J Simmons

PB Man, Is your experience that you could provide an adoption agreement but no prototype, or no document at all?

C Corp dividends escape UBTI because the C Corp pays income tax itself. So interjecting a C Corp between the plan and the Costa Rica house (to skirt a requirement Congress imposed on fiduciaries so that US courts would have jurisdiction over assets in order to protect plan beneficiaries) would come at the cost of the C Corp level income taxation. If the entity used is not a C Corp, UBTI generally applies to its income passing through to the plan. The OP posited a 1-person DB. If that 1 person is the owner of the sponsoring employer, Title I of ERISA might not apply. If so, then ERISA sec 404(b) would not apply. Yet you'd be subjecting the investment to C corp level taxation on its income, or risking UBTI if another type of entity is so used. If that 1 person is not the owner (or spouse), ERISA applies. Would you really suggest that the fiduciary of the DB use a corp or other entity in order to skirt the protections for plan beneficiaries that Congress put in ERISA 404(b) to give US courts authority over plan assets? I certainly would not be so advising an ERISA plan sponsor or fiduciary without strong court precedence that such a circumvention of legislated policy may be done with impunity.

Yeah, good reminder from the purple-caped Bart Simpson!

Generally, yes, rents and gains from the sale of appreciated property would be. But what would the plan own if a corporation or LLC was formed? The plan would own stock or LLC interest, the corporation or LLC would own the rents and the gains from the sale of appreciated property. If the plan sold the stock or LLC interest at a gain, that would be exempt from UBTI. However, dividends paid by the corporation to the plan or flow-through income to the plan from the corporation or LLC generated off of rents and gain appreciation would not be exempt for the plan. To skirt the rule prohibiting a trustee from holding investments over which US courts do not have jurisdiction through the use of a corporation or LLC backs you right into the UBTI or corporate level taxation.

When a grantor retains substantial control of the trust he sets up, the grantor is taxed on the trust’s income. The trust is disregarded for tax purposes. How that figures into retirement plans? I've not run across it my ERISA experience, but if it's disregarded for tax purposes, it probably means that any significance a grantor trust has in relation to retirement plans applies to the grantor personally as the trust is not regarded as a separate tax entity.

The loan does have adverse implications for the plan's qualification, so VCP would be one necessary step. The loan is also a deemed distribution that is a prohibited transaction. I would think you'd have the loan, and any interest, repaid. Then file a Form 5330. Also, it probably violated the written plan terms, so you might want to use the DoL's VFCP for the problem too.

As I recall, Swanson was a ruling that there was no PT. I don't recall any UBTI issue in Swanson.

Correct. If the EE had 1,000 or more hours 7/2/2007-12/31/2007, EE would have a second vesting year earned by 12/31/2007. Whatever the 12-month vesting measurement periods specified by the plan, the EE needs to meet the hour threshold (e.g., 1,000) during that period to have it count as a vesting year. The EE need not worth the entire 12-month period. The EE need not be yet employed on the last day of the 12-month period. You count all service from date of hire--not going into all the twists and turns of re-hire in this answer--except that before the age (e.g., 18 years) specified in the plan.

I've never heard of the IRS referring a case for possible ADEA violation to the EEOC. More likely a disgruntled older employee refers to EEOC.

For ADEA purposes, size matters. It's not like minimum coverage. It would be more difficult for an older owner to complain than an older non-owner--after all, the older owner may have been involved in making the decision that discriminates in favor of younger employees.

From net rentals of the house, so that it is not a wasting asset. Appreciation in value from the time acquired by the plan until sold.

How much extra would it cost to add a document failure to your VCP submission?

sorry about that;ng is "no good" I'm not a text messenger either actually. Anyway;if it is forein country home or land is in;is it black and white not allowed? What might exemption be? Thanks much I dont understand the issue. Why cant the title to the house be held by a US corp or LLC in which all of the shares are owned by the plan? Since the shares are the indica of ownership by the plan the requirements of ERISA will be met. Why would anyone pay a bank to hold title to a residence? If the house is held by an LLC or S corp (single beneficiary trust as shareholder) owned by the plan, the plan would have UBTI on the earnings. If a C corp, no UBTI but two tiered taxation--once at the corporate level and then on the remainder when it is passed from the plan to the beneficiary. Might be cheaper to pay a bank.

Maybe propose that a true unwind would be to tax the H & W when and as the 412i contribs were made. They were compensation paid. The corporate deductions ought to remain intact. This suggestion would require doing amended returns for several years, but at least they would not have double taxation--though there could be penalties and interest on past returns of H & W as amended.

For the rule against cutbacks, the 411d6 statute and regs protect the benefits of participants. For minimum coverage under 410b, some employees that are not participants must be taken into account in testing, such as part-time employees excluded under the terms of the plan but who have earned one (or two) eligibility years of service. For nondiscrimination under 401a4, including the regulation about timing of amendments, the regs specify HCEs defined to be such who benefits under the plan for the year, and NHCEs as any employee not an HCE as so defined.

#1-the accounts cannot be combined #2-she can despite SAHM if you file 'married filing jointly' and that is less than $159,000 (phases completely out at $169,000) #3-$5,000 limit each

"ng"--no go? not good? I'm not a text messager, don't know the acronym. To avoid fiduciary breach, you need to fit somehow into an exception to ERISA 404(b).

I take it there is no written delegation of that authority from the employer to the trustee, which would not be an authorized agent of the employer merely by virtue of being the trustee of a retirement plan sponsored by the employer. So action by the trustee alone would probably fall short of effecting an amendment to the plan. A request then by a person without authority to amend the plan that an "amendment" be acceptable would not seem to amend the plan either. Not a request alone. Inherent in a request for acceptability is that the action (here an "amendment" desired by the trustee) is not yet fait accompli. I'm assuming the request is from the trustee to the employer, seeking the employer's acceptance. Whether the board of directors' resolution is necessary, or simply some action by someone else for the corporation, see the U.S. Supreme Court's decision in Schoonejongen v Curtiss-Wright (circa 1995).

Uncertainty that could be avoided by allowing the vesting amendment to apply to that 7/1 entering NHCE (and the vesting requirement to apply only to those hired after so amended).

So, the implicit interpretation of Treas Reg §1.401(a)(4)-5(a)(2) being made in this thread is that when the regulation says HCEs and NHCEs it really means only HCE participants and NHCE participants? Any authority for interjecting that limitation? Treas Reg §1.401(a)(4)-12 defines HCE as "a highly compensated employee as defined in §1.410(b)-9 who benefits under the plan for the plan year (within the meaning of §1.410(b)-3)". Treas Reg §1.401(a)(4)-12 defines NHCE simply as "an employee who is not a HCE". Per such definition, J4FKBC's "NHCE expected to enter on 7/1/2008" does not seem to be excluded from the consideration to be made per Treas Reg §1.401(a)(4)-5(a)(2).

What does the existing plan document say about who has the authority to make amendments and how?

Purely as an investment? Who'll manage the rentals? The plan ought to hire a property management firm to keep the plan fom engaging in that business, and having unrelated business taxable income. The 1 beneficiary of the DB (and family and business associates of that beneficiary) will not be able to use the Costa Rica house, not even if they pay rent. There will need to be annual appraisals. You'll also need to see if you can fit under an exception to ERISA sec 404(b) ("no fiduciary may maintain the indicia of ownership of any assets of a plan outside the jurisdiction of the district courts of the United States"), perhaps by using a US bank or insurance company, as the intermediary owning the house.

You might have unrelated business taxable income if too much development activity took place while held by the plan, and it cannot be shown that all of that development activity was necessary to allow the plan to liquidate the investment in face of a liquidity problem of the plan.

There are examples in the regs. Prop Treas Reg 1.125-5(o)(3). For example, it could be paid to all who had that type of FSA for the year out of which the experience gains arose, on a per capita basis weighted to reflect the elected levels of coverage. Suppose you had just the two persons with that type of FSA for the year, one who contributes $100 to the plan and uses all but $10 and another who contributes $1000 and doesn't use any. That's experience gains of $1,010. The first person would get 1/11th (or $91.82) and the other 10/11th's (or $918.18). Prop Treas Reg 1.125-5(o)(3)(iii).

I am interested too, because elsewhere I've heard a strategy is to use the prototype cross-tested, but if when testing for a year you need more NHCE groupings than allowed, do an -11g amendment. Until you might need to do so, you have the efficiencies of being prototype, and only once you need more NHCE groupings, through the -11g amendment, do you render the plan then to be 'individually designed'.