GMK

Sorry, but I don't think Q&A-9 limits RMD's, nor do I think is meant to. It doesn't 'say' MRD or RMD anywhere. As I read it, Q-9 looks at the situation where RMD's would normally be due, but because the participant is still employed, they aren't due. And it asks if it's OK for a plan to allow distributions to participants even in this case where RMD's are not due. The answer says 'yes' and confirms that even for 5% owners (where RMD's are due), the plan can allow additional distributions on or after the April 1 date. It does not say, for example, that RMD's cannot be made before April 1. It only talks about distribitions made on or after April 1. Yes, the 5% owner must take RMD's for the year she/he turns 70-1/2 and for each year thereafter, and the first part of the distribution(s) she/he takes is RMD until the RMD amount is satisfied, but none of that is because of Q&A-9. IMO, Q&A-9 simply says that the plan is OK if it allows distributions to participants who are over age 70-1/2 and still employed, without regard to whether or not they are required to take minimum distributions.

Sieve - I don't see any mention of RMD or RBD in the -8 Q&A-9. I read it to say that a plan can allow distributions to participants who are over age 70-1/2 and who have not yet retired or who are past or not past the normal retirement age. Non-5% owner participants over 70-1/2 who are still employed are not required to take RMD's and do not have RBD's yet. This Q&A comfirms that the plan can allow them to take a distribution anyway. And it goes on to say that the plan can allow the 5% owners to take distributions of more than the RMD amounts. Or is there something more subtle that am I missing?

Kevin C - I agree with Sieve (post #42) that the plan's operations are acceptable, because at the time it made the RMD's, the RMD's were required. There is no way (that I know of) for the plan to foresee that a participant will die, so the event of the death should not retroactively count against the plan's otherwise proper actions. Of course, someone may know of a case where it has. mjb - Thank you very much for your comments in this thread. My concern remains with what the IRS would actually do. In the reference linked in post #40, Ms. Choate points out that the IRS issues PLR's that quote the IRS's gospel on beneficiary distributions and then rule exactly the opposite of the gospel they cite. To rephrase your question in post #32, Does anyone know of any recorded cases where the IRS has ruled to impose or not to impose a 50% excise tax for the failure to take an RMD for the year a participant in a qualified plan attained age 70 1/2 (or if the participant was still an employee at age 70 1/2, for the year the qualified plan participant retired) but died prior to her/his RBD?

Sieve - thanks for connecting some of the dots for me. I understand your reasoning. Sadly (to me), this is another case where the RMD rules for IRA's and qualified plans lack symmetry. But tomorrow's another month, and I can keep hoping that I don't really have to know the what the IRS would say.

From 1:408-8: "Q-5. May an individual's surviving spouse elect to treat such spouse's entire interest as a beneficiary in an individual's IRA upon the death of the individual (or the remaining part of such interest if distribution to the spouse has commenced) as the spouse's own account? "A-5. (a) The surviving spouse of an individual may elect...to treat the spouse's entire interest...as the spouse's own IRA. ... If the surviving spouse makes the election, the required minimum distribution for the calendar year of the election and each subsequent calendar year is determined under section 401(a)(9)(A) with the spouse as IRA owner and not section 401(a)(9)(B) with the surviving spouse as the deceased IRA owner's beneficiary. However, if the election is made in the calendar year containing the IRA owner's death, the spouse is not required to take a required minimum distribution as the IRA owner for that calendar year. Instead, the spouse is required to take a required minimum distribution for that year, determined with respect to the deceased IRA owner under the rules of A-4(a) of §1.401(a)(9)-5, to the extent such a distribution was not made to the IRA owner before death." The question Q-5 explicitly applies both before distributions begin (entire interest) and after distributions have commenced. The last 2 sentences of the A-5. (a) answer (starting at "However, if ...") seem to say that if the surviving spouse makes the election in the same year that the IRA owner died, the spouse is required to take an RMD for that year of the owner's death, determined with respect to the deceased IRA owner, less previous applicable distributions to the owner before death. How is this reconciled with the Publ. 590 statement about no RMD required? (I must be missing something, which would be no surprise.) Does this also apply to qualified plans? Sorry if I seem like a pest. I don't mean to be. Just trying to learn something.

While looking at 1.408-8, especially Q&A-5, and related references, I came across this: http://www.naepc.org/newstech-0701.web which shows two (probably rare) cases where the regs do not define what the IRS will actually rule in PLR's. I have very much appreciated the discussion in this thread, but in the end what matters is whether the IRS answers 'yes' or 'no' to mjb's question. I understand that PLR's do not apply to us all in general, but are there any PLR's (or other pronouncements) in which the IRS has decided to impose or not impose the excise tax in the case of a qualified plan?

The previous posts are good advice. For investments in CD's, consider staggering the dates they pay out, if possible, so they mature in different months throughout the year, maybe quarterly, maybe monthly. That way, some of the money is available if you need it that month, and you don't have to wait until the one magic month to get at your money.

Wow. Sometimes you even get what you want (an answer to post #22). Thank you, Sieve and JSimmons. Although no one appears to agree with JSimmons' conclusion (except maybe Kevin C), IMHO, his logic appears to be bullet-proof with regard to qualified plans. Of course, if I knew for certain, then I wouldn't have to ask the questions. If a plan faces this situation, I would not decide based on my level of conservatism or the size of the distribution. I would get what I need by having the plan get an opinion in writing from the plan's attorney, as jevd suggested previously and as JSimmons just recommended.

Basically, COBRA continuation coverage becomes available when the employee loses coverage due to a qualifying event, like reduction in hours. I don't find that failing to pay a medical plan premium would be a COBRA qualifying event. Medical LOA under FMLA is not a COBRA qualifying event. Coverage continues under FMLA as if the person were at work as long as the employee continues to pay her/his share, if any, of the premiums. Coverage under FMLA is not COBRA coverage, but failure to return to work after the FMLA leave is a COBRA qualifying event (termination). One feature of FMLA is that the employee is returned to pre-leave conditions after the FMLA leave. For this reason, employers may continue to pay the insurance premiums, so the employee is assured of her/his pre-FMLA coverage when the employee returns to work. If the employee does not return to work after the FMLA leave, the employer can try to get a reimbursement from the employee for the premiums the employer paid during the leave. This is a link to a useful COBRA brochure: http://www.hi4.com/downloads/cobra99.pdf

You can't always get what you want, but after re-reading this thread, I know how to get what I need.

For me, the compelling reason to answer this question one way or the other is to ensure that the plans operate in the best interests of the participants and their beneficiaries. As I understand it: If the plan requires the beneficiary to receive an RMD (for the year the 70-1/2 year old died pre-RBD) and if that RMD is in fact not required, then the plan has forced the beneficiary to pay taxes (on the RMD) unnecessarily, which reduces the net benefit to the beneficiary. If an RMD is required for the year the 70-1/2 year old died pre-RBD and the plan tells the beneficiary that that RMD is not required, then the plan puts the beneficiary at risk for a hefty excise tax penalty. Thanks, as always, for your comments.

jewles47 - some general information and comments for your consideration. As Sieve says, you or your attorney should contact your ex's employer, who is the plan administrator or who can tell you who the plan administrator is. Then, if your attorney has not already done so, ask the plan administrator (send a letter) to send you or your attorney a copy of the ESOP's QDRO Procedure, a copy of the ESOP's Summary Plan Description (SPD), and a statement of your ex's benefits and accounts. If your attorney has these documents, ask your attorney for copies. The QDRO Procedure explains how the ESOP determines if a domestic relations order (DRO) is a Qualified domestic relations order (QDRO). The paper signed by the judge is a DRO. The ESOP then determines if the DRO meets the requirements in the law to be qualified, that is, if it is a QDRO. The QDRO Procedure also explains what information the ESOP will send to the participant (your ex) and to the Alternate Payee (you); whether the ESOP will separate your ex's account into portions for you and your ex; etc. The SPD summarizes how the ESOP works, including how distributions (payments) can be made. One limit on a QDRO is that the QDRO cannot require the ESOP to provide a benefit that is not already offered by the ESOP. That is, the QDRO cannot require the ESOP to provide any type or form of benefit, or any option, that is not defined in the ESOP plan document. (The SPD is a summary of the plan document.) The section in the SPD that describes Distributions should make it clear why you won't get the money for 3 years. If it doesn't, ask the plan administrator, or maybe your attorney can explain it. Be aware that the ESOP cannot give any of the account of a participant (your ex) to anyone else except under strict limits established by law. The QDRO meets those limits and gives you a legitimate claim to a portion of that account. As an Alternate Payee under a QDRO, you also have the same rights with regard to your portion of the account as the ESOP participants have with regard to their accounts (unless the QDRO lists any specific limits on those rights). Review this with your attorney. That could be the fastest way to get the answers. And good luck.

Sieve - Thank you for your response in post #15, regarding the first 2 definitions of 'first distribution calendar year' in post #8 (for age 70-1/2 and retirement). Unfortunately, I did not state my question clearly. To be more clear, my question is: In cases where the emphasized sentence in post #8 applies, are we to disregard the other 2 definitions (for age 70-1/2 and retirement) or can they also apply? Until this thread, I thought RMD was due FOR the year of death if the employee attained age 70-1/2 and died before the RBD (separate from any RMD for the beneficiaries). jevd makes a strong argument that in this case the RMD shifts from the employee to the beneficiary, which shifts the first distribution calendar year. Hmmm. Fortunately, the situation has not come up yet, but it could. Anyone - The statement in Pub 590 (in post #6), no minimum distribution if IRA owner reaches 70-1/2 and dies before the RBD, is very informative for IRA's. Do the IRA regs specifically say this, or is it an interpretation of the regs (and maybe the answer to this thread)? Thanks to all who are contributing to this discussion.

And the answer is..? I may (and hope I don't) need to know this. Are the 3 sentences that define 'first distribution calendar year' in post #8 mutually exclusive, i.e., if one is true, then the other two do not apply. Or can more than one apply?

Good point, JSimmons. Even if the participant had only one year of service under the 3-year cliff (before 2007), she/he is only 2 years from being 100% vested. If, however, after a relevant discussion with the participant, the participant still wanted to switch to 5-year vesting (and otherwise seemed sane), I would probably allow the switch. Maybe she/he plans to leave in another year and wants the 20% instead of 0%.

Agreed. And if faced with this situation, I would be hoping that all the participants on the 3-year cliff schedule would stay on it. Keeping track of who is 3-year and who is 5-year is pretty straight forward. Keeping track of two partial balances for each participant with less than 5 years of service, one portion on a 3-year schedule and the remainder on a 5-year schedule, is a little more work (at least for the next few years).

There was this thread in June: http://benefitslink.com/boards/index.php?s...timing+deferral Don't know of anything since. Someone else might.

Sorry if I appeared focused on expenses and services. Those were red flags in the OP, as was "some" due diligence. Of course, all aspects must be reviewed and compared. It's just hard to see how to justify increasing costs and reducing services (some of which may be services to participants, we don't know) without balancing those losses with a positive gain or at least the prospects of a positive gain for the participants and their beneficiaries. And it would be wise to avoid PT's, as JanetM cautioned. I read the OP to say that the loan has already been made and is not dependent on the bank's getting the 401(k). If full due diligence shows that the 401(k) participants and their beneficiaries would be at least as well off with the plan at the bank, and if the financial benefits of the move go exclusively to the participants and their beneficiaries, then I think you can consider moving to the bank. I recommend against making the move merely as a "Thank you for the loan" without checking everything out first.

1985 - A brief report in The Wall Street Journal, Tuesday, September 10, 1985 "The Treasury Department's move last week to kill the employee-savings plans known as 401(k)s, in which workers save by cutting pay and deferring taxes, prompts a backlash from employer groups. Corporate lobbyists scheduled emergency meetings last week to intensify rescue efforts. Employers who had waged a mild fight against Treasury's prior move to limit the plans ready more aggressive lobbying efforts. "Their goal is to save the plans in some form, hoping that the rules can be liberalized later. Ways and Means Committee Democrats, such as Oklahoma's Jones and Arkansas's Anthony openly praised the plans at a hearing last week. But strategists say the fate of 401(k)s depends on last-minute bargaining over other benefit issues."

I see frowns around the table. Someone is muttering something about how the Plan can only benefit the participants and their beneficiaries, and not the plan administrator (the company), etc. And for a higher cost with less service??

That would be Senator Everett Dirksen of Illinois.

Matthew, this would make me nervous. Call the company's attorney, who is familiar with the company's by-laws and the state's incorporation laws, and ask for her/his written opinion that this action by the CEO is A-OK. And instead of being "quite sure" and "fairly sure" about the Board's approval of the new plan, ask them. Do not proceed without at least advising the Board of what is being done. My choice would be to take the resolution to the Board for their approval.

Lori is correct. Those $10 (or whatever amount) annual fees on each IRA can add up. Some fund companies, however, set conditions where they waive the annual fee, for example, if you sign up for monthly contributions by electronic fund transfers from your bank to the fund, etc. Generally, if your account balance is more than some amount, the annual fee goes away. Good fund companies (good for the investor) will add up the balances of all your IRA's at that company to see if you are above this level, rather than requiring each individual fund to exceed the level. Ask for and read the prospectus to find out about the annual fee, if any, on your IRA's.

The amount is still an eligible rollover distribution (unless it wasn't for some reason other than being less than $200), because the participant can rollover the amoumt by putting the money into another qualified plan or IRA within 60 days. It doesn't matter that the Plan won't process the rollover for the participant. So, no withholding. ...or am I missing something?

Interesting point, J Simmons. If the <$200 qualifies as an eligible rollover distribution but is paid to the participant, then the 1099 instructions apply: "You are not required to withhold 20% of an eligible rollover distribution that, when aggregated with other eligible rollover distributions made to one person during the year, is less than $200." No problem if the participant elects to receive a cash payment. Also no problem if the amount still qualifies as an eligible rollover distribution even if a plan provision prevents the participant from choosing a rollover (because the amount is less than $200). But is it an eligible rollover distribution if you can't choose to roll it over? Has the IRS ever commented on this? Probably a good reason to send the distribution form with the special tax notice.