Peter Gulia

The fillable .pdf form on the IRS website allows typing dates in the first line. In the clean-up situation that you describe, I'd use 2009 forms for the old years' returns.

I’d be reluctant to advise a client to omit any year’s return based on a statute-of-limitations presumption. For the plan’s trust, it’s the act of filing a Form 5500 (including Schedule P for those years that called for it) that starts the running of the statute of limitations. Neither a three-year nor a six-year limitations period applies if the trustee hasn’t filed a return. IRC § 6501©(3). [With the right facts and circumstances, it’s possible for a trustee’s Form 5500 that omitted a Schedule P to start running a limitations period. See Martin Fireproofing Profit Sharing Plan and Trust v. Commissioner, 92 T.C. 1173 (1989). But I don’t know how one does it without any return at all.] A client might consider omitting a year’s Form 5500 if she knows, or in good faith estimates, that plan assets were less than $250,000 or $100,000 at the relevant time. But despite that reporting relief, many plan trustees feel more comfortable filing a return to trigger the running of limitations periods. Once a trustee (with the work of her trusty CPA) is reconstructing enough of the plan’s and trust’s records to file Form 5500 for some of the years, it’s not too much more work to pull together returns for all years. Moreover, looking at the year-to-year internal consistency of the whole timeline can be a practical way to spot errors or illogical estimates. If the records are incomplete, I’d focus more energy on making the contribution numbers consistent with those shown in the business and individual tax returns. Along with this, I’ve seen returns in which the beginning and ending balances were disclosed as estimates, and the year’s investment gain or loss likewise was disclosed as an estimate interpolated as a subtraction of the contributions and the estimated beginning balance from the estimated ending balance.

Understand the reasons for a service provider to get rid of the beneficiary designations. My further thinking-out-loud is about whether a service provider should or shouldn't present a particular suggestion on how the plan administrator keeps the records. For the plan administrator that must keep the beneficiary designations, might there be a better filing system than putting the beneficiary designations mixed in with employer records that aren't the retirement plan's records and are likely to have different retention times? Is this at least a question that the plan administrator must or should evaluate? A service provider that isn't a plan fiduciary usually doesn't have a duty to give uncompensated advice to the plan administrator. But could a send-'em-back letter suggest that the plan administrator ask for its employee-benefits lawyer's advice about how to keep plan records? Would such a suggestion, even if ignored, be a stronger defense for a service provider than a volunteered too-specific suggestion? Or is there a business problem that a service provider's client will be offended by a suggestion that it might need or want advice about how to keep plan records?

Bill Presson's and austin3515's ideas that a service provider might prefer not to have possession of records (and get rid of any that are unwelcome) make sense (at least for a business that chooses not to provide a service of checking the internal consistency of the beneficiary designations). Should we be concerned that putting a retirement plan beneficiary designation in the participant/employee's personnel file (if someone doesn't render more guidance) might result in mistakenly destroying the record sooner than ERISA permits, and possibly sooner than the record could be needed to decide a claim to a death benefit? Many employers destroy a personnel file about four years after the former employee's employment ended. Because a retirement plan might not require a beneficiary to take a death benefit until five years after the participant's death, could a beneficiary designation that's amid a whole personnel file get scrapped before the retirement plan's administrator needs to look at that record?

Without remarking on which is a good or bad practice, my experience is that some small TPAs do check beneficiary designations, and big recordkeepers don't. Along with Ted Triska's query, some of us might be interested in a related question: assuming that a service isn't free and might be paid for from the plan's (rather than the employer's) assets, is it a smart use of plan assets to check beneficiary designations? Why or why not?

The link is to the public version of unannotated Pennsylvania Statutes that West Publishing provides for free under its contract with the Commonwealth. But some computers and Internet browsers block it as a potential security threat unless you revise your security settings to allow cookies and treat Westlaw sites as trusted. If that's inconvenient or ineffective, the attached .doc files are downloads from that site. The annotated Lexis or Westlaw editions don't provide much more. 72_PS_4521_1.doc 72_PS_4521_2.doc 72_PS_4521_3.doc 72_PS_4521_4.doc

An S corporation maintains a defined-benefit pension plan for its only employee, who also is the corporation’s only shareholder. The plan provides a pension that’s designed to meet exactly the IRC § 415(b) limit. This business owner has flexibility in setting her salary: for example, she might pay herself as little as $50,000 or as much as $150,000. (For this inquiry, assume that she could defend anything in that range as no less than, and no more than, reasonable compensation for the owner’s leadership of the business.) If feasible, this hypothetical client would prefer to get an actuary’s work only once for a year, and before she decides how much salary she wants to pay herself for the year. Moreover, deciding how much income to devote to pension funding rather than other investments is a part of the business owner’s financial planning. Assuming that all other amounts and facts are constant and the only variable is the participant’s salary, could it really be as simple as saying that the amount needed to fund the current year’s accrual of the pension varies proportionately with the salary? Would this funding amount needed on a salary of $100,000 be simply double the funding amount needed on a salary of $50,000? My small brain worries that the idea that funding falls in a line following the salary is too facile. But I’m hoping that the BenefitsLink mavens can show me why it isn’t that simple.

Matt, at least one of Kathy Moran's questions concerns whether the township has power to pay a contribution beyond those elected as a salary reduction. It's a serious question because a State's law might not empower a municipality to provide a matching or nonelective contribution. A political subdivision has only as much power as the State granted. (In more than a quarter-century of working with governmental deferred compensation plans, I've seen many that were void.) Although in an ideal world a municipality would check State and local law before doing a new act, it's not unheard of for a municipal official to neglect asking for a lawyer's advice.

Concening a Pennsylvania political subdivision's power to provide deferred compensation, the relevant statute is at 72 P.S. § 4521.1 to -.4. For a free version, http://weblinks.westlaw.com/result/default...TC&vr=2%2E0. The township should want the advice of its regular and expert lawyers about possible constructions and interpretations of the statute. Remember that a political subdivision's act that exceeds the power that the State granted to the political subdivision is void. Please feel free to call me if you're interested in my views.

A township of which State? State laws vary widely concerning whether a contribution beyond elective salary-reduction deferrals is permitted or precluded. Did your client explain anything about why it wants a matching contribution to a retirement plan to relate to a contribution to a plan that, at least in form, states its purpose as higher education?

The most straightforward way is to work from the proposed rules [in the Federal Register of August 6, 2007]. The proposed rules include a subparagraph captioned "Written plan requirements" [page 43947] that states ten requirements. The proposed rules use the word "optional" to refer to plan provisions that are permitted but not required.

Has the plan's administrator asked the employer whether the name, TIN, and other identifying information presented for the potential distribution is consistent with the information presented for Form I-9 and on Form W-2 for the years that contributions were made? Also, consider that a database might report one or more addresses with little or no background information on who reported the address or how it was associated with a name or TIN. Likewise, the IRS and other government agencies receive submissions in which a filer reported an address other than the subject's correct address (or a name other than the subject's name).

Thanks for the kind words. It's also wise to remind the business owner to get his or her lawyer's advice about possible disadvantages of a one-participant plan, including that it might not be ERISA-governed and so might result in less protection against creditors. If that protection, or some other value from ERISA governance or preemption, is of value to the business owner, he or she might design the second plan so that it includes one trusted employee beyond the owner (and owner's spouse).

(A defined-benefit pension plan's tax-qualified treatment is subject to an IRC 401(a)(26) minimum-participation condition.) JPIngold, is your client's plan an individual-account plan? Is it feasible to divide it into two or more plans?

Consider creating two plans: one plan under which the business owner is the only participant, and another plan for other employees. You'd test the plans together for coverage, non-discrimination, top-heavy, and other purposes. Is there any other reason why an employer couldn't maintain more than one retirement plan?

Matt, your elegant solution of the equation reminds us that we've come almost full circle from how many employee benefits grew: as a loophole against World War II wage controls, to help meet collective-bargaining needs, and following tax treatment. Your solution ought to work (and sometimes can if the employer and employees have enough intelligence and maturity). But in the workaday world it often doesn't fly because people have been conditioned to think in terms of health, pension, and fringe benefits rather than cash wages, and few understand well enough that benefits is a form of compensation. Moreover, collective bargaining often is designed to obscure the terms negotiated, and bears agency effects.

Leaving aside concerns about whether a choice between health coverage and a retirement contribution results in tax consequences, a first question is whether it is possible for the public-schools employer to make the contribution described. A local government instrumentality has only the power that State law grants. Under typical State law, a public-schools employer might have power to pay over salary-reduction elective deferrals, and often does not have power to pay any other contribution. A starting point is to read the statutes that might empower a 403(b) or 457(b) contribution.

You're right; I'm hoping that my client (the taxpayer's representative) is right, but seeking to find out whether the IRS has an argument that she hasn't thought of.

Even if none of the IRC 72(u)(3) exceptions applies, IRC 72(u)(1) applies only if an annuity contract is held by a non-natural person. A fact missing from my beginning description is that the employer isn't a corporation or any kind of business organization, but rather a natural person who operates her business as a sole proprietorship. So not only are all participants and annuitants natural persons but also the holder of the group annuity contract is a natural person. Based on this, the taxpayer's representative might argue that an estimate of what taxes would result from a disqualified plan includes undoing deductions for contributions, but doesn't include assuming that the plan's trust (which doesn't exist) would be taxed as a complex trust and bear tax on the trust's realized capital gains and dividends. Instead, the income on the annuity contract would be taxed under IRC 72 rules as a participant gets payment.

Just to be clear: the taxpayer's representative would show taxes on not having a deduction for contributions to the plan, and would treat only the build-up in the annuity contract as not yet income under IRC 72.

A practitioner is negotiating the closing of an IRS audit. The IRS describes the settlement range as based on the taxes that could be imposed if the plan is treated as not qualified. The IRS requests that the taxpayer's representative submit a worksheet showing those taxes. Because the plan's only investment is rights under a group annuity contract, the representative intends to show the plan's investment income as zero for every year, taking the position that the annuity contract still gets the tax treatment of an annuity contract. In your experience, do IRS people commonly accept or question such a position (in the context of Audit CAP)?

To interpret the significant-detriment interpretation, the Treasury department stated its view that a plan may charge the accounts of former employees (even while not charging current employees) as long as the expense otherwise is proper and a severed participant’s account bears no more than its “fair share” of the plan’s expense. To illustrate the “fair-share” idea, the Treasury department’s ruling expressly cautions that former employees’ accounts must not subsidize current employees’ accounts: “[A]llocating the expenses of active employees pro rata to all accounts, including the accounts of both active and former employees, while allocating the expenses of former employees only to their accounts” would be an improper allocation. Also, the reasoning of the ruling suggests some possibility that an expense allocation that’s more than the “analogous fee[] [that] would be imposed in the marketplace … for a comparable investment outside the plan” might be a precluded “significant detriment”. Working within these rules, an employer might absorb the portion of recordkeeping expenses that's attributable to participants who are current employees, while letting the plan charge a proper portion of expenses to the accounts of severed participants. irb04_07.pdf

A class exemption allows, under some conditions, a retirement plan that covers employees of an open-end SEC-registered investment company (and employees of that company's investment adviser) to buy and sell shares of that company. 42 Federal Register 18734-18735 PTCE 77-3 (April 8, 1977). The kind of entity that practitioners call a "hedge fund" usually lacks at least one of the conditions needed to meet that "mutual fund" exemption. There can be ways for a retirement plan to invest in hedge fund interests. But in the absence of a class exemption, it calls for a lawyer with experience in unraveling prohibited transactions.

If your service contract with the plan expired or became terminated and your business is not the plan's administrator, trustee, or other fiduciary, what (if anything) provides you any authority or imposes a duty or obligation?

Sieve, thank you for helping me think about this. (By the way, the terminator administrator's idea that I described isn't my idea, and doesn't reflect my advice.) Your thought about the interests of a receiving plan that might accept a contribution in reliance on a participant's incorrect statement that the paying plan is a qualified plan is especially helpful.