masteff

Just thinking out loud.... does anyone think this would fall under the ERISA 407 restrictions?

Actually I wasn't clear from your original post if you were looking at a non-cafeteria option due to the cashout issue (seemed implied by the way it was phrased), therefore I was just stating a cafeteria could have forfeiture of unused vacation.

In the original post, the employer in question doesn't want to cashout the unused days. I used the word "can" not "must".

Pre-tax versus after-tax? But then the new proposed regs say "In addition, a plan that only offers the choice of cash or paid time off is not a cafeteria plan and is not subject to the rules of section 125." Unused vacation days can be forfeited (versus being cashed out) in a cafeteria plan.

Does the plan state a minimum contribution percentage? If not, the plan could state that 3% is the minimum. For example, our plan stated 3% to 50%.

Then I stand corrected... added a note to my post above. So that puts me w/ the original poster... aside from putting money in different IRA's to have access to different investment options, any good reasons to set up a 2nd IRA for only nondeductible money?

One would hope that the assets of the Plan included both liquid and illiquid assets. Reg 35.3405-1, Q&A F-3, says if you distribute both cash and non-cash assets, you don't have to sell the non-cash assets if there is sufficient cash to provide for the withholding. And since the IRS has said it's rollover eligible, the best option is to do it as a direct rollover, so mandatory withholding is bypassed.

Just to give this point some extra emphasis... If the Plan is suggesting the 2nd wife is bene, make sure they're aware of 3rd marriage and divorce. That should nullify the designation w/ the 2nd wife on it.

I only have anecdotal evidence (the policy had been in place for years so I never had cause to research it). At my last employer, I went thru a full audit a couple years ago (three 401(k)s w/ $700M assets) and of the hardships they pulled (nearly every one we did that year), they only dinged us on how we did tax gross ups. I know for fact that a couple they looked at were to prevent eviction and had 2 months additional on them. If you wanted to be safer and your plan allows for multiple hardship w/drwls in a year, you could do past due plus 1 month, or even provide only what is expressly required in the lender's delinquency notice to bring the mortgage current. I'd think in audit where they'd start to question is if you did more that 1-2 months, because then it's harder to really claim the need is "immediate" (which is the term used in the regs) (for example, six months certainly isn't immediate). Hopefully someone else knows where it might have been stated that 2 months additional is reasonable.

(Edit: this paragraph is apparently incorrect, see BPicker's post below): I think the idea some people have is that by having the deductible and nondeductible amounts segregated into different accounts, then you can control more precisely what portion of a distribution is taxable (by simply taking it from one account or the other). Since the IRA w/ nondeductible money is only taxable to the extent of earnings allocable to a distribution, then you could potentially have some periods w/ very little taxable income. Of course it depends on how much nondeductible money you really have. And as Belgarath said, it might be worth looking at converting part or all to a Roth.

After reading PPA section 902, only nuiance I'd add is: "In general, the returned amount must not exceed the amounts (plus earnings) that were automatically contributed prior to the effective date of the participant’s election to return such amounts."

Not until they publish guidance. Based on when they've gotten info out about new codes in the past, I wouldn't expect them to be in a rush and therefore wouldn't look for this before they actually issue the 2008 1099-R form and instructions. And if before then, I wouldn't think earlier than late November or December. Personally, I'd put money on them creating a new code.

http://www.irs.gov/pub/irs-pdf/i1099r.pdf They don't make it 100% clear... I'd say you withhold, but only on the portion that represents earnings and then only if it's a rollover eligible distribution. In the above link, see the example in the 2nd column on page R-7. Also note the caution on page R-4 about needing to update your 402(f) notice for distributions from designated Roth accounts despite the IRS having not issued a new model yet. Also see page 21-22 here: http://www.irs.gov/pub/irs-pdf/p15a.pdf

Or to be doubly sure to not create an account that's eartagged... a separate zero-balance account that the debit cards clear from w/ the sweep being from the general asset fund. Segregated accounting w/out segregated funds.

Can you provide a cite to support why ownership of a sucessor company wouldn't count as ownership for MRD rules? Neither the 403(b) regs nor the 401(a)(9) regs qualify 5% ownership. If a company is the plan sponsor and someone has 5% or more ownership of that company, then how is it not ownership for the MRD rules?

My thought was the 403(b) would be frozen for new contributions but wouldn't necessarily be terminated. Very common in mergers and acquisitions to end up w/ frozen plans that will eventually payout benefits even though no new benefits are accruing. So the plan would have frozen vested participants from ABC but no new ones from XYZ. And just looking at the rules applying to ministers, it looks like there's a potential there for someone to be a more than 5% owner.

Do you mean a deemed IRA or an IRA outside the plan? Either way, the answer is no, IRAs are outside of the annual additions limit (and 402(g)). Refer them to IRS Publication 590.

Since Company A and Company P are related companies (you stated above they merged), you did not have a termination of employment when you moved from A to P. Generally your funds are restricted while employed, which is what prevents you from doing a rollover. As to a loan, Plan A has to specifically provide that loans are available. If the plan document doesn't provide for them, then they can't let you take one. If you don't already have one, ask for an SPD for Plan A (Summary Plan Description). Read thru it looking for references to loans. If it refers to them and makes it appear they are available in the plan, then take the SPD to the Benefits Department and politely point them to that section and ask how that applies to you. If you are truly in need of the money, then you might have to consider a hardship withdrawal. Medical expenses in excess of insurance are a standard IRS hardship reason. You would need something from the provider showing the cost of the treatment, the amount covered by insurance, and when treatment began. I realize you'd prefer a loan over a withdrawal, but sometimes circumstances truly override. The Plan A SPD should confirm if hardship withdrawals are available and what reasons are allowed. The other possiblity to consider is to take a letter from your company to the medical provider explaining that your funds are currently unavailable but due to the plan merger in process, you will have $X availlable on approx xx/xx date. If the provider has already started treatment w/ out pre-payment, then they might accept some assurance that money will become available as adequate to continue treatment. Just be sure to confirm you'll actuallly be able to take a loan or withdrawal from Plan P once the plan merger is complete.

Possibly in the case of a non-profit hospital that was bought out by a for-profit entity (such as a doctors' group where the owners were participants in the plan)?

Definitely would not be able to rely on the 404(a) safe harbor procedures established by DOL for automatic rollovers http://www.dol.gov/dol/allcfr/ebsa/Title_2...2550.404a-2.htm (which in turn gives the 404©(3) protection). I think you could still be protected but would be based on facts and circumstances. Certainly following the safe harbor would be a very good place to start. Edit: Actually, on re-reading, due to how the safe harbor is written, if the rollover is $1000 or less, then it would fall into paragraph (d) and therefore be under safe harbor.

Broader picture is the amendment and restatement. Have they put out any SMM's or a new SPD since the change that encompassed any material modifications to the plan? If not, they should be working on them. Hopefully the designated Roth feature was made effective as of Jan 1, 2007, which gives you until late July of next year (the IRS says 210 days after close of plan year in which the material modification was made) to make an SMM. At this point, I'd leave out when it became effective in any employee communications (other than SMMs where you can work it in w/ any other changes) and just focus on "check out this new feature".

Are you suggesting that the plan not issue a 1099-R for the rollover portion of the distribution? See page R-3 here: http://www.irs.gov/pub/irs-pdf/i1099r.pdf "You must report a direct rollover of an eligible rollover distribution." The plan isn't "permitted to", they're absolutely required to! There have to be two 1099-Rs because the MRD is not rollover eligible and therefore must reported under code 7, whereas a rollover is reported under code G. There would only be one 1099-R if and only if the participant did an indirect rollover which would be reported under code 7 and therefore combined w/ the MRD. However this would subject the entire distribution to income tax withholding and would have to be completed w/in 60 days. Because of the mandatory withholding, very few participants ever elect this method to complete a rollover.

Yes on on the first, absolutely required to allow them to continue contributing. 410(a)(2) -- A trust shall not constitute a qualified trust under section 401(a) if the plan of which it is a part excludes from participation (on the basis of age) employees who have attained a specified age. Edit: just figured out the difference between your questions... will get back to you on the later. Edit 2: No on the second, not required depending on what the plan text says. Reg 1.401(a)(9)-2 Q&A-2, part (e) reads "A plan is permitted to provide that the required beginning date for purposes of section 401(a)(9) for all employees is April 1 of the calendar year following the calendar year in which an employee attains age 70½ regardless of whether the employee is a 5-percent owner." If the person is a 5-percent owner, they can't defer past April 1 even if still in employment.

The participant will receive two 1099-Rs. One reflecting the MRD distribution w/ code 7. And one reflecting the direct rollover to the IRA with code G.

What the participant does on their individual tax return is outside of the plan and between the participant and the IRS. It certainly is a defensible position for a taxpayer to take, as evidenced by that PLR you noted where a similar position had a successful outcome.