QDROphile

I would require a more apt description of the imputed service for Bank C employees. The service credit can be given, but I don't think service for an affiliate describes the Bank C pre-aqusition service.

An appropriate answer depends on plan design. In a simple plan design, the change in status would have no effect with respect to the plan contributions, but the total compenstation picure and accounting might change. If you have an exotic design, you will need to consult an expert who can evaluate all of the facts and circumstances -- just another cost of being sophisticated, or whatever one might want to call it. In any event, a keen understanding of plan terms is necessary.

Most loans apply prepayments as reduction of principal that effectively shorten the term of the loan, not as getting ahead on scheduled payments. Scheduled payments continue on schedule. Don't forget that you have a loan contract, even in these days of improper paperless plan loans.

The IRS disagrees that LLC interests can be qualifying employer and has published its position. I cannot remember the form of publication, and the actual analysis was whether or not LLC employees could participate in an ESOP.

I have not found any definitive guidance about how to draw the line. I think regular employment one day per week is sufficient to avoid "retirement" for purposes of the rule, especially if there are no other relationships involved (e.g. family or partnership) to suggest that the employment was not bona fide. Also, it would help if the employees were participating in benefit accrual and other aspects of emplyment perquisites. The idea is not to abuse the rule by improper postponement of taxation. If the plan has terms aobut retirement or the employer has specific policies about retirement (e.g. one can be retired [wahtever else that menas] and still work one day per week) and these employees are considered retired under the policies, then I might be concerned.

It would be a very interesting legal conflict if the participant has a right to roll over a distribution but the rollover would be a prohibited transaction. The participant has a right to roll over the distribution. You can finish the logical progression. But you need to watch any transactions in connection with the distribution, such as sale of shares. BTW, most ESOPs do not provide for in-service distributions except to satisfy diversification requirements.

Not if they are not providing services.

IRC 410(b)(3)©

Try again. A plan is not owned.

The cited case says the the tax code is independent of ERISA and it means what it says. There is no parallel provision in the tax code that says participants are not fiduciaries and even the ERISA section 404 regulations warn that the protections of the regulation do not insulate from consequences under the tax code.

Have you considered prohibited transactions?

Yes. Once the plan transaction (stock purchase) is completed, an independent subsequent personal investment should not cause either transaction to be prohibited. I think it is too much of a stretch to say that the second transaction is self-dealing with respect to plan assets. If one wanted to stretch, the subsequent loan has certain attributes of a disguised contribution, but that is not a PT question.

The (non)fiduciary status of a participant under ERISA does not take care of concerns under the prohibited transaction rules of the tax code. A participant is a fiduciary if the participant controls the investment of a plan asset. That difference does not cause me to reach a different conclusion in every scenario, but I think the package deal is prohibited under section 4975.

The exemption from the trust requirements with respect to "employee contributions" under section 125 is very narrow and most arrangements that I have encountered do not comply with the very narrow exemption even though the arrangers think they do. Department of Labor is not very interested in enforcing its rules, probably for practical reasons, so noncompliant arrangements are the rule. To expand upon the description of a trust if the trust requirments apply (and they probably do), the trust must have identity separate from the employer. It will typically have a separate tax identification number. It will have a trustee who is eligible to be a trustee under state law. That means that the employer usually will not be able to be the trustee unless the employer is an individual.

You wriote: "The Governement is not going to sue the government" is the standard response I am receiving. The standard response is a bit shallow. A government plan is not covered by ERISA so the U.S. Department of Labor is not involved in enforcement of ERISA requirements. However, fidudciary duty is what is owed by fiduciaries to the plan participants, not to the government. Even if no government enforcement agency is going to take action on behalf of participants, participants can still protect their interests. The fiduciary standards will be found in state statutory law and common law. The standards and the consequneces of breach may be a bit more difficult to determine without the nice ERISA package at the doorstep, but it is mistaken to think that there are no standards or consequences.

Good information. Attila the Hun, then. Lots of peaolple have the same middle name as Andy, and it's no secret (which comes from another song).

But you posted your middle name for all to see. You have the same middle name as Smokey the Bear.

Time of benefit payment is protected. The amendment could cause some particpants to be paid involuntarily earlier than the current terms. I used to think the age 70 1/2 rules were statutory requirements, not "benefits" of plan design. We learned that the IRS thinks otherwise some years ago when the rules were changed. The IRS gave some transition rules to provide some practical relief.

Elephant in the room. But most people don't recognize the elephant. If the elephant is pointed out to them, they still don't want to discuss it. If we had real enforcement, even the protoype junkies would be in trouble. But everone is relatively safe as long as everyone is relatively happy.

The tax notice that is given before the distribution election explains the rules, including what happens if the recipient does not give direct rollover instructions and then wants to roll over the entire distribution. The plan should say no more.

No 401(k) unless you can find a grandfathered government plan to tap into. 403(b) for school employees only. Look into a 457(b) plan as the government equivalent of a 401(k) plan.

Withdrawing amounts from an IRA to pay a settlement on behalf of the IRA (or paying a settlement of the owner's liability) and having the IRA pay a settlement are two different matters. Withdrawal from an IRA does not raise prohibited transaction concerns. While I am curious about how the IRA ends up as a defendant, it is possible. And that would be a different question from whether or not an IRA can be reached to satisfy an obligation of the IRA owner.

It will be very difficult to show that amounts paid by the IRA in settlement did not benefit the IRA owner in the owner's personal capacity. If the IRA paid less in the settlement, the owner would probably have to pay more.

A cafeteria plan provides a choice between cash (taxable compensation) and a non-taxable benefit (employer-provided health benefits for employees and tax dependents). The tax mechanism for implementing the choice is to reduce compensation (so-called "pre-tax" payments) in favor of receipt of nontaxable benefits. Health benefits for a non-dependent domestic partner are not non-taxable benefits. ERISA looks at the arrangement differently, but that is not relevant to a tax discussion. One can argue that "cafeteria" plans can provide for after-tax payments for benefits. While that appears to be true, the arrangement is not really a cafetria plan under section 125. It can run in conjunction with a cafeteria plan and can be included in the same document as the "true" cafeteria plan. So one can deliver domestic partner benefits through an arrangment that includes a section 125 cafeteria plan, but is is not really correct to use the section 125 mechanism of salary reduction to do so. Section 125 simply solves the constructive receipt problem of allowing a choice between cash remuneration (taxable) and tax-free remuneration. With respect to a choice between cash remuneration and taxable remuneration, section 125 is not needed because everything is taxable. Section 125 simply is irelevant and does not apply. I have no opinion about what the IRS reaction would be if it confronted a technically improper use when the tax outcome is correct because of the artifice of imputing income. I think the IRS would just ask for better formal compliance prospectively, or not be concerned. I assume that when you impute income, you are also imputing wages for FICA purposes and other employment tax purposes.

I don't think the mechanics using imputed income are consistent with the cafeterial plan rules even if you get to the same tax result.