Bird

I don't think that's true. The first death RMD is due by that date. The designated bene(s) is determined on Sept 30, 2007. If the benes want to each use their own life expectancies, then separate accounts must be established by 12/31/07. A separate account, if established, can be transferred to another IRA, which I've heard called a "beneficiary payout" IRA and I assume that's what you are calling an "Inherited IRA." But there's no requirement to transfer anything anywhere, just a requirement to start taking money out of the decedent's IRA. A lifetime distribution (the last one) must be taken by 12/31/06. If the decedent hadn't already taken it by the date of death, it would still be calc'd as a lifetime distribution but paid to the bene(s). As noted above, post-death RMDs must be taken starting in 2007. See above. A distribution is required in the year of death, payable to benes if not already taken. I have been assuming that the decedent owned an IRA and this is not a pension distribution. PPA didn't change anything about this situation, just allowed a non-spouse bene to roll from a plan to an inherited IRA. Siblings can annuitize over their own life expectancies if separate accounts are established before 12/31/07, otherwise the oldest life expectancy is used.

You're probably allocating to excess comp first, and since the contribution is relatively small (1.6% of total comp) there's nothing left for base comp. The rate of allocation on excess comp can't exceed 2x the base rate, but plan language and/or top-heavy status may dictate that all employees get the same rate.

Sure. I'm not sure what other choice the custodian could have. To the beneficiary.

biffgrady: I think you're on the right track. I do think that if the plan really does permit systematic distributions, and one is taken in 2006, another would have to be taken in 2007 before the rollover, and then the first systematic distribution from the IRA would occur in 2008. txdd: If the plan rules prohibit systematic distributions, i.e. forcing a lump sum within 5 years, then there really isn't a 2006 RMD to forego, is there?

The plan beneficiary, whether it is named on a form or by default in the document, is in fact the beneficiary; it doesn't matter what the will says. As noted, the parents could disclaim, but that's a different matter. The time frame is determined under the plan's RMD rules - either minimum distributions must start by the end of the year following death, or the account must be fully distributed within 5 years; the plan may give those options or force one on the bene.

First thing I would do is make sure the statement that only lump sums are permitted is accurate. The plan might say that but there might be an RMD amendment that says distributions using life expectancy are permitted. I'm not sure about your description of the mom as "owner" of a qualified plan. If she was just a participant, then skip this next comment, but if she was the owner of the business, then someone, perhaps the daughter, should have the power to change the plan to permit distributions over life expectancy if it's determined that the plan really doesn't permit them. All that being said, if you are stuck with the lump sum, we don't know if the daughter could defer payment of a lump sum to 2007, and then do the rollover to an inherited IRA and take lifetime distributions from it. I have to think not, because that is effectively changing from the 5 year rule to a longer payout (although something tells me you can do that under present law, with an IRA, if you take out an extra amount for the first year that was skipped). The bottom line is that we're awaiting guidance and don't know when it's forthcoming. But in your case, if you can't do a minimum distribution using the life expectancy method in 2006, then I'd certainly defer the lump sum to 2007 or later and hope to figure out some way to do an IRA rollover with systematic payouts coming from the IRA. I don't think there are any advantages to taking a lump sum in 2006.

The plan should have a list of permitted investments; I doubt that a policy not on the life of a participant or a key man is listed, but there may be a catch-all provision that would allow it. Any future premiums should be paid by the plan. I don't think the purchase of an investment from his sister is a PT but I'd check that more closely. I'd be curious to know why the sister thinks it is better to sell the policy to the plan, presumably for its cash value or something close to it, as opposed to just surrendering it (and getting the cash value). I don't get the "not liquid" comment (but I can guess that there's a big difference between the accumulation account and the cash surrender value, and if the plan is considering paying the accumulation account it's getting ripped off - the transaction should be for fair market value and FMV is going to be a lot closer to the cash value than to the accumulation account). FWIW, if the ex dies while the plan holds the policy, the proceeds will go into the plan. Eventually they'll be paid out to the participant as taxable income, so one of the advantages of life insurance, tax-free death benefits, will be lost. At least, I don't think the normal rule that the at-risk portion is tax free applies.

Understood and agreed. I absolutely agree that it would be more informative and will continue to provide annual statements with vesting information where we have done that before. But we have to balance that against the costs of providing that information, and the possibility of confusing participants (I guarantee that at least one person who gets a quarterly statement from an investment provider, and a (new) annual statement prepared by us, will think they have twice as much money as they actually do). So for certain plans that get quarterly statements already, but without vesting info, we will likely be providing some bland, generic statement that has a lot of information that's already in the SPD, knowing that noone will understand or even read it.

The second option, giving participants enough info to do their own calcs, doesn't say anything about an "update," so I think that option at least is safe. But I have to say that I think you're reading it way too literally. Assuming you do a 12/31/06 statement, I think it's adequate to "update" that one. ____________________ © ALTERNATIVE NOTICE.—The requirements of subparagraph (A)(i)(II) are met if, at least annually and in accordance with requirements of the Secretary, the plan— (i) updates the information described in such paragraph which is provided in the pension benefit statement, or (ii) provides in a separate statement such information as is necessary to enable a participant or beneficiary to determine their nonforfeitable vested benefits. ____________________ I don't think we know the answer as to what this means for brokerage statements.

Yeah but why does the plan call for p/r deposits at all if they're going to true up anyway? It might be company practice to make p/r deposits but it doesn't make sense to me that the plan should be saying anything about p/r deposits unless you're NOT going to true up. Unless I'm missing something which is always a possibility.

I agree with QDROphile. But I question the assertion that the "Plan calls for employer match to be deposited on a per payroll basis with year-end true-up." I find it odd that the plan would require per-payroll matches AND require true-ups. Maybe it doesn't matter but it doesn't make much sense to me, which makes me think that there's some confusion about what the plan really says.

I think the vesting notice could be done at the end of the year. But there are other things that have to be on or with the quarterly statements, at least as I understand it: an explanation of any limitations or restrictions on any right of the participant or beneficiary under the plan to direct an investment, an explanation, written in a manner calculated to be understood by the average plan participant, of the importance, for the long-term retirement security of participants and beneficiaries, of a well-balanced and diversified investment portfolio, including a statement of the risk that holding more than 20 percent of a portfolio in the security of one entity (such as employer securities) may not be adequately diversified, and a notice directing the participant or beneficiary to the Internet website of the Department of Labor for sources of information on individual investing and diversification.

Depends on your document. If the safe harbor provisions are hard-wired, then it's probably easiest to insert "Effective 1/1/2007" at the beginning of the SH section (if it's a prototype then you hope that there's an option to do that). Of course it's too late for a new SH for 2006 anyway, so maybe the doc has something built in that prevents it from being effective anyway.

The time frame is that the first beneficiary RMD must be taken by 12/31 of the year following the year of death, the second by the next 12/31, etc.

RMDs are based on the greater of the bene's life expectancy, or the participant's life expectancy in the year of death. These are adjusted by subtracting 1 each year. First RMD is due by 12/31 of the year following death. But...plan provisions may require a lump sum, so you have to read the document. 1.401(a)(9)-5 (DC plans): ________________________________________________________________________________ __ Q-5. Pension For required minimum distributions after an employee's death, what is the applicable distribution period? A-5. (a) Death on or after the employee's required beginning date. If an employee dies after distribution has begun as determined under A-6 of §1.401(a)(9)-2 (generally on or after the employee's required beginning date), in order to satisfy section 401(a)(9)(B)(i), the applicable distribution period for distribution calendar years after the distribution calendar year containing the employee's date of death is either— (1) If the employee has a designated beneficiary as of the date determined under A-4 of §1.401(a)(9)-4, the longer of— (i) The remaining life expectancy of the employee's designated beneficiary determined in accordance with paragraph ©(1) or (2) of this A-5; and (ii) The remaining life expectancy of the employee determined in accordance with paragraph ©(3) of this A-5; or (2) If the employee does not have a designated beneficiary as of the date determined under A-4 of §1.401(a)(9)-4, the remaining life expectancy of the employee determined in accordance with paragraph ©(3) of this A-5.

They are 2006 allocations.

I agree with pax - read the document and follow it. From what you've described, it doesn't sound like the participant is entitled to another (less than full) distribution this year.

A merger is a continuation of both (or all) prior plans, but as one resulting plan. Theoretically, if a FDL is requested upon termination after a merger, the IRS is ruling on all of the plans that led to the final plan. I see no advantage to terminating vs. merging...well, I guess if there are different distribution options (annuity options in the MP vs. maybe not in the others), and given the general bumbling that I sense, it might actually be easier to process all of the plans separately (i.e. as terminations). I don't know whose fault it is, but is sounds like the employer has made some bad decisions, or non-decisions, that have led to (probably) superfluous fees. I'm (still) having a hard time understanding the obsession with keeping the MP and PS plans as is and am wondering why someone hasn't slapped him/them upside the head and asked "what exactly do you want to do here" so he/they could be advised properly.

...but I guess I didn't really answer the question. A merger is generally, in my experience anyway, less expensive than a merger. And in a termination, the participants will be taking distributions; in a merger, the money is just transferred to the other plan. I'd be inclined to think a merger is sensible in this situation.

So they have three plans when one could have served the purpose for the last 4 years or so. I think I'd be more inclined to merge the others into the 401(k); you at least give the employees the option of making deferral contributions if they want. Of course, maybe nobody cares. But if the business is likely to wrap up within a year or so, maybe they should think about terminating all of the plans.

Merging into/with what?

You've always been able to transfer a decedent's IRA to another IRA, Investment companies might call it a "beneficiary payout account" or something like that, but the bene is effectively rolling over the decedent's money. That what you can now (well, next year) do from a qualified plan that you couldn't before.

I pretty much agree with John G's conclusion that there are a lot of negatives that generally outweigh the positives. It's also important to distinguish between an immediate annuity and a deferred annuity. The immediate annuity is where you give an insurance company a lump sum and they promise you a monthly income for life. I think that's what you're referring to. Generally, I'm not a fan, but sometimes they might be appropriate to provide a guaranteed base income. The younger you are, though, the less likely this is to make sense since the difference between the pure income that could be generated outside an annuity versus the annuity payout is going to be less at younger starting ages. One of the big negatives is that if inflation increases, you're stuck with the same payout (yes, you can buy a variable immediate annuity that at least has the potential to increase the payout but the fees tend to eat away at any of the potential advantages). A deferred annuity is where you give the insurance company a lump sum and they will invest it for you, with no immediate payout; there might be a guaranteed or fixed rate, or you might be able to invest in mutual funds. I think these are very seldom the best choice, primarily because of the fees typically associated with them. But they are usually "appropriate" (i.e. acceptable, even if not the best option) and they are sold pretty heavily because it's a fairly easy sell and they pay a nice commission.

I think it's too late.

Rev Proc 2005-66 says you have until the last day of the plan year to adopt a discretionary amendment; the due date for filing the tax return for a required amendment...well, it's probably not that simple but I think that's what's relevant here. The 401(k) regs are effective for plan years beginning after 12/31/05. I think the reasoning is that you have choices when implementing at least some of the 401(k) rules, so for a calendar year plan the deadline is 12/31/06*. *edited from 12/31/05; thanks to PIP for noting this in a subsequent post