QDROphile

If ERISA does not apply, there is no such thing as a QDRO. So unless the employer has a contract with the 403(B) provider that obligates the employer to deal with divorce orders (shame on you if you do -- you may have just created an ERISA plan), the employer can simply refuse to play and let the divorce parties go after the provider under state law. This may not be the best approach for the employee compared to a QDRO, but the employer can decide how much it wants to get involved (hint: in most cases it does not).

To prevent voluntary default by rescission of payroll withholding, the plan should consider taking an assignment of pay as security for the loan. Watch state law limits on assignment of pay.

I advise against different treatment on charges to or for accounts, but the IRS issues determination letters when the different treatment is spelled out in the plan document.

Sharing savings is quite common. And it is done through a cafeteria plan. Amount depends largely on the policies of the employer about the cost it is willing to bear for employee and dependant coverage.

Under the right circumstances, the existing 401(k) plan could serve all of the employees of the LLP and related entities. That may have to be done with a multiple employer plan instead of a single employer plan. But the situation you describe is still too perplexing. The LLP is the employer but doesn't pay its employees anything? The characterizations of the relationships need explanation. What is needed is a comprehensive review of all the facts, including details of the LLP agreement. This forum is not condusive to that kind of inquiry, and I am bowing out. I am sorry if I have served only to tease or confuse.

The requirement under Section 408(p)(2) that an employee may elect to have the employer (i)contribute amounts to the IRA or (ii) pay the employee in cash seems to preclude a post 1997 employee deferral to the IRA because the employer has already paid the employee for 1997 in cash. See also 408(p) (5)(i), which says that elective contributions must be made within 30 days of the end of the month that the pay would otherwise be paid to the employee. The ability to contribute after the end of the year applies only to employer matching contributions and employer nonelective contributions. 408(p)(5)(ii). These arrangments don't work through employee tax deductions. They are similar to 401(k) plans in that the contributions never get into employee pay and therefore are not taxed as income.

I was trying to add value by bringing up a point that was more likely to be missed in the consideration of your question, and one that might have been sufficient by itself to make up your mind about what to do. Here is a more straight on response: There is no qualification or prohibited transaction requirement outside of ESOPs that compels a pass through. The plan could hold nonvoting stock instead of voting stock. See ERISA 407(d). If the plan terms do not pass through the vote, the trustee, as legal owner, votes the shares. The plan (or trust) document can assign the voting to a fiduciary other than the trustee (beware conflicts of interest, and consider the DOL position on proxy voting). Failure to pass through raises a question. Why did the plan provide for a company stock investment option? A usual answer is that the employer wants an opportunity for the employees to feel like they have a stake in the company. If so, why make them second class stake holders as compared to other shareholders who have a very important ownership right - the right to vote on management of the company? Other answers to the question about having a company stock fund, such as raising capital or preventing a takeover (or some milder version of wanting shares in friendly hands) ought to get some serious reevaluation. All of our clients who are public companies pass through the vote. None of our clients have discretionary company stock investment funds unless they are public companies. I venture that this is the prevailing pattern.

You might want to take a look at ERISA reg section 2550.404©-1(d)(2)(ii)(4) if the plan fiduciaries think they want protection under the 404© safe harbor.

In order to get to your questions, you have to start over. An S corp cannot merge with a sole proprietorship or into an LLP. Merger is a corporate concept. When you are dealing with noncorporate entities (sole proprietor, LLP)the form of the transaction is reallly something else. The "something else" will have a lot to say about what the real relationships are among the former sole proprietor, S corp, and S corp shareholders. Until you can describe the real relationships among the components of the LLC you cannot address your questions. Among other things, the answers to your questions depend on things like control over related entities and the nature of the relationships. These relationships should be specified in your LLC agreement.

See section 6 of Rev Proc 98-22, but I don't think this is the only acceptable way to impute earnings on late allocations; it is the most generous. No comment on prohibited transaction question.

Unless you or another of your advisors know exactly what you are doing, do not put life insurance in a qualified plan. Do not depend on the salesperson/agent. There is much misunderstading and abuse in this complex area.

Several years ago a 501©(3) entity (library) was take over by a county. The county mistakenly continued to pay premiums. When the county requested a refund, the answer was negative (perhaps because the official did not understand that the plan had become governmental). When we took the first step in the formal process leading to appeals at a higher level (set out in the regulations), which included a full explanation of facts, the official immediately backed off and approved the refund.

Testing of matching contributions uses compensation as defined in 414(s) of the tax code. With some oversimplification, this means total compensation. Most matches seem to be a percentage of elective deferrals, subject to a maximum of some percentage of the employee's compensation. I would guess that most plans use W-2 pay with elective deferrals and section 125 deferrals added back as the definition of compensation.

I do not speculate what is in the collective mind of Congress. But even though it smacks of socialism, it is a plausible policy to give tax benefits to encourage certain behavior to benefit the masses, but withhold those benefits when they go primarily to the captains of industry. Or as my law school corporations prof asked, "What is majority ownership of a corporation? It is a license to steal."

To ERead: You solve your problem by having a plan provision that requires the borrower to establish an intention and a reasonably certain capacity to repay the loan when due. When the participant tries to borrow (as is required under the plan's hardship rules) the administrator rejects the application because the participant is so distressed as to call in question that the loan will be repaid. This opens the door for the entire amount to be withdrawn under the hardship provisions. But be careful. Each loan has to meet the standard (which will ususally be easy if the plan gets an assignment of pay). Such an approach causes problems if you try to go with one of the big administrators who uses automated loan origination. They do not have a place in the system for a thoughtful review of a loan application - they just go by numbers in the account. You will violate the requirement for a demonstration if the loan process is automatic.

First, the focus of the test is "key employees," not HCEs. That distiction helps one reach the conclusion that if you have only key employees, you cannot have a cafeteria plan. This has been our conclusion for a one person P.C., we have not encountered a large group with only key employees. The plan is available to non-key employees even if they are HCEs, so pay close attention to the definition.

The language applies in some unusual, but real cases. We handled a matter where a county took over a library system that was conducted through a 501©(3) organization. This converted the library's retirement plan to a governmental plan, exempt from premiums.