Lori Friedman

Joel, I agree with your suggestion about pairing 403(b) and 457(b). But, I wouldn't give that advice without the following cautions: 1. 457(b) participation must be limited to "top hat" employees. If the plan covers rank-and-file workers, it'll be subject to ERISA's provisions. 2. It can't be emphasized enough that the 457(b) plan assets will remain the general assets of the organization and fully subject to creditors' claims. The plan assets can't be segregated into a trust (NOTE: a "Rabbi Trust" really isn't a trust). That may be ok for now, while the current executives are running the organization, but what about the future? (These two items apply ONLY to the 457(b) plans of exempt organizations. Government employers have very different rules.)

Joel, I believe that wvtree was asking about withdrawing her account balance, not about stopping her election for salary reduction contributions. wvtree, QDROphile provided a good summary of the terminating events that can trigger a plan distribution. It's probably best not to think of your previous contributions as "your" money. When you began participating in your employer's plan, you made a voluntary election to forego a portion of your compensation in return for 403(b) contributions. In other words, you gave up some of your rights and control over the money to save for your retirement in a tax-favored manner. You also shouldn't criticize yourself for trying to be financially responsible, build up retirement assets, and take advantage of some tax benefits. Nobody has a crystal ball, and you couldn't have foreseen your current situation. I know that my words are no help to you, at all, right now. Your best bet would be to ask your employer if your 403(b) arrangement can provide a hardship distribution. Such distributions are taxable income and, in general, subject to an early withdrawal penalty, but at least you'd have use of the funds. I commend you for all the things that you do to support your children and take care of your family. Single parents face such straggering challenges, every day of their lives, and our society never gives enough recognition or appreciation.

Hasn't anyone ever told you that there are no dumb questions (except, of course, for the ones that I ask)? There's a two-part nondiscrimination test for a Sec. 127 plan: 1. Eligibility test. If the plan isn't available to all employees, it must satisfy the coverage test of Sec. 410(b)(1)(B): the percentage of nonhighly compensated employees benefiting under the plan is at least 70% of the percentage of highly compensated employees who benefit. Sec. 127 "borrows" this test from qualified retirement plan rules. For more information, see Reg. Sec. 1.127-2(e)(1). 2. 5% concentraction test. The plan can't provide more than 5% of its benefits to more-than-5% owners (or their spouses or dependents). See Reg. Sec. 1.127-2(f)(2)(i). Unfortunately, there's no "fix" for a discriminatory plan. If the plan is discriminatory for the plan year, all employees -- not just the highly compensated employees -- are taxed on all benefits received [Reg. Sec. 1.127-1©]. That's when an employer will want to scrutinize paid benefits and see if any amounts can be excluded (job-related education or working condition fringes) under another I.R.C. section. This is a very brief and cursory discussion of some rather complicated law. I hope I've at least given you a place to start.

Yes, a Sec. 501©(3) organization can offer both a 403(b) plan and 401(k) plan simultaneously. There's very little to recommend this arrangement, though, which offers minimal advantages in return for numerous administrative headaches and troubles. The Sec. 402(g) salary reduction limit ($13,000 for 2004) must be coordinated with salary reductions under 401(k). An employee can't reduce his salary by more than 1X the annual 402(g) limit, regardless of the number plans in which he participates. No. An employer can't make contributions to a SIMPLE plan if its employees receive an allocation of contributions (or an increase in accrued benefit) under any other "qualified retirement plan". For this purpose, a "qualified plan" includes a 403(b) arrangement. It sounds as if your start-up organization would like to provide a vehicle for its employees to defer portions of their salaries, but without being on the hook for an employer contribution and significant administrative costs. The simplest and least costly approach is to offer a non-ERISA 403(b) plan. Employees can make voluntary deferral elections, the employer makes zero-zip-nada contributions, and there's nothing to administer -- the organization simply acts as a conduit to withhold the salary reductions and remit them to annuity providers and/or custodial accounts. I know that our 403(b) detractors will take issue with this opinion, but a non-ERISA 403(b) arrangement remains the simplest way for a struggling employer to offer some sort of retirement benefit without incurring prohibitive expenses or plan contributions.

I'm guessing that you're talking about public school employees rather than employees of 501©(3) organizations? It wouldn't serve the best interests of an exempt organization's employee to convert his/her protected assets (annuity contract or custodial account) into the organization's general assets and possibly subject them to the substantial risk of forfeiture requirement.

wade10, You mention your "company", so I'm assuming that you work for a 501©(3) organization and not for a public school system. Here's something for you to consider. Does the severance package satisfy the definition of "bona fide" severance pay? If not, Sec. 457 will step in and tax the payments during the year when the employee ceases to perform services, not in the year when the actual payments are made.

Previously, your employer sponsored a profit sharing plan. Now, you have a profit sharing plan with the addition of a 401(k) provision. Regardless of whether you amend or rewrite your existing plan document, you continue to use the same plan number.

If I'm reading wmyer's question correctly, I believe it concerns the minimum distribution requirements at I.R.C. Sec. 401(a)(9) -- distributions don't have to begin at age 70-1/2 if the participant hasn't terminated employment. Under Reg. Sec. 1.401(a)(9)-2, Q&A 2(e), an individual can delay taking distributions only from the plan sponsored by his/her current employer. Doesn't this same rule also apply to 403(b) plans?

I think that the IRS is mainly concerned about identifying nonexempt prohibited transactions between the plan and disqualified persons (see Schedule G, Part III and Schedule H, Lines 4a & 4d). Each disqualified person is subject to an excise tax.

Bird, it's actually 0% - 25% of compensation under Sec. 414(s). The 15% was for years beginning before 01/01/02.

1. You base your plan contribution on your distributive share of net earnings from self-employment. 2. Your distributive share of partnership income is treated as being received and available on the last day of the partnership's taxable year. 3. Your own plan contribution isn't deductible on the partnership entity level. Don't deduct your contribution on Form 1065, Line 18; this line is for contributions made for the benefit of your firm's actual, Form W-2 employees, not for contributions made on behalf of partners. 4. Report your own plan contribution on Schedule K-1, Line 11, along with an explanatory statement. 5. Deduct your contribution on your individual income tax return -- Form 1040, Line 30.

mbozek, would you give us the authority for your comment? Thank you.

The situation's interesting, don't you think? I mean, I'm trying to remember the last time when I took $190 and threw it in the street because I didn't want or need it.

I don't know if this issue is addressed anywhere in the 100+ pages of the new proposed regulations. Here's the answer as of 11/14/04: 403(b) arrangements that are subject to ERISA are required to file a Form 5500 and provide each participant with an annual SAR. Non-ERISA 403(b) arrangements are exempt from both requirements. Just as an ERISA 403(b) has limited reporting requirements for Form 5500 (Part I and Part II, Lines 1-5 and 8, no schedules), it also prepares a pared-down version of the SAR. You don't fill in the blanks about plan revenue, expenses, assets, or liabilities; these numbers come from Form 5500, Schedule H or I, and a 403(b) plan doesn't report such information. Instead, you simply describe the plan and its annuity contract and/or custodial account funding arrangements. You can find lots of examples of 403(b) plan SARs posted on the internet.

Have you tried No-Tickee-No-Shirtee? Certainly, this individual would be more than willing to go through the "trouble" of cashing a benefits check. Is there any way to make her understand that U.S. federal law might require her to jump through some (rather minor) hoops, but that there's a very real payout for her time and effort? The TPA business can be so challenging, and I don't doubt that you've reached the end of your patience with this situation.

Are you talking about a taxable lump-sum distribution? Here are a few things for you to consider: 1. The U.S.-U.K. tax treaty, signed on 07/24/01 and ratified on 03/31/03, dictates the tax treatment of this sort of distribution. In general, a lump-sum distribution is taxable in the nation of origin (in your situation, the United States). 2. How much federal income tax should be withheld? Look first to the tax treaty, and then to general federal law, for guidance. In general, income tax is withheld at the source of a payment, and the nonresident alien isn't required to file a U.S. tax return. 3. Form W-7 is the application for an IRS individual taxpayer identification number (ITIN). An ITIN is issued to someone who's required to have an i.d. number for tax purposes but who doesn't have, and isn't eligible for, a social security number. The instructions to Form W-7 are rather thorough and helpful.

Last Saturday, I flew to Boston for the day and went to the World Series parade. Does anybody want to hear about how much fun I had? I can honestly say that it was the best day ever of my entire 48-year life. I had a wonderful day with my husband and 3.2 million of our closest friends. After the parade, we had lunch at the hotel where we were married (just hubby and me, not the entire 3.2 million).

A qualified plan's TPA made delinquent deposits of taxes withheld from participant/beneficiary payments. The IRS slapped the plan with a whopping penalty + interest. First, can the plan pay the penalty+interest from its own assets? Or, are the plan fiduciaries responsible for paying the amounts assessed? Second. The plan, and not the fiduciaries, paid the penalty+interest. If this is a no-no, there must be a reportable nonexempt transaction that's subject to an excise tax (plan loaning money to a disqualified person)? The plan booked the penalty/interest as a receivable from the TPA, and the plan trustees intend to sue the TPA to recover the money.

Please help me settle an ongoing disagreement that I have with some of my partners. This isn't a critical issue, but it would be nice to have some other opinions. The Form 5500 instructions say to use a business code that best describes the plan sponsor . This is a certainly a simple decision for any organization that sponsors a single-employer plan for its own employees. Also, the guidelines are clear for a multiple-employer plan: choose a code that best describes the main activity of the participating employers. A multiemployer plan, however, is sponsored by a joint board of trustees. Neither the labor organization nor the contracting employers sponsors the plan. I believe that the appropriate business code is 525100 (Employee benefit funds). Example. There's a collectively-bargained plan for electricians. The multiemployer plan should use code 525100. The employers, who contribute to the fund pursuant to collective-bargaining agreements, use code 238210 (Electrical contractors) for plans that they sponsor for their non-union employees. When the union sponsors a plan for its own staff members, the code is 813930 (Labor unions and similar labor organizations). Obviously, the fate of the free world isn't hinging on the answer to this question. I'm just curious about other people's thoughts.

When a plan and its sponsor have the same year-end, and the sponsor extends its income tax return, the plan's Form 5500 automatically gets the same extension. What about our tax-exempt clients? In your opinion, does the same rule hold true for a Form 990 extension? The rules clearly refer to an income tax return. Over the years, I've used Form 990 extensions to take care of late Form 5500 filings, and I've never suffered any bad consequences. But, I'd love to get a reliable answer; the fact that I've never been caught hardly counts as substantial authority.

Most exempt organizations can sponsor any qualified plan, under the same rules that pertain to for-profit employers. The tricky area is NONqualified plans and deferred compensation arrangements. Exempt organizations are subject to a whole Pandora's Box of restrictions that don't apply to their for-profit counterparts. By the way, your client has an unusual situation. Except for labor organizations, I seldomly work with a tax-exempt organization that sponsors a defined benefit plan. In general, exempt orgs shun DBPs. Contributions are hefty and difficult to budget over the long term, and exempt organizations don't benefit from the resulting tax deductions.

Bob K, For this purpose, do "allocations" include reallocated forfeitures?

I apologize if I jumped down your throat, Chester. I didn't mean to be nasty to you. I have to confess that I'm completely irrational when it comes to the Boston Red Sox (but, I'm sure you've already figured that out!)

Yes, Curt Schilling has tendonitis in his ankle. The condition is nothing new; he spent most of the regular season playing despite it. He aggravated the ankle during his game last week v. Anaheim. There are no curses. Last night, the Red Sox were in what appeared to be an impossible situation. Their starting pitcher was helpless, and Mike Mussina appeared to be flawless (he also got numerous strike calls on pitches that were several inches inside or outside). Instead of collapsing under a score of 8-0, they drove Mussina away, beat up on Gordon, and came within 1 run of tying the game. This morning, did any sportswriter laud the Red Sox for their tenacity and amazing offense? Of course not! They wrote off the entire 7-game series and went on and on about the immortal glory of the Yankees and the inevitable demise of the Red Sox. The NL series begins today. One team will win; one team will lose. Will the losing team be buried alive in tomorrow's sports pages? Nope. (Ok, I've gotten that off my chest and feel much better now )

Does anybody have good instructions about fees reported on Schedule A v. fees that should go on Schedule C? The Form 5500 instructions for both schedules aren't especially helpful.