QDROphile

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?

Be careful about putting on your own education show. Whoever is doing presentations needs to know the differnece between investment education and investment advice. The DOL has issued Interpretive Bulletin 96-1 on this issue. See ERISA reg. section 2509.96-1. If you are giving investment advice, you may be inviting trouble because investment advising is regulated by law.

I think Q&A 13:9 and especially Example 13-2 contradict the conclusion that a portion of the loan cannot be assigned to the AP. They say that the AP can be given an interest in the account above the $2000 non-loan portion. The AP simply can't get a distribution until the asset is in a distributable form, as my answer states. With respect to loan defaults, for tax purposes, it is a deemed distribution, so the AP can get the AP's share of the deemed distribution (no violation of distribution rules here; it is not a real distribution and it happens the same way to the participant). My reference to an offset distribution is limited to loan defaults when the amount is distributable, such as when the participant has terminated employment (this is what happens instead of the deemed distribution; a deemed distribution occurs when amounts are not actually distributable). It does not mean that the plan distributes a note to an AP. As to the relationship of obligations between the AP and the participant, that is a matter of state law. If a domestic relations court rules that a participant is to deliver a certain economic value to an AP, through a retirement plan or otherwise, and the participant does something to frustrate that order (for example, by defaulting on the loan), the domestic relations court probably has authority to enforce its order. For example, the court could hold the participant in contempt unless the participant delivered to the AP the cash equivalent of the AP's loan interest to make up for the money lost through the loan that is not repaid and then distributed to the AP. Similarly, the court could hold the participant in comtempt if the participant disobeyed the court's order to make the loan payments. I concede that an impecunious particpant presents an impediment to those remedies. While I have no quarrel with Q&A 13:9 or Example 13-2, it whould be nice to know where they came from.

Start with section 403.

Alternate Payees should be careful what they ask for. The loan is an asset of the account. If the QDRO does not specify that the AP's interest excludes the loan, the plan should follow its own rules about how to allocate assets to the AP (I suggest that the plan's written QDRO procedures provide that unless the QDRO specifies otherwise, the AP's interest will be created from assets other than the loan, to the extent possible). If the AP's interest includes all or part of the loan (because not enough other assets are available or for other reasons) the AP gets the results of the loan rules. If the loan defaults and is either deemed distributed or is offset in a distribution, the AP gets the AP's proportion of the taxable income (but no cash). The plan should prevent the AP from getting a distribution of the loan asset (or the AP's share of it) until it is paid. Upon full payment, the AP's interest is held in other assets and is ready for distribution. No particular language is necessary to get this result, and the plan has no responsibility to make sure the loan gets repaid other than to administer its loans properly (which could involve foreclosing on security). The domestic relations court court could order the participant to pay the loan, but that is betwen the court and the participant. Ultimate payment to the AP is a result of the AP having an interest in the loan that gets paid back. The plan could have rules for apportioning each loan payment between the AP's interest and the participant's interest in the loan (pro rata is standard). Many of these issues would not be so difficult if domestic relations orders were more intelligently thought out and drafted, but that would be too much to expect. An interesting question for someone else is whether a plan can give the AP an opportunity to pay the outstanding balance on the AP's share of the note, or otherwise allow the AP's interest in the debt to be retired in advance of the remainder of the debt. I see no problem if the AP has a 100% interest. Any takers?

The former S corp contributions and related earnings are not tainted, according to recent informal advice from authoritative IRS officals. We cannot find any formal authority one way or another. But a conversion seems very drastic, so check out other possibilities.

Not so fast. An employee can change medical coverage. The employee cannot change the election to have premiums paid out of pre-tax pay unless the employee has a status change. So if an employee changes mid-year to a more expensive medical coverage, the employee cannot increase the salary election to increase pre-tax payment of premium, but the employee can change coverage. The increase in premium can come from after tax pay. All of this increases complexity of the plan, but it is not prohibited.

You cannot keep a SIMPLE and a qualified plan in the same controlled group beyond the section 410(B)(6) grace period. See section 408(p)(2)(D) of the Code. As for the qualified plans, they do not have to be merged if you can pass coverage and discrinimation tests (conducted on a controlled group basis) as separate plans.

I have no comment on Mr. Gulia's response except that if any plan administrator dares to disregard his last comment and tries to help the parties get what they "intended" by discussing (with their lawywers or otherwise)how to draft an order, read Dahlgren v. U.S. West Direct, 12 EBC 2275(D Or 1990). The decision may be wrong, but that was no consolation to the plan administrator.

Absent any arrangements to the contrary, the trustee, as legal owner, exercises ownership functions, such as voting and granting proxies. Other arrangements are possible, such as voting by the person responsible for plan investment decisions. The arrangements should be properly authorized and documented. The fiduciary with responsibility for investments has the duty to monitor voting if the fiduciary does not directly exercise that function. No definitive guidance on what constitiutes proper monitoring. The voting and monitoring duties apply to all stock assets, not just employer stock. Passive institutional trustees usually will not exercise discretion, which is required for stock voting. Their standard trust documents will specify that they are to be directed with respect to such matters.

May a government educational institution's 403(B) plan spill its contibution in execess of the 415 limits into an excess benefit plan? Although 403(B) has provisions that allow one to conclude that a 403(B) plan can be a governmental plan, usually a 403(B) plan is treated as the plan of the participant for section 415 limits (no aggregation with other plan of the government sponsor). If a 403(B) plan can feed an excess plan, does the answer change if the governmental employer also has a 401(a) plan that is not hitting the 415 limit for the participant that is hitting the limit under the 403(B) plan? The participant is hitting the 415 limit under the 403(B) plan because of a one-time irrevocable election. Does this run afoul of the 415(m)(3)(B) proscription on elections to defer income?

Although certain parking and transit benefits may be provided on a pre-tax elective basis under section 132(f), they are not covered by section 125. See section 125(f).

Prohibited transaction exemption for employer securities at ERISA sect. 408(e). You will need advice about securities law compliance whether or not the stock is publicly traded and whether or not participants have investment choice.

You could draft the plan to provide that the plan covers employers who adopt the plan (with the consent of the sponsor). Then whoever has employees could adopt the plan to get the employees covered. This gives greater flexibility; perhaps some employers will not want to participate. Note that this response does not cover questions about coverage compliance or status as a multiple employer plan. This response addresses only your question about plan drafting.

I am suggesting that the acquisition of B does not affect the compliance of A's SIMPLE or B's lack of a SIMPLE until after 2000 (the year following the year of acquisition) assuming that all of the other applicable requirements are met). A can keep its SIMPLE "as is" (no inclusion of B employees) and B does not have to adopt a plan. This would be the result under section 410(B)(6)© if A had a qualified plan that would otherwise fail coverage upon acquisition of B because of the single employer rule. However, 408(p)(2)(D)(iii) presents an interpretation problem. Does "another such employer" mean only an employer who has maintained a SIMPLE for one or more years? If so, I agree with your answer. The legislative history suggests that Congrees was attempting to create a grace period to prevent a failure when an employer with a SIMPLE and an employer with a qualified plan ended up in the same controlled group. This makes senses, but a literal reading of "another such employer" means the grace period applies only in a transaction with another employer who has a SIMPLE, not another employer with a qualified plan. I suggest that because the literal reading is too narrow, the 410(B) grace rule may simply apply without limitation to situations where both employers have arrangements (SIMPLE or qualified plan). In other words, where one employer has a SIMPLE and one has nothing, the 410(B) grace period still applies (as it does with qualified plans). This is somewhat agressive, because Congress may have intended to provide relief only to protect a "good" employer who has an arrangement and not a "bad" employer who has no arrangement and who should be forced into the SIMPLE immediately. I have no authority other than the bad drafting of the statute and the contradiction with the committee report to support the idea that employer B (who has no arrangement)is treated as separate until the end of the 410(B) grace period. That is why I said "think about" the exception. The answer is uncertain and should be resolved with assistance of counsel. Your answer is acceptable and safe.

For a different answer you may want to think about setion 408(p)(2)(D)(iii) of the Internal Revenue Code.

What are the citizens of these foreign countries who apparently live and work there if they are not nonresident aliens?