't give you any comfort?

The "limited window" refers to Treas. Reg. section 1.401(k)-1(d)(4)(iii). The distribution must be in connection with the acquisition. If someone waits too long to take advantage of the opportunity to get a distribution, they lose it because it is no longer "in connection with" and they must have another reason. Bad news if anyone stays back. You have to find out from Company B (now a stranger) if the participant has separated from service. Here's another trap: if Company A's plan transfers (but not a rollover or an elective transfer) funds to Company B's plan (or a plan in the Company B controlled group), Company B maintains the plan of Company A, so Company A's plan cannot distribute under 401(k)(10). See Treas. Reg. section 1.401(k)-1(d)(4)(i).

Please tell us much, much more about the situations in which you got IRS approval in stock acquisitions, and the nature and formalities of IRS approval, or any supporting authority. If this scheme passes IRS muster, it would be a nice solution to recurring difficulties in acquisitions.

The Company A cannot "clear out " the accounts of the employees of Company B. The 401(k)(10) rules merely allow the Company B participants to take distributions as if they had terminated employment. They may not be forced out unless their accounts are less than $5000. Company A would have to transfer the accounts to Company C's plan to be rid of the accounts. Check with legal counsel to see if a transfer (or spinoff and merger) can be done under the prototype document without amendment. Also, the Company B employees have a limited window to elect to take a distribution from Company A's plan based on the sale to Company C.

Read PLR 9236042 and GCM 39880 and weep.

I think MWeddell is correct that it was a TAM, not a GCM as stated in my messages. Sorry.

GCM says none of the sale proceeds are annual additions. The PLRs said that the basis of the shares would be annual additions.

You may use either the contribution amount allocated in the same proportion as the released stock) or the value of the stock allocated for section 415 calcualtions. I got two determination letters that allow the plan to use the lesser of the contribution amount or the value allocated. The ruling that OKs the use of the value of the allocated stock does not say that the plan gets to switch back and forth as it may desire, so a plan provision and a detrmination letter would be prudent. See PLR 9625045.

Could you cite authority for the proposition that a spouse beneficiary can roll over from a qualified plan to the deceased participants's IRA?

New GCM takes an opposite approach to PLRs. As far as I know it is not yet published, but you can get it through the ESOP Association.

Section 132(f) of the Internal Revenue Code.

Looks like yes if the child is under 21 and no if over 21. Look at IRC section 1563(e)(6).

You may have a brokerage account, but it has to be an IRA custodial account or an IRA trust. The account canot be simply a brokerage account that you deem to be your IRA. All the big brokerage houses have such IRA arrangements, and there are other IRA custodians that allow trading in any security whether or not you use an affiliated broker. You cannot pay the commissions on trades outside the account, the way you may pay your account maintenance fee outside the account, but don't expect the broker or custodian to tell you this. Most of these trading account IRAs will charge you account fees higher than you are paying for your mutual fund IRA.

As usual with popular journalism, they got it wrong. They are referring to 401(k)(3)(F), which is not a significant new development. And they forgot to take into account top heavy plans that will have to provide an employer funded 3% for the new participants (slight oversimplification) who otherwise would have started a year later and saved the employer the contribution.

I am not aware of any specific guidance or requirement, but I have not made any effort to research other than to check the preamble to the regulations. Unlike section 401, section 125 does not have a built in concept or a tradition of remedial amendment periods. ERISA has a requirment that plans be administered in accordance with their terms. So absent a specific grace period, an argument can be made that the amendment is required in order to change plan standards. But if that is the rule, compliance is uncommon to rare. I would say you are doing well to amend by the end of the plan year in which the change in operation occurs. And the next question is about the summary plan description. Does the deadline for a summary of material modifications run according to when the plan was effectively amended in operation or according to when the plan document was formally amended?

Your plan document should be pretty clear that the minimum distribution requirments apply to the plan benefits, without implication that the plan can look outside for something to aggregate. The plan document runs the plan. End of issue as far as a participant is concerned.

You don't need to amend. Treas. Reg. 1.125-4T covers matters that are permissive. Your plan document should be more conservative. Amend when you implement the more liberal standards. Or have you been using the Treas. Reg. 1.125-4T standards without amending and you are wondering when you need to conform your documents to your practice?

Start your own self funded health plan under section 105(e) of the Code to cover the gap between the new and old benefits (subject to whatever limits you choose), assuming you do not run afoul of section 105(h) of the Code. You could limit the eligibility for plan, again subject to 105(h). Could you create such a plan and limit it to just one person? Maybe. Get professional advice. "Self funded" means employer funded, as distinguished from funded through an insurance contract.

Is FICA and FUTA off the top because of practical concerns or a legal requirement? Would you allow a 100% deferral if the employee came up with other funds for the employer to forward for payment of the "withholding amount"? If not, could you identify the authority that requires FICA and FUTA to come off the top? 408(p)(6)(A)sends me to 6051(a)(3), which sends me to 3401(a). Nowhere do I find a subtraction for FICA or FUTA. If the authority is a literal reading of 3102 (thou shalt withhold from wages), what do you do with a nonqualified deferred compensation plan that creates a FICA liability in excess of a participant's compensation that arises because of deferred vesting? The literal reading of 3102 leaves one with no answer. The last question is my real question because when it comes to SIMPLEs I would stick with the literal reading of 3102 and the practical need to withhold from a convenient source (current pay), as your answer directs.

A disability arrangement that is a plan covered by ERISA (not all are) must have a claims procedure, which includes a procedure for review of a denied claim. If a claim is denied, the plan must advise about the procedure for requesting a review of the denial. If the claim is denied after review, recourse is through the courts. If a benefit is impropoerly denied, the claimant may be able to get an award of attorney's fees, but usually only if the plan has been unreasonable. If an insurance company is involved, the state insurance commissioner (or whatever the equivalent may be in a particular state) might be of some assistance in dealing with the insurance company, but that will vary from state to state. Generally, whether or not a person is entitled to benefits depends on the terms of the plan/policy. If the plan/policy does not cover the particular disabilty, no benefits. However, some laws (especially state insurance laws) govern what a plan/policy must provide.

See section 404(h) of the Code.

But what is earned income from an LLC? Assume that no member is considered to be an employee (no W-2). Member #1 contributed no capital to the LLC, but performs services. Presumably all LLC distributions are earned income (compensation). Member #2 contributed $$$ to the LLC and performed no services. Presumably no LLC distributions are compensation. Member #3 contributed $$$ and performs services. Does the either the LLC accounting or the K-1 break down the distribution between compensation and noncompensation distributions? Does the IRS distinguish between the two? If so, is there an objective rule for allocating between the investment return portion of the distributions and the compensation portion? Or does the LLC or individual allocate between the two?

It would be wonderful to have a definitive answer on this. W-2 is not a completely safe bet. If the IRS decided that some K-1 income was includable in income for SEP purposes, the SEP contribution would not be correct for that partcipant. The compliance risk arises either way - overinclusion or underinclusion. Qualified plans have the same problem in determining eligible income. But they can define income however they want, subject to discrimination rules.

Your first step is to determine whether one plan is a disqualifed person or party in interest with respect to the other. The answer probably hinges on how much stock of the employer is owned by each of the plans. If no party in interest or disqualified person, no prohibited transaction. No one can do a prohibited transaction analysis without all of the facts, and the analysis is often quite intricate. But there are also other issues to consider. For example, the fiduciaries of the plans may not be prudent in simply using a "current valuation." Who prepared the valuation and for what purpose?