QDROphile

The language you quote will not help you. You have a problem that relates primarily to timing of deferral elections, not establishment of the plan. I don't think you can say that a plan has not been established if deferral elections were submitted with the intent that they be given effect. You do not have license to reset the plan and change any deferral elections for 2012. You might consider what you can accomplish with a correction under 2008-113.

Can we possibly say enough bad things about ADP with respect to anything that touches in any way on retirement plan issues? Unfortunately, the IRS has been unhelpful in addressing the surprisingly common misdirection on this issue. As far as I know, the closest to a direct statement is in the peamble to the section 415 regulations.

If the transaction was a stock purchase, nothing changes about the plan sponsor, the plan or the employees except that the plan sponsor has a new owner. I don't recall that the owner of a plan sponsor has any effect on discrimination rules unless the owner is a government or a church. There is a choice under section 410 about operating the plan independently in the year of merger (and the year following) or treating the plan as a member of the buyer's controlled group. Within the plan itself, the stock purchase should be irrelevant.

Sorry, I do not see a response about taxation of a distribution to a beneficiary of an alternate payee unless you are saying the general rule applies that a beneficiary is treated as the taxpayer with respect to a benefit of the person who designated the beneficiary. Perhaps the question should have started a new thread. Under a QDRO, an alternate payee gets an interest under the plan. Think defined contribution plan to make things simple. IRC section 402(e) says that when the interest is distributed, if the alternate payee is a spouse or former spouse of the participant, the alternate payee is treated as the taxpayer and the rates and rules for qualified plans apply (e.g. 20% withholding if distribution is not directly rolled over). The corollary is that if the alternate payee is not the spouse or former spouse of the participant (e.g. a child of the participant), the participant is treated as the taxpayer (recipient of the income for income tax purposes) and the regular witholding rules apply (not 20%). If the alternate payee is the spouse or former spouse of the participant, and then designates a beneficiary for the alternate payee's interest (as allowed by the plan) and dies, the distribution to the beneficiary is not a distribution to a spouse or former spouse of the participant. Does 402(e) say that the participant includes the income? Seems to be nonsense, but that is what 402(e) seems to say, on its face. Does some other rule apply?

mbozek: Switching to a side track, if an alternate payee designates a beneficiary and then dies, is the distribution still covered by section 402(e)? It seems unfair to the participant to have the tax consequences change, but the language does not fit so well any more.

1. If she is awarded an amount and it is set aside for her, why do you care when it is paid? 2. A plan can provide that an alternate payee (the former spouse) cannot be paid her share until the participant is paid. An exception applies to most 401(k) plans -- the alternate payee must be eligible for payment when the participant attains age 50 even if the participant is still working or has not chosen to be paid. 3. The terms of the order can be more restrictive about payment than the plan would be.

Don't stretch to justify a true-up. First, plan interpretation is a fiduciary function. Second, failure to have clear provisions for a true up (if intended) is a symptom of rectal cranial inversion and failure to moderate contributions (if no true up is intended) is a symptom of rectal cranial inversion and greed. Health care comes at a price. In a consumer driven health care economy, price is what causes the consumer to make health care rational and efficient. Don't deprive the system of its mechanism for rationality and subsidize disease and bad health care decisions.

Consider if this can fit into PTE 80-26. You still have to recon with actual payment by the employer rather than the trust, which is not in accordance wtth plan terms and not what one expects for cash flow if the employer loaned the funds to the plan for payment of the benefits.

You might look into parachute payments, section 280G of the tax code.

Yes, and separate rules apply to spending accounts.

How do you propose to "roll" the assets? You need distributions to have rollovers, and you can't have distributions without termination of employment or plan termination. You cannot transfer from 403(b) to 401(a).

Your partner may be eligible as a dependent. That depends on support and domicile. Your partner may be eligible, but with different tax consequences than you expected. Your partner may be ineligible. If the employer was at all responsible for the mistake, including by having confusing enrollment communications, then the employer should allow correction of the mistake, which would include a new election amount (although that amount might be zero -- but better than leaving a lot of claims money to be forfeited). If the employer is not at all involved in the mistake, the mistake should be corrected to remove the ineligible person, but you probably would not be able to change the mistaken amount elected. Your administrator should the best source of assistance. Get going.

Make your point under VCP.

If the original post meant that the employer actually has a separate fund, then one ought to raise the alarm that the arrangement is not exempt from the ERISA trust rules, so the sales team had better be setting up a trust and finding a trustee to hold the plan assets. Then it will be obvious that plan assets must remain in the trust to be used for appropriate plan purposes.

GBurns: How do you reconcile that view with the requirement that the entire amount of the FSA be available to pay benefits beginning on day 1? The employer is not contributing anything payroll period by payroll period unless the employer is using a separate fund. The employer has to pay benefits up to the FSA amount, but you would not call payment of benefits a contribution (unless addtional amounts were first delivered to a speparate fund to cover the excess). I am not commenting on the ultimate issue, just your portrayal in physical terms of something that does not happen. If you use the wrong picture, you might get the wrong answer. I am not saying anything about the answer.

Not so fast. Actions must also comply with plan document terms. While it is possible under the law to make up premiums with separate after tax payments, the plan may be more restrictive. Many plans do not allow after-tax payment at all. Now that you know more about your administrative needs, you should amend the plan to accommodate them.

I disagree with the tax-return due date and none of the material in the posts cite any authority to the contrary. Elections must be made before an amount is currently available. The special rule for self employed individuals is in Treas. Reg. section 1.401(k)-1(a)(6). The deadline is the last day of the partnership taxable year for partners and the last day of the calendar year for sole proprietors.

Where do you get the later deferral deadline for self employed persons?

"Interesting, that advisors typically know what they want to hear and will continue to push the issue. Remember, that doesn't make them "bad people", but they do get a lot of mis-information." It does make them bad advisors, and that should be taken into account in retaining them. it also shuld be taken into account for who should be the one to justify and support a position taken when the validity is questioned.

Ask the genius who created the situation in the first place. The genius was probably counting another IRA or qualified plan of the owner that had lots of liquid assets that could be rolled over from time to time to meet the predictable periodic liquidity lneeds of the IRA. Or the genius knew of an unrelated person who was willing to lease the raw land for use as a wildlife refuge or for future oil exploration or as a firing range.

The plan document should address this issue. As you say, it happens all the time, so a competent document would deal with it. One would then look to the determinination letter for some comfort that the plan's disposition is in accordance with section 409(o).

Although overshadowed by section 409A, constructive receipt and economic benefit concepts still apply. Is the ability to use the deferred compensation to obtain a loan an economic benefit that would cause some amount to be taxable? I agree with jpod tha that the practicalities of the situation make it unlikely.

The health FSA is insurance. It is odd insurance because the premium is equal to the benefit limit. You don't complain under your regular insurance benefit if you are lucky enough not to have claims for the year that exceed your premium for the year. Also, if you maxed out on claims early in the year and then terminated employement, the insurance company (the employer) would have a loss that would not be covered by the remaining premiums for the year because those premiums would not be collected. Insurance is all about risk. The FSA is not a bank account.

Compliance with 401(a)(9) is all that is required. An extreme example would be a plan that allows lump sum distributions only. Come required distribution time, the entire balance is distributed. The other extreme is automatic distribution of only the amount required by law at the time. The plan could allow election of an in-service distribution form of benefit as long as the payments covered at least the required amounts at the required times.

As long as the employee is past normal retirement age.