E as in ERISA

I think I'm convinced...

Does that apply here if you don't have different methods for different classes and the participant isn't switching?

I assume that they use plan year for the computation period and its a calendar year plan? What's the argument in favor of three? Protection of vesting percentage upon amendment? Doesn't that only apply to the percentage at the time of adoption or effective date of the amendment? IRC 411(a)(10)(A) and ERISA 203©(1)(A).

I think that in SunAmerica, the asset allocation would be specific to the actual fund choices in the plan (ABC fund, DEF fund, etc.) as opposed to types of funds (High cap growth vs med cap value). The more specific it is, the more likely to be advice.

Rule of thumb: If recommendations are specific to the individual and their facts, then they tend to be advice. If they are just general rules that may or may not to the specific facts, then they are not.

I'm just saying that what the individual says the amount is and what the IRS says the amount is don't always agree. The individual may say its flow through income, but if the individual has been performing services for the entity then the IRS might say that part of the flow through is actually wages then it would be re-characterized as such. See for example http://www.huddlestontaxconsulting.com/id16.html If it is changed to W-2 wages for employment tax purposes, then it would also become wages for plan purposes. If you have an S-Corp owner whose not working for the business, then its not an issue. But if you have an S-Corp owner who is working for the business, they might be an HCE based on recharacterization of some of the flow through as wages. I.e., if you have a 1% S-Corp owner working full time for the S-Corp in a position worth $150,000, but getting $200,000 flow through and only $25,000 wages (from which the person is deferring $10,000), it is possible that the IRS would say that the person has $150,000 of wages and $75,000 of flow through. I'm just wondering if that is what these authorities are worrying about. Otherwise, I don't see why a 1% S-Corp owner would be an HCE.

Is it just a precautionary measure? S-Corp shareholders who perform services for the organization but don't take compensation are at risk for having a certain amount of their flow through taxed as wages instead (so that it becomes subject to employment taxes, etc.). If that occurs, then they could end up with compensation greater than the compensation limit....

Why? The exception only applies if the conditions are met. In the past, loans in default have shown up on the schedules of non-exempt transactions attached to audit reports and Forms 5500. In the preamble to the 2000 72(p) regulations the IRS notes that the DOL does not believe that a loan qualifies for the ERISA version of the PTE exemption if there is not timely payment or collection efforts with respect to loans in default: “In the view of DOL, it is questionable whether a participant loan program … that does not provide for timely repayment of loans (through payroll withholding or otherwise), regular and effective collection efforts following a default… would qualify for the relief provided under section 408(b)(1).” I haven't particularly seen it enforced before, but its not surprising...

dmb -- I'm always suspect when someone says "similar situation." The other person is probably just saying that there is a ruling in an LLC situation that allows one that it taxed as a partnership to use a W-2 ....but not necessarily the same as here. It could be that they are referring to Notice 99-6 and progeny. In that there is a limited partnership that owns an LLC that is a disregarded entity. There is a question about how to report to a limited partner that works for the LLC. Pending further guidance, the IRS allowed a couple of different methods. One would allow the disregarded entity to do its own employment tax reporting. I think that would essentially allow the LLC to report the limited partner's earnings on a W-2, even though the LLC's income is effectively reported as partnerhip income on the limited partnership's return. The important fact there is that the LLC is a disregarded entity. And the IRS is still figuring out how to work out some of the glitches based on the fact that these are really separate legal entities but they are ignored for tax purposes. So they have temporarily allowed this treatment. I think that Pub 15-A still supports this treatment. Your facts are different. You have an LLC taxed as a partnership. No disregarded entity. I think that you follow the general rule. See the answers to "Who's the Employer" questions 154 and 155 on this web site for a discussion of Notice 99-6: http://benefitslink.com/modperl/qa.cgi?db=...employer&id=154 and http://benefitslink.com/modperl/qa.cgi?db=...employer&id=155 His final recommendation is that when you have incorrect W-2 reporting, you should get the correct self employment income numbers for your retirement plan calculation.

Who's doing the administration?

The argument is that the "five year" rule only applies to the terms of the loan as initially drafted; if there is later a problem with payments, the term of the loan is not an issue. It is only a level amortization rule and the cure period rule applies. 72(p)(2)(B) only says that the loan has to be "repayable" within 5 years -- i.e., that the loan "by its terms is required to be repaid within 5 years." Q&A 4 of the regulations indicates that you have a deemed distribution if that requirement is not met "at the time the loan is made." Q&A 4 says that once payments start, then you apply the rules regarding failure to make payments in Q&A 10. Q&A 10 is not concerned about the amount (72(p)(2)(A)) or the 5 year rule (72(p)(2)(B)). It is only concerned about level amortization (72(p)(2)©). And it considers those rules met as long as the payments are made within the cure period.

If I need good M&A info, I google "Ferenczy" with some words like 401(k) and merger. She has a number of good publications on the issues. See http://www.pgfm.com/content/firmpubs/Ferenczy%209-4.pdf The general rule is now that distributions can be made to the employees who have a severance from employment with the seller and go to work for the buyer. But you still have to look at each transaction. I always worry about what an "asset sale" is nowadays. Today that is often accomplished by making the business into an LLC that is a "disregarded entity" for TAX purposes and selling the LLC. The corporate tax people will call that an "asset sale." However, what actually occurs is a sale of the interest in the LLC. If the LLC is the sponsor of the plan, then I'm concerned that from a LEGAL standpoint the plan will follow the LLC to the buyer. So it would actually be more like a stock sale. You would want to make sure that the sponsorship is with a different entity or that the plan will be terminated prior to the transaction.

No. This is one place where you don't follow the general rule of eligibility equals participation. The person had to have something allocated to their account in order for the box to be checked -- a deferral, employer contribution, forfeiture, etc.

I agree if that you then you are allowed use a cure period to go past maturity. So if you take the position that your payments are "substantially" level for purposes of the level amortization rule and consider that satisfied, then I don't see the need to default for the other.

I'm assuming that a couple of payments were missed mid-stream and then the participant just continued making regular payments without ever making up those payments until the very end? Here's Pam Perdue's discussion of what happens when a participant has one missed payment but then resumes making the other payments. She agrees that may technically be a violation of the level amortization rule at the time of the missed payment (or end of cure, if applicable). The participant's argument is that it is "substantially" level amortization even if one or two payments is missed. See "Is a “Loan” Includible in Income as a Result of a Single Missed Payment?" http://www.pamelaperdue.com/Articles___Out...oan_article.htm

Just noticed this from the 2003 ASPA Q&As at http://www.aspa.org/archivepages/conferenc...st/loans/qa.htm -- 3.1 Can a residence loan be made for home construction or to purchase land? Code Section 72(p) applies the rules of Code Section 163(h) to determine whether a loan is for a residence. Under Code Section 163(h), a loan to purchase land does not qualify. A loan used to pay for home construction may qualify, provided the construction is completed within 24 months and the home is then used as the participant’s principal residence, without an intervening use. See, PLR 8933018.

Its not the five year rule I'm concerned about. I think that the "level amortization" rule requires that if you miss/are late on a couple of payments in a quarter, then you need to be all caught up the following quarter (with the mised/late payments and all the following quarters' payments) or you have a default. I don't think that you can keep rolling the missed payments forward so that you're never more than a quarter behind.

At what "point in time" were the payments missed? Wouldn't the cure period have ended after the calendar quarter following that "point in time"?

It would appear that Bank of America's position is that the estate is the legal owner of those funds once the check has been cut.... I'm assuming that the benefit should have ceased as of the date of death? So the plan is actually the one entitled to have those funds returned. Did you make that point clear to them?

You need to find out how the arrangement is going to be treated for general tax purposes. In many cases (e.g., where there is a dividing of the profits between the joint venturers), the JV will be treated as a separate taxable entity and then have to "check the box" on how it is going to be treated -- partnership, corporation, etc. Once the type of entity is determined for tax purposes, you then generally follow that for all purposes and apply whatever the rules would be for being a 50% partner or 50% shareholder. (But be careful -- it's grey in some areas....) If they are not treated as a separate taxable entity for tax purposes and its just a contractual arrangement, then the contract should specify who is supplying the employees for each part of the deal. Try googling "joint venture" and "check the box" for a discussion of how joint ventures are treated for tax purposes... and then follow the tax classification.

Is this the only situation in which spousal consent was ever requested? Or are you just saying that this is plan is not one that was required to obtain spousal consent, but it is one of their procedures to do so? If it is the latter, then they should apply their procedures on a nondiscriminatory basis.

Actually the IRS answer says "offset" -- which is an actual distribution and reduces the account balance. A deemed distribution doesn't actually reduce the person's account balance. It just essentially makes part of it "after tax" money. It doesn't reduce the balance below the $5,000. While deemed distributions may occur automatically by operation of law, offsets do not. They depend on the plan provisions. The plan would have to provide for the offset to occur prior to the intended cash out date.

Every time I see this topic pop back up I feel like I should be considering changing my "handle" to something more interesting....

Since no one else is answering, I'll take a stab and say that I would assume that the answer to that would be "no." I haven't looked at anything. But I don't recall having seen anything along those lines when I've looked at the issue before. And the reason that I would guess "no" is the fact that in acquisitions or dispositions you often have existing employees who are covered under existing plans and have existing benefits. And the unraveling of those arrangements can often take some time. For example, you might often have a blackout when you are going to merge a target's plan in or spin out a plan. It's often much easier to add new employees into an existing plan -- when you don't have to worry about any old plans and benefits. And acquisitions and dispositions can also often be complicated by lots of secrecy from a corporate standpoint that prevents HR from knowing about a transaction until the last minute.

TPAs are getting them more often now, because they're doing more than just reporting on transactions effected by others -- they are often performing functions that are part of the transaction (calculations, voice response, etc.) If you had 50 or 100 or more clients that were audited, then you might want the SAS 70 in order to avoid having each of the plan's auditors come in and inspect your internal controls. But in your case it sounds like it might be less intrusive, less costly to let the 2 auditors come in and inspect your internal controls. Unless you want to market upstream and get larger plans too.