J Simmons

See Sieve's excellent post here about to what extent this can be done.

If it isn't on the Net, it ain't true. Seriously, haven't heard that the RMD suspension for 2009 only applies to non-owners.

I agree with Bird. For clarification, by 'date of hire' I think Bird is referring to the date the worker began working as a W-2 payrolled employee, not when he/she began providing services as an 'independent contractor'.

Pixie, one thing I should have mentioned earlier about the Plan borrowing money putting the land up as collateral, particularly in the context of the limited development that might be necessary to sell the land. If the borrowed $ is used to improve the property, then you have another UBTI challenge to deal with under IRC section 514©. As for a tax qualified trust, I don't know of one that you could use. Each distributee could roll over to an IRA his or her undivided interest in the land assigned to him or her by the Plan. They could not do so on a group basis because IRAs must be owned only by a one person. One problem you will then have is that you would not only need each such former employee to sign off on a potential sale of the property, but also each IRA custodian.

Pixie, you'll need some 'dust' to handle this one. The plan fiduciaries are between a rock and a hard place. You could distribute undivided interests in the land. For example, if an employee's share of the land is 1/18th, the Plan Trust could deed an undivided 1/18th interest in the land to the distributee. Then you'd payout 1/18th of the cash as well. Problems: 1-the former employee will be taxable on the value and not have cash with which to pay the tax obligation (ought to make for a happy former employee), and 2-when a sale does come along, you'd have to get that former employee to agree and sign off for it to happen. The Plan Trust could apply for a loan with nothing due for 5 years when it is all due in one lump repayment, putting the land up as collateral. Then with the cash proceeds you payout the former employees. Problems: 1-the former employee might need to agree, depending on whether the plan document gives him the right to in-kind distribution or not, and 2-the remaining employees are now seeing their benefits decrease due to the interest accruing on the loan to pay the former employees out. Thirdly, if cooperative the former employees might agree to leave their benefits in the plan for a time, giving the plan time to sell off the land. Beware that if you sell or lease the property to do so in an arm's length transaction with someone that is a stranger to the plan. You wouldn't want to back into a prohibited transaction while trying to correct the liquidity problem. There are some PLRs from the IRS that allow for a minimal amount of development activity on property to get it to the point that it will sell so that the plan then has the liquidity to meet the benefit payment obligations. Those PLRs should be carefully examined and a legal opinion obtained before you undertake any development steps on the property. Otherwise, you might incur UBTI (unrelated business taxable income). Finally, in evaluating what to do, you might want to consider the implications are for the ERISA fiduciaries to this plan of taking any steps--or not taking them.

Both acronyms describe reimbursements by an employer to an employee for health expenses. Neither involves employee contributions; the employer bears the expense. To be tax free, each must meet the requirements of IRC section 105(h). A MERP has been the traditional term that referred to such plans by employers where any unused amount was forfeited at the end of the year. The term HRA came into vogue in 2002 due to a couple of IRS pronouncements that made clear how such a plan could be designed so that unused amounts would carry forward passed the end of the plan year in which they accrued.

Bird, thanks for looking up the thread your were thinking of and linking it here in this thread--and your memory serves--it was in the 3 mo to 3 yr time frame!

Hi, Kevin C, I agree that a participant loan cannot be rolled into an IRA owned by that participant. My questions have a bit of twist. The deceased participant was the obligated borrower, and following his death, his estate is now obligated to repay the loan. If before the estate is able to repay the loan, the death benefits are to be rolled out of the plan (part into an 'inherited IRA' owned by the daughter and the other part into an IRA of which the surviving spouse is the owner). The surviving spouse is not obligated to repay the loan. The decedent's estate is the successor in interest to the participant, and now obligated to repay the loan. Since the IRA owner is not the obligated debtor on the loan, can the loan (or on my situation, part of them) be rolled into the IRA? So too with the daughter's IRA, except that it is owned by the daughter "as beneficiary of" the deceased participant and it is an inherited IRA. So even if the surviving spouse's IRA is perhaps allowed to hold the loan (or part of it), the daughter's IRA might not. So that's my second question, whether the daughter's inherited IRA could hold any part of the loan?

I appreciate your comments. While not entirely helpful, not as useless as Belgarath suggested in his last sentence.

If the estate of the participant was the death beneficiary as well as the new, successor obligor on the loan, then on distribution of the other death benefits, the loan would be forgiven and the estate would be taxed on the value of the forgiven loan as well as the other death benefits distributed. You get to the same place from the estate's perspective and the plan's as if the estate paid the loan off and then all the death benefits were paid to the estate. Here, however, the obligation passed from the decedent to his estate upon his death, but the benefits pass by specific designation to his wife (2nd one) and his daughter by the first marriage, 50-50. So we do not have identity between who is obligated on the note and who owns it as an asset. For example, if the estate paid it off, that would all reduce the amount of the ultimate net estate going to wife #2. The plan would then have $40,000 more, and only 50% of that would go back to wife #2. The other $20,000 would go to the daughter. If the plan simply retired the loan in favor of the estate, the daughter would be shorted $20,000 of her 50% of the death benefits and wife #2 get that $20,000 in addition to her full 50% of the death benefits. So, I'm back to my questions. Does the fact that the daughter's rollover IRA is an inherited one, with those benefits having been the participant who had the loan and from which inherited, prevent the inherited IRA holding the 50% interest in the participant loan promissory note? Does the fact that wife #2's rollover IRA hold benefits that were once those of the very participant who signed the promissory note prevent the spouse's IRA from holding the 50% interest in that promissory note?

I don't think I could give you odds in a numerical sense, such as 3:2 against a favorable PLR. It would depend on how the actual facts stack up against those mentioned in the spousal PLRs. But 'not terribly sanguine' and 'longshot' might be right on target.

The deceased participant had sons (Post #1) but the estate is the default beneficiary (Post #3). That's an unusual plan document in my experience. On to your questions. As to #1, the logic should be similar. If a spouse is a beneficiary of an estate over which the spouse has control to allocate all the plan benefits to the spouse's beneficial interest under the estate, the spouse can roll to an IRA. If the sons that similar type of authority over the estate in Post #1 and #3, then perhaps. Two distinctions come to mind, though. One is that the spouse is acting alone; the sons would have to be acting in concert with one another. The sons are a generation further from retirement than a surviving spouse would be. For these reasons, the IRS might not want to give them the same treatment as a spouse. As to #2, if recollection serves me right, the PLR fee to the IRS is $2,500. I would think legal fees would run $5,000-$12,000 depending on the degree of research and fleshing out of arguments that the client wants to make to go along with $2,500 IRS cost.

I agree with Bird. Don't do a trust unless you completely understand how it will work and it is necessary to accomplish your objectives. I think the same thing is true of titling property in joint tenancy. Bird stated the general rule, but there are some states where by statute and/or case law that if a depository account is what is at issue and the sole source of the deposits was just one of the two named on the joint tenancy account, the presumption will be that the second person's name was put on the account merely as a convenience to the one making the deposits, and not intended to give rights of survivorship to the other.

It would if the Estate was the death beneficiary as well as the obligor on the note. It isn't. The participant died intestate in a community property state; all of his assets will go to surviving spouse. The daughter from an earlier marriage wants her 1/2 of the value of the note ($20,000 being 1/2 of the approx $40,000 balance on the note). The daughter thus wants her 1/2 of the note held by the plan trust assigned to her, and rolled into an IRA along with 1/2 of the other plan benefits. The spouse, on the other hand, wants her 1/2 of the note held by the plan assigned to an IRA in her name. While the decedent's estate currently has more debt than assets, the estate has a couple of receivables that will not be due for another couple of years. In essence, the daughter is not willing to lose her $20,000 interest in the promissory note in exchange merely for the Estate paying the income taxes on it.

401k participant who had a participant loan partially repaid died. He had designated as his beneficiaries his surviving (second) spouse 50% and his only child (from prior marriage) the other 50%. Both death beneficiaries are planning on having a direct rollover of their respective death benefits to IRAs. The deceased participant's estate is now the debtor on the loan. The estate is cash strapped, and will be for quite some time. Where the debtor on the loan is the Estate and the owner's of the IRAs would be the spouse and the child "as beneficiary of" the deceased participant, may the IRAs be assigned 50% each of the promissory note that the Estate is now obligated to pay?

As jpod's post illustrates, there are times when playing it straight actually benefits the taxpayer. Dropping S corp payroll for owner-employees below what is reasonable compensation for the personal services performed is not good tax planning.

The 403b regs issued by Treasury only require the contract to be part of an employer's written 403b plan to exclude contributions from taxable income of the employee. In Rev Proc 2007-71, the IRS without saying so much implied that 403b contracts that have received any contributions since 1/1/2005 need to be maintained pursuant to an employer's written 403b plan (granted, Rev Proc 2007-71 'deems' this requirement met if there is even fairly minimal attemps at contact by the employer with the vendor or vice versa, even if the vendor does not agreed to subjugate its 403b contracts to the employer's written 403b plan). Your situation suggests that you are dealing with 403b contracts that are in fact subjugated to an employer's written 403b plan. Termination of a 403b plan requires that all benefits be distributed. Thus, the subjugated 403b contracts cannot remain 403b contracts. There must be distributions either to IRAs (which cannot hold as an asset a loan for which the IRA owner is the obligated debtor) or to another type of employer plan that will accept and finish administer the collection of the loan. If the employee does not have eligibility to roll into another employer plan that handles loans, then the loan must either be paid off before the distribution incident to the 403b plan termination or the loan balance then be a taxable distribution to the employee. I don't know how you'd amend a 403b plan to any other treatment. These are the tax law rules.

Thanks, Belgarath. That is useful to know the DoL's guidance, and something that does pop up fairly frequently with terminated plans.

So with no legal relationship to the employee, the child's mother loses her employment and is now available to care for the child--obviating the need for the day care. No marriage, no spouse. Can the child's mother now somehow qualify as a dependent of the employee? I don't know all the avenues of possibility to be a dependent, but you might want to plumb those possibilities.

SHaddon: What if MEJ's plan does not allow for enrollment separately in just the dental, but requires the coverage be combo (medical/dental). Would you have to allow the EE to enroll in the combo coverage so that the dental coverage is continued?

Section 902(f) of the Pension Protection Act of 2006 added subsection (e) to ERISA section 514. It provides that ERISA Title I "shall supersede any law of a State which would directly or indirectly prohibit or restrict the inclusion in any plan of an automatic contribution arrangement." Then it goes on to define an ACA (automatic contribution arrangement). I suspect that J4KFBC's answer is based on the facts that ERISA 514(e) is part of Title I and Title I does not apply to governmental plans. ERISA 4(b)(1). That makes sense. It would be an attenuated argument, but perhaps the language of ERISA 514(e) could be viewed to apply, as it reads, to "any plan of an automatic contribution arrangement". It does not have familiar statutory language such as "any plan subject to this title". If you are in the planning phase, I'd go with J4KFBC's position. If you have operated as such and are now being challenged by the state payroll enforcement agency, I'd at least argue that "any plan" means "any plan".

EE elective deferrals, ER contributions, and investment earnings on either are all, by type, available for distribution to the extent justified by unforeseeable emergency pursuant to Treas Reg § 1.457-6©.

Check the wording to make sure the 3% is not required to each plan for those eligible for both plans, totaling 6% between the two plans for those eligible for both. Yes. Yes.

Logically, there should be no PS 58 costs as the life insurance is not an economic benefit to any one participant in the way that it would be if death benefits were payable to that participant's loved ones. Since the death of a plan participant is a distribution trigger, and thus the plan then has an obligation to pay benefits, arguably yes the plan does have an insurable interest. The counter argument, if this is a DC plan we're talking about, is that it merely enhances the amount of benefits for all plan participants, and the other plan participants do not have an insurable interest in the life of another plan participant.

LRM #94 did not require of EGTRRA prototypes the kind of language that is quoted in post #23