GBurns

Your wording intrigues me. You posted "I put the COBRA provisions ". To me that implies that you are drafting the Plan Documents. Aren't you rendering legal advice and legal services? If this is an S Corp, does she also get a K-1 as a result of 318 attribution rules?

Joel, Is there any factual proof that these no-load fund that you keep pushing are better than every one of the load funds and every one of the annuities?

But was it a dissolution or just a change in corporate form? Archimage in the second post used the term "changed". This person was the sole shareholder in the S Corp and is the sole member in the LLC. Can an LLC partner/member be an employee of the LLC in this case? If the sole LLC partner/member cannot be an employee then how can the LLC be an employer of this person? Hence we could not have separate employer issue.

For tax purposes BOTH an S Corp and an LLC (single member or partnership) are pass through entities. The "tax purposes" and treatment are the same. It takes place at the individual level.

Why would "shutdown midyear and became an LLC" signify 2 separate entities rather than just a change in corporate structure"? Even then although probably not on point but still analogous are such items as "successor" "same desk" etc. Note the original post stated that "the plan continued".

I think that you should clarify your last scenario and rearrange the sequence of event, otherwise at first glance it looks like the double dipping transit schemes that the IRS is shutting down. If you have subscription to EBIA there was quite a lot of good coverage in 2002. For any employee contributions you will have to set it up like a 125. In all the scenarios that you posted, including the last, the employee should pre-tax their portion, which if not sufficient would have an added non-taxable employer contribution, then the passes are purchased by the employer for the employee. Just like with health insurance. If you do it as needed, it would not be a prospective election and would look just like the old outlawed zero balance medical expense reimbursement plans. In the eyes of the IRS an improper re-characterization of income. There is some good literature available from the big MTAs and the big transit pass providers.

Gary Lesser, Isn't this IRS position contrary to your post since the partnership loss would be a K-1 item, which you consider not includible?

What am I missing? I thought that a multiple employer plan is a plan maintained by 2 or more employers. I thought that that definition was as per IRC 413© which governs and Treas Regs 1.414 which defines etc. The post stated that this plan "is sponsored by a joint board of trustees". It even goes further to point out that "Neither the labor organization nor the contracting employers sponsors the plan." Is this allowed?

Many, if not all of the articles being published regarding the JOBS bill and 409A proposed law changes, seem to take the viewpoint that both SERPs and QSERPs are affected by the new proposed law. You might want to read those that are readily available in Benefits Buzz.

What do you regard as QSERPs ?

Aren't K1 distributions also relevant?

That is what many employees do in such plans.

I think I see some of what I find confusing. She wants to set up a PS for the LLC in 2004 and contribute $40,000 which will be earned from the LLC. If this is so then the W2 income is irrelevant. She could not make a contribution to any PS plan using the W2 income, anyhow since she was an employee whose employer had no PS nor did she make an election etc. I am also trying to figure out how you arrived at there being a "loss created by the $41,000 contribution that will pass through to her individual tax return could offset other tax liabilities". The "loss" and "offset" are what I do not understand even with this $41,000 being from the LLC under the LLC's PS plan. I wonder what others see and understand?

vebaguru pointed out some things and used the term "would be required". Either observance of any applicable law (including contract law) or just plain prudence dictates what "would be required". Unless there is some omniscience involved, one is prudent to cover one's "assets" and do what "might turn out to be required". There are some things that either ERISA or other law might "require". No one ever has to do what is required. One can always pay the penalty. It is prudent to do what is required. It is even more prudent to do what "might be required". In other words, all I am saying is that it is "necessary" to be "sensible".

kateinny, As a licensed insurance agent, I would suggest that you do not rely on any insurance agent to clarify anything with any insurance company. You are leaving your comapny exposed to any errors in translation, interpretation, understanding etc. It is too important an issue for He said that she said. And get everything in writing.

QDROphile Then how would you notify plan participants of the plans terms and conditions etc? Give them a copy of all the documentation? Wouldn't it be better to summarize into an easily read and explained summary?

WDIK In trying to understand your interpretation, I have re-read a few times. It could be that David Lacy was trying to "label" (or classify) ACollins, however, it comes across to me as more of a snide remark. I say "snide" because it was not necessary to choose between professors and others, it was only necessary to choose between eligibles and non-eligibles.

Is so much life insurance allowed in a plan? Who owned the policies? Who are the beneficiaries? What was the purpose of purchasing so much life insurance? I think that all these have to be taken into consideration in order to make a decision.

I did sort of mix my response to both, but I do not think that it makes any difference. RE 1) Then what was the purpose of telling us what the professors said, if not as a differentiation between "taught" and "worked" or "teaching" vs "working"? Blue blood vs blue collar? RE 2) I do not know of a 10% early distribution penalty payable to the government. TRS which is a 403(b) plan allows withdrawal of employee contributions +5%. But it is conditioned by the investment vehicle chose. That investment vehichle will have a surrender charge and the delay that Acollins refers to. RE 3) I should have had 2 responses 1 to ACollins and the other to David Lacy but the real difference between the 2 responses would be the substitution of TRS for ORP in one response. Other than that, almost the same response. The mandatory nature of TRS is similar to the mandatory nature of the retirement system of nearly every large public education system, whether K-12 or University. It is one of the first things known about employment in that sector and the public sector in general. I could not imagine anyone entering a large sysytem and not having any idea what they were doing. As a result It did not cross my mind that ACollins was having a problem with the TRS 403(b) especially since he mentioned the delay and the penalty, which are more applicable to the ORP.

Is she a member/partner of the LLC? Are you saying that she was a W2 employee of some other company for 10 months and now for the last 2 months of the calendar year she will not be a W2 employee of that same company? What will she be? Is there arelationship between the 2 entities? Why does she think that a contract changes her from a W2 employee to something else? LLC taxes as self-employed? That indicates that she is the sole shareholder, which makes the thought process even stranger. Is she trying to give herself a contract or is this a contract between the LLC and a client that will be bringing in $20,000 per month in revenue? If it is, then you do not yet know how much will be profit etc, do you?

As I caution people in all tax matters especially in return preparations, The devil is in the details. In very many cases you have to put pen to paper and do the calculations ALL the way through before any rational conclusions can be drawn. If you are following an IRS example, in a publication or otherwise, you should remember that it is not meant to be all encompassing and not even guaranteed to be correct either. You usually have to learn this from actual experience, but luckily some can/might learn from this exchange.

It does not matter how any professor wants to try and embellish the situation. If you get a W2 as do most professors, you are an employee. Employees work for employers. Any professor can profess all he/she wants, that he/she "taught", but the fact is that he/she works as an employee at the university. Because a professor says so does not make it so. Partcipation in Texas ORP is optional, you were initially enrolled in TRS and could have stayed in TRS. You were after an eligibility period given the option to elect ORP or to stay in TRS. It was your choice. It was your responsibility to read the readily available material explaining that it was optional and the conditions. Do not blame anyone but yourself for believing that person without proof. ORP has certain vesting provisions, which are very clearly stated. I do not know what investment you chose, but you made the choice. The surrender penalty is part of whatever investment that YOU chose. The amount of salary reduction contributions is the amount that you chose. Since you knew that you would be leaving in a few months you could very well have contributed the minimum especially since leaving in less than 1 year+1 day would forfeit any vesting of employer contributions. It is your job to protect your own money. It is solely your responsibility to chosse wisely. I guess there is much more to learn about higher education, isn't there?

I have seen some TPAs and ASOs take the viewpoint that a Plan amendment requires that the plan document itself be amended hence new or revised PD rather than an addendum or attachment. With this viewpoint if the old PD is 25 pages long and the new language that needs to be added is 5 pages, the 5 pages must be imbedded within the documents 25 existing pages creating a single document with 30 pages. The difference is then between imbedding and adding or including versus attaching. I guess I can see both sides, but I wish that these TPAs and ASOs were not so adamant that their interpretation is the only one allowed. I solved the problem in some cases by pointing out that they were contractually bound to provide the reports and in a timely manner, giving them a choice of being sued now, with all monies being withheld, or addressing the issue in due course.

While there are some reputable 403(b) investment providers, the record seems to show that the majority of available option are not very desirable. Large chunks of the business is held by annuities with exorbitant surrender charges. An a large chunk is held by mutual funds with even worse charges. There is nothing that I have ever seen in the 401(k) market that compares or even comes close to an annuity with 25% surrender charge declining over 15 years or a 50% sales load on a mutual fund ala Destiny, First Command or Pioneer Independence.

What IRS regulations? Let them state in writing what regs etc they are relying on. Requesting "at least a month after the open enrollment period " is irrelevant, it is requesting BEFORE it comes into effect that matters. Salary reductions are made as per the employee's salary reduction agreement. Most employers have the employee fill out a new 1 each year, usually at Open Enrollment. Although your spouse might have filled out 1 prior to the first payroll of the new year this is cancelable if done in a reasonable time before the first payroll. After the deductions have started cancellation of the deduction of FSA amount is not allowed. The questions then are: Is there a salary reduction agreement? Was cancellation in writing or accepted as timely? The IRS does allow for administrative errors. Some state laws require a new salary reduction agreement each year. If there is no SRA then there should have been no deduction. In any case, if she cancelled in a timely manner (as per the PD, SPD or operating practice) she should be refunded the money. Especially since they are admitting that they were notified pprior to January 1 and/or the first deduction. Aside from the "rightness" issue, is this worth the hassle? You might want to file a complain for an illegal pay deduction with your state labor regulators and stae Dept of Insurance (if they regulate TPAs) and let them handle it.