E as in ERISA

See pages 10 and 34 on how the proposed 415 regulations would treat severance for 403(b) deferral purposes. http://benefitslink.com/taxregs/13024104.pdf

Call your local prosecutor and ask him what crimes are committed when someone who has access to an account, but not legal authority to take money without direction, takes money from the account. Based on the size of the distribution probably some type of felony. Then try and discuss the IRC requirements (following plan terms), discrimination issues (if participant is HCE and getting preferential timing of distribution), etc. that cause qualification issues. Then discuss fiduciary issues -- he probably makes himself a fiduciary by acting as a fiduciary -- and is subject to DOL fiduciary breach for making an unauthorized distribution. If he doesn't listen to those, then tell him about the felony. Then fire him.

Is the employer incorporated? If not, then they probably don't have a board of directors....

Well, now that I think about this, what's going to happen when Roth 401(k)s become effective? If someone currently have a 10% deferral election....If the person wants Roth, will they have to fill out a new form that says what percentage they want in Roth and what percent pretax? Or will the form allow them to simply say how much they want in Roth -- and will there be an assumption that is in lieu of a portion of their current pretax...or in addition to current pretax? If they want all to go to Roth, can they fill out a form that simply says all deferrals will now be Roth? If so, can that be applied to those in automatic enrollment? It would not have to be either redundant or retroactive in that case. A form could be filled out in December 2005 and effective in January 2006. I wouldn't think that would be a good idea from an employer's standpoint to let an automatic enrollee get away with specifying only the type and not percentage or investments -- unless legislation passes to give protection. But what are the forms going to look like in general?

That would be consistent with how the IRS defines an eligible postsecondary institution in a lot of other contexts. See Pub 970 at http://www.irs.gov/pub/irs-pdf/p970.pdf.

I'm not aware of anything that would currently prevent that. And if the IRS ever came after them, they could probably use an insanity plea. (Unless legislation passes this year that would clear up some of the issues relating to state preemption, fiduciary liability for default investments, etc. then I don't know why else an employer would let someone check the Roth versus pretax boxes on an election form and ignore the deferral percentage and investment elections. I'd require it to be all or nothing).

I don't think that it's a controlled group. Are they C Corps? Can you confirm that they aren't filing a consolidated return or sharing tax attributes from a corporate filing standpoint? That should provide some assurance -- since the plan rules piggyback off the corporate rules. Another way to think about it is to ask whether the same people have so much control over BOTH companies (80% similarity) that the IRS will generally require them to make the same benefit decisions for both. In this case, the unrelated 41% owners of Y should have enough power to raise a fuss about the benefit programs for Y and make it hard for X to to implement the exact same benefit programs. So the IRS won't require them to test the benefits together.

Under that theory, you'd do an automatic rollover of any balances in a terminated plan that are over $1,000 and don't respond with a distribution form within a prescribed time period (not only the $4,000 accounts but also the $100,000 and $200,000, etc.). I think the IRS is considering guidance. I hope that they completely exclude terminated plans. In my view, those are not subject to 401(a)(31)(B). The "UNDER $5,000 cashout" is only one of several exceptions to the consent rules. "UNDER $5,000 cash outs" are excepted from consent rules because they never even fit into the terms of 411(a)(11) -- which applies to "OVER $5,000" distributions. And that is also confirmed under Reg. 1.411(a)-11©(3). Plan termination distributions generally DO fit under 411(a)(11) consent requirements. They have a completely separate exception under 1.411(a)-11(e) -- which generally requires consent -- unless the special rules are met. So I think that the language in 401(a)(31)(B)(ii) is a reference purely to "UNDER $5,000 cashout" distributions in 1.411(a)-11©(3) and not to termination distributions in 1.411(a)-11(e). I think that the description in 401(a)(31)(B)(ii) of the transactions to it applies makes it clear that auto rollovers don't apply to anything but distributions under a plan's "UNDER $5,000 cashout" provisions. The way I read it, it says it applies to a distribution being made pursuant to provision that says any benefit with a PV that does not exceed $5,000 will be distributed. Isn't that a reference back to a "UNDER $5,000 cashout" distribution described in 1.411(a)-11©(3)? I don't see how that is a reference to any of the exceptions to the "OVER $5,000" rule -- under the other subsections of 1.411(a)-11 -- for death benefits, QDROs, RMDs, ESOP dividends, plan terminations, etc. The only issue is that in some cases, you have a distribution that can be made under either the plan's cashout provision or the termination provision. If that is an issue, you could get rid of the cashout provision. Then I dont' think there would any question of the application of 401(a)(31)(B). Or if you have separate processes for cashouts and plan terminations, just make sure you're not applying the former.

I don't think that is what the IRS would expect. This isn't a normal "contribution" -- it won't be allocated according to the plan's formula. Corrections are normally a restoration of a past contribution that should potentially have been made. Would the plan document even allow that? It doesn't say forfeiture of match will be used for matches, forfeiture of profit sharing will be used for profit sharing?

Painpa -- You might want to consult someone in more detail, as opposed to using this message board for an answer. Some of your conclusions don't sync with the facts that you are describing. You say that "A was purchased by...B" (and the title says it's a "stock purchase") but then you say "A is totally out of the picture." Those don't match up. But from the other facts you're providing, it sounds like it's just the former owners of A (who were also employees) who are now out of the picture? But A is still a legal subsidiary of B? So the answers you're getting would then be true?

It should vest over the remaining schedule -- one year.

I'm just making you aware that this does happen. And during the "negotiation" process with the IRS, the client may have to decide how cooperative they do or don't want to be on requests that seem overreaching. I think that there was one time when a client agreed to do five years of HCE corrective distributions instead of doing three years of QNECs in order to correct an ADP test that turned out to be failed (because a large segment of the population had not been counted in the test). I was not involved in that but did see that it had happened...and that was the client's explanation.

I believe this is how it works: Tax year ends 12/31/00. Return filed 9/15/01. 3-year statute of limitations starts running. On 7/16/04, the IRS comes in and starts auditing. They find a few things that would allow them to disqualify the plan or assess taxes and penalties. They say that you have two choices. You can sign an extension of the statute (whoever signed the Sch P does that) and they will continue to negotiate with you and enter into a closing agreement with less drastic results. If you don't sign, then they will just apply worst case scenario and you can appeal it up the line. So an extension gets signed and maybe another and another. In the meantime, they're looking at records further back than 2000, because those are relevant for 2000 tax year and beyond. For example, they might need PY NHCE ADP or HCE determinations, etc. So in 2005 or 2006, they have records going back to 1999 or before. For most plans, they probably get past the three years without the audit beginning. So then those years close. But it works the same way on the corporate side. And most large corporations have auditors in every year. They even have their own offices. They always have several years open. So if there is an issue, it may be more likely that the corporation has "open years." (Although it's not necessarily an expert looking at all the plan details, so the issues wouldn't be as significant).

Can you try fitting it into (a) instead of © -- and say because it's taxed each year as accrued then it's not deferred? I thought that there was somewhere they made that clearer, but I don't see it now.

http://benefitslink.com/boards/index.php?s...t=0entry72472

401(a)(31)© existed before EGTRRA (it was labeled (B) until the mandatory rollover rules appeared). At that time, it just said that the direct rollover rules did not apply to after tax money. It did not include the exception for that rolled to a qualified plan or IRA. But when they changed to eligible rollover rules to include aftertax money, then they created that rather large exception....which makes the general rule almost void for many plans.

I would have summarized it differently with the potentially opposite result : 401(A)(31)© says the eligible rollover rules do not apply to after-tax distributions, unless (i) to a DEFINED CONTRIBUTION plan that agrees to account for them separately OR (ii) TO AN IRA (with no requirement to separate). In other words, direct rollover and automatic rollover rules apply if the plan can accept after tax money. So doesn't that mean after tax is automatically rolled over?

My understanding is that if you want daily valuation of investments, then you generally want a 401(k) vendor even though you might have issues with some NQ plan distribution issues (the systems aren't set up to track lots of different distribution options).

I thought only the qualified plan has to separately account for it, not the IRA. See 401(a)(31)©(i) compared to (ii). Since the auto rollovers are only going to IRAs, I didn't see that as the issue.

Check out 401(a)(31)©, which previously said that the (A) direct rollover rules only applied to eligible rollover distributions that would be included in income. It is now applicable to (B) automatic rollovers. But was amended to say that the rule does not apply if the money is going to a qualified plan or IRA. (Since some after tax can now be rolled over to a qualified plan or IRA, the exception doesn't appear to apply). But what about Roth 401(k)? Will two IRAs need to be set up?

It seems like it would work same way that some cell phone reimbursement program operate for professionals and sales people who need to be available to clients all day long. The employer might specify a monthly ceiling -- e.g., $50. Then the employees turn in the business part of their monthly bill. If they spend less, they get the lesser amount. If they spend more, then they still only get $75. It allows the employer to budget expenses and provides the employees more flexibility in what service and plan they want to choose.

Depends on whether its an accountable (substantiated) or nonaccountable (unsubstantiated) reimbursement. If you meet the accountable plan rules, you can do it through a restructuring of the compensation arrangement -- at raise time or something -- so its not as noticeable. You would provide the "tool allowance" in place of dollars of compensation. If the employees account for the expenditures, the employer might be able to save FICA taxes on that portion of the compensation (its deducted by them as tools, not compensation). And the employees could save income and FICA taxes. Many may not be legal: http://www.irs.gov/businesses/article/0%2C...97388%2C00.html

You don't mean the new cumulative list that the IRS will be publishing every year? http://www.irs.gov/pub/irs-drop/n-04-84.pdf

On an employer stock transaction, each element potentially needs to have a reason for a PT exemption. The more complex you make the transaction, the more likely it won't pass muster so buying stock back all at once and doing it with a note may make create more issues.

There was previously a lookback requirement, but the 2000 411(a)(11) and 417 regulations eliminated it. All eligible rollover distributions require a 402(f) notice (with 30 to 90 day requirements).