Peanut Butter Man

In last Friday's phone forum, the IRS said that DBK guidance is coming very soon. Hopefully, it will include an answer to this question.

The IRS has a FAQ on unforeseeable distributions from 457(b) plans. It states: "6. What is a distribution on account of an unforeseeable emergency under a 457(b) plan? Under a 457(b) plan, a hardship distribution can only occur when the participant is faced with an unforeseeable emergency. (Code § 457(d)(1)(iii)) An unforeseeable emergency is a severe financial hardship resulting from an illness or accident, loss of property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant or beneficiary. Examples of events that may be considered unforeseeable emergencies include imminent foreclosure on, or eviction from, the employee's home, medical expenses, and funeral expenses. Generally, the purchase of a home and the payment of college tuition are not unforeseeable emergencies. (Reg. § 1.457-6©(2)(i)) Whether a participant or beneficiary is faced with an unforeseeable emergency depends on the facts and circumstances. However, a distribution is not on account of an unforeseeable emergency to the extent that the emergency can be relieved through reimbursement or compensation from insurance, liquidation of the participant's assets, or cessation of deferrals under the plan. (Reg. § 1.457-6©(2)(ii)) A distribution on account of an unforeseeable emergency must not exceed the amount reasonably necessary to satisfy the emergency need. (Reg. § 1.457-6©(2)(iii))" Treas. Reg. 1.457-6©(2) defines unforeseeable emergency for 457 plans. Your plan probably contains a version of this definition. It states: "(2) Requirements—(i) Unforeseeable emergency defined. An unforeseeable emergency must be defined in the plan as a severe financial hardship of the participant or beneficiary resulting from an illness or accident of the participant or beneficiary, the participant’s or beneficiary’s spouse, or the participant’s or beneficiary’s dependent (as defined in section 152(a)); loss of the participant’s or beneficiary’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by homeowner’s insurance, e.g., as a result of a natural disaster); or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant or the beneficiary. For example, the imminent foreclosure of or eviction from the participant’s or beneficiary’s primary residence may constitute an unforeseeable emergency. In addition, the need to pay for medical expenses, including non-refundable deductibles, as well as for the cost of prescription drug medication, may constitute an unforeseeable emergency. Finally, the need to pay for the funeral expenses of a spouse or a dependent (as defined in section 152(a)) may also constitute an unforeseeable emergency. Except as otherwise specifically provided in this paragraph ©(2)(i), the purchase of a home and the payment of college tuition are not unforeseeable emergencies under this paragraph ©(2)(i)." Because your dad is not your spouse or dependent, the Treasury Regulations do not permit a distribution for an unforeseeable emergency from your 457 plan. On November 8, 2010, the IRS issued Revenue Ruling 2010-27. It contains three examples of distributions from 457 plans for unforeseeable emergencies. In one of the examples, the unforeseeable emergency is to pay for the funeral of an adult child. In Rev. Rul. 2010-27, the IRS states that this is not a permissible distribution from a 457 plan for an unforeseeable emergency because an adult son is not a dependent or spouse.

I agree with Sugar Daddy - you need a restated plan document using a Cycle E plan document that contains all of the items listed in Notice 2009-98. Section 6.05 of Rev. Proc. 2010-6 contains the requirement to include a copy of the plan document. It states: ".05 Except in the case of applications involving master and prototype plans filed on Form 5307 or determination letters for volume submitter plans under section 9.02(2)(d), a complete copy of the plan and trust instrument is required to be included with the determination letter application. All changes made to the most recently approved version of the plan may be, but are not required to be, redlined or highlighted. The determination letter application must also include a copy of the signed and dated timely good faith EGTRRA amendments, required interim and other plan amendments (even if these amendments are dated earlier than a previous determination letter issued with respect to the plan) to show that the conditions for eligibility for the EGTRRA remedial amendment period as set forth in Notice 2001-42 are satisfied. Also see sections 7.03 and 7.04 for what must be included with applications involving plan amendments. In order for documents to be properly scanned, documents submitted should not be stapled or bound."

It depends on how the safe harbor provisions in the plan document are written. I've seen plan documents which say that a resolution must be signed each year stating whether the plan will follow the safe harbor provisions and stating which safe harbor formula will be used. The plan document also specifically states that the resolution will be treated as an amendment. For other plans where the safe harbor provisions, including which safe harbor formula the plan will use, are hardwired into the plan document, any changes to those safe harbor provisions would need to be done by adopting an amendment.

Section 7.05 of Rev. Proc. 2010-6 states that a restated plan is required. The IRS will accept a working copy of the plan document, so that may be a solution for you. Section 7.05 states: .05 Individually designed plans must be restated when they are submitted for determination letter applications. For this purpose, submission of a working copy of the plan in a restated format will suffice. Where a working copy is submitted with executed amendments integrated into the working copy, all such amendments must also be separately submitted. The Service considers a working copy as a document that incorporates all previously executed amendments into one restated document. The intended purpose of a working copy in a restated format is only for ease of review and plan administration and it is not a document that is intended to be adopted. The Service reserves the right to make a determination as to whether the working copy is in a restated format that will facilitate the review of the plan. The plan document must contain the information listed on the Cycle E Cumulative List (Notice 2009-98). If the plan document is not a Cycle E plan document, the IRS may send it back to you for failing to comply with Rev. Proc. 2010-6 and Rev. Proc. 2007-44.

No, and I'm still looking. For what it's worth, forfeiture in this situation always makes me squeemish. The plan's forfeiture provisions come into play with what to do with the amount that is forfeited, which could put the plan sponsor in the position of having to restore a forfeited account balance when the missing person (or their estate) shows up to claim the money when the forfeited account balance went out as an additional allocation to participants.

The information to answer your questions are in the Summary Plan Description (SPD) and the plan document. The Summary Plan Description is normally around 20-30 pages long. You probably would have received a copy of the SPD around the time you entered the plan. If you can't find your copy, call or send a letter to your former emloyer asking for a copy. I would also ask for a copy of the plan document. Your former employer can charge you a copying fee for sending you copies. Once you have copies, you may find talking to an ERISA attorney helpful. They will be able to review the plan document and SPD, and use that information to answer your questions. The Dept. of Labor also has a website - http://www.dol.gov/ebsa - with helpful information.

The rules for making a minor modification to a pre-approved volume submitter plan are very different than the rules for making a change to a pre-approved prototype plan. When it comes to changing pre-approved language, volume submitters and prototypes are as different as apples and oranges. In my opinion, if you are relying on 5.09, I would file a determination letter application identifying the modification from the pre-approved language and let the IRS bless it.

I would be worried about the "due diligence as to accuracy" requirement, the accurate record-keeping requirement AND that the Form 5500 is signed under penalty of perjury. I agree that if it is incorrect when the Form 5500 is filed, I amend to correct.

A Real Estate Attorney preparing a Form 5500 would be subject to disciplinary proceedings for engaging in work they are not competent to do. ASPPA credentials do not carry the same history of disciplinary proceedings that attorneys are subjected to by both the State Supreme Court before which the attorney is admitted to practice before and the IRS Office of Professional Responsibility. ASPPA is good about testing before issuing credentials but historically has not been good about policing those credentials or disciplining credentialed members for failure to comply with Circular 230. I agree that the IRS should take a look at what the ERPA designation costs from start to finish, along with how much it costs an ERPA to meet the CPE requirements.

I think this is full of Circular 230 problems. I don't understand how her engagement letter says that she may rely on information furnished by the employer or any financial institution unless she has actual knowledge that the information is false because this is contrary to Circular 230. Section 10.34(d) of Circular 230 states: “(d) Relying on information furnished by clients. A practitioner advising a client to take a position on a tax return, document, affidavit or other paper submitted to the IRS, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client. The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or other factual assumption, or incomplete.” As far as not letting her client know that the plan is tax-disqualified, Section 10.21 of Circular 230 seems to be right on point. It states: “A practitioner who, having been retained by the client with respect to a matter administered by the IRS, knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper which the client submitted or executed under the revenue laws of the United States, must advise the client promptly of the fact of such noncompliance, error, or omission. The practitioner must advise the client of the consequences as provided in the Code and regulations of such noncompliance, error, or omission.” As for the practice of preparing Form 5500s without looking at the plan document, I don't know how the practitioner could comply with the Circular 230 requirement of diligence as to accuracy in preparing the Form 5500s without checking the plan document to see what it says about eligibility, entry dates, distribution dates, contributions and allocations.

Is the investment purchasing shares in the LLC set up by the cattle feeder where the cattle are the assets in the LLC? Or is the investment purchasing a commodity option where the commodity is the cattle from the cattle feeder?

Anyone know when the IRS plans on issuing the update to Rev. Proc. 2008-50? It is suppose to contain the provisions for correcting 403(b) plans.

Anyone know why this is coming up again? I checked Thomas.gov and there is nothing new with H.R. 4126. Thomas.gov still says it was introduced on Nov. 19, 2009 and sent to the House Committee on Ways and Means where it sits. Along with the elimination of cross-testing, H.R. 4126 also changes 410(b)(6) for part-time and less than full time employees. I'm still trying to understand that provision. My 2 cents is that the industry went along with the IRS on Rev. Proc. 2007-44 and the 5-year and 6-year plan document cycles. If H.R. 4126 becomes law, or another version of H.R. 4126 that eliminates cross-testing becomes law, many of those brand new EGTRRA documents will need to be amended (again).

Interesting. I like to keep them in so I'm not hunting through old documents if I need the special effective date for 401k elective deferrals.

The plan document should say something about spousal consent if it is a pre-approved prototype or volume submitter, because the IRS requires that language in all pre-approved plan documents. After you check out the plan document language, check out the US Supreme's decision in Kennedy v. DuPont = http://www.supremecourtus.gov/opinions/08pdf/07-636.pdf, especially headnote 2, which states: "ERISA provides no exception to the plan admnistrator's duty to act in accordance with the plan document. Thus, the Estate's claim stands or falls by "the terms of the plan," 29 U.S.C. section 1132(a)(1)(B), a straightforward rule that lets employers "establish a uniform administrative scheme, [with] a set of standard procedures to guide processing of claims and disbursement of benefits, " Egelhoff v. Egelhoff, 532 U.S. 141, 148. By giving a plan participant a clear set of instructions for making his own instructions clear, ERISA forecloses any justification for enquiries into expressions of intent, in favor of the virtues of adhering to an uncomplicated rule. Less certain rules could force plan administrators to examine numerous external documents purporting to be waivers and draw them into litigation like this over those waivers' meaning and enforceability." My guess is that the plan document requires the spouse to consent to beneficiaries other than the spouse, or to waive their rights under the plan in favor of the beneficiaries. The participant was aware that he had remarried, and could have signed a new beneficiary designation after he was married which contained his spouse's consent to waiving her rights under the plan, and re-affirming his intention that his children, and not his spouse, should receive his benefits under the plan if he died, and he chose not to do so.

Customer support at my plan document provider - they said they are talking to the IRS about an extension and have contacted ASPPA to ask ASPPA to ask for an extension. Also asked several IRS employees at a conference this past summer, and two said that an extension is being considered.

Rev. Proc. 2007-44

I mean an extra 3-6 months from april 30. i still have 200 plans to do. I've heard the IRS may issue an extension to December 31, 2010, which makes sense because we can bundle our HEART Act amendments with our EGTRRA Restatements. I believe when the IRS created the original 2-year schedule, they failed to factor in the amount of time it takes the major plan document providers to program the documents once the documents were approved by the IRS. Our plan document provider just finished programming their documents on Nov. 30, so instead of a 2-year restatement period, we are dealing with a 5-month restatement period (Nov. 30, 2009 to April 30, 2010). An extension to December 30, 2010 also would mean that we are not mailing a PPA amendment to plan sponsors in December, 2009; an EGTRRA restatement in April, 2010 and a HEART Act amendment in December, 2010. Talk about IRS-induced plan sponsor amendment fatigue.

The deadline for restating MPPPs for EGTRRA is April 30, 2010. We heard the same thing from Vanguard that they decided not to sponsor an EGTRRA MPPP, which means restating onto another provider's document or switching to a different type of plan, like a 401(k) plan.

Because becoming a Fellow of the American College of Employee Benefits Counsel requires a minimum of 20 years of experience of practice as an employee benefits attorney, a lot of very good and knowledgeable ERISA attorneys are not Fellows because they are simply not old enough to become a Fellow. I'm curious if there are any Fellows younger than age 46 (youngest person in my law school class was age 26 when they passed the bar + 20 years of practice = minimum age of 46). Working the numbers another way, if the youngest Fellow is age 46, that means that they were probably born in 1963, and ERISA became law in 1974, so the youngest possible Fellow was age 9 when ERISA became law. Is it October 15th yet? Why not a Bar Association for ERISA attorneys. Of the 3 areas of law which are primarily federal (intellectual property, bankruptcy and ERISA), the only one without a national bar association is ERISA. Intellectual property attorneys have had the American Intellectual Property Law Association since 1897. Bankruptcy attorneys have the various local Bankruptcy Bar Assocations. If anyone is interested, I'm willing to bring the sandwiches.

I agree with the plan of attack suggested by VEBAguru. Before I would recommend someone, I find out what type of plan is involved because the attorneys I would recommend for a defined benefit issue are very different than the attorneys I would recommend for a 409A plan issue. Only part I disagree with is the local bar association thing. Because ERISA is federal, I don't know any ERISA attorney that regularly attends local bar association functions except the social functions. Maybe there needs to be a national ERISA bar. If an ERISA attorney mentioned they had been in state court lately, I would assume that they were not devoting 100% of their time to ERISA.

We do both the plan amendment and the resolution, even if the same person is signing both because that person is wearing different hats when they sign each one. The plan amendment is signed by the trustee. The resolution is the board of directors ratifying the action of the trustee in amending the plan.

One of the facts that jumps out at me here is the fact that the employee feels they have enough control in this situation to be rehired. In the normal termination situation, the employee does not have sufficient control to know that they will be re-employed, especially to arrange the number of months within which they will be rehired. Sham transactions are a facts-and-circumstances test, and I think the amount of control is an important fact. The other part of this transaction that I'm curious about is what the plan says about leaves of absence and breaks in service. Does the plan provide for a leave of absence because this sounds more like a leave of absence than a severance of service.

On the EGTRRA prototype, does your document permit putting each individual in their own class? I'm asking because I had this issue pop up today, and the prototype we use says there can be no more than 25 classes.