IRC401

You can get the property out of the plan by distributing it. You will need a valuation for the 1099-R, and if the recipient can't find an IRA custodian that will hold the property, he will need to find cash to pay the taxes. If the property has a mortgage, you have UDFI issues (IRC 514). All property taxes and maintenance must be paid from the plan, not out of corporate or individual assets.

Kirk- Isn't the issue whether the fee is a "significant detriment" under 1.411(a)-(11)©(2)? Are you taking the postion that any fee, even a small one, is a significant detriment?

Tom- I'm quite serious. What is your authority for the position that someone who made $80,000.01 in 1999 is an HCE in 2000 (ignoring the top 20% election)? The number for 2000 is $85,000. If you plug $85,000 into the statute, you reach the conclusion that anyone with comp. over $85,000 in 1999 is an HCE in 2000. I have yet to see anything that constitutes authority to the contrary. As far as I can tell, every major law firm, accounting firm, and actuarial firm took the position that $85,000 was the correct number for 2000 until Jimmy Holland mumbled something to the contrary at an ASPA program. The IRS then issued a letter (not a reg. or revenue ruling) that because of some regulation that pre-dated the current law, the correct number for 2000 is $80,000. The letter states at the end that the recipient is not entitled to rely on it. If you start with the basic premise that a new law from Congress overrides a preexisting regulation (a concept that the IRS apparently has a hard time grasping), anyone who had comp in the range of $80,000-$85,000.00 in 1999 is not an HCE in 2000. Apparently most ( nearly all?) of the profession is taking the path of least resistance and using $80,000 for determining HCE status. Nevertheless, IMHO anyone who had comp of $85,000 or less in 1999, who is being treated as an HCE, and who has his contributions cut-back because of his HCE status has a legitimate complaint.

I disagree with Kirk that it would be an automatic 411(a)(11) violation to charge admin charges to only terminated participants, but there would be a 411(a)(11) facts and circumstances issue.

1. Check the plan document to make certain that the administrator has the right to freeze accurals. 2. Is this a union only plan? If not, make certain that the union and non-union employees are being tested separately. 3. If any of the lottery winners earned between $80,000 and $85,000 last year, tell them to threaten to sue. The cutoff for HCE status under the law is $85,000. (If you don't beleive me, read the statute. The IRS doesn't understand the concept that Congress can override a regulation with a new law, and it is relying on an obsolete regulation.) The IRS has never issued anything that anyone is entitled to rely upon that the cut-off is not $85,000. (The letter that everyone seems to be relying upon states that the recipient is not entitled to rely upn it.) Maybe the Company can arrange for a friendly lawsuit and get the $80,000 v. $85,000 issue resolved on summary judgement. If you do sue, please keep me informed.

The percentage of compensation needed to pass the "Gateway" test is based on 415© comp, not on the definition of comp that the plan uses for allocations or benefits.

Assume that an employee works 50% of his time on Davis-Bacon projects and 50% of his time on non-Davis Bacon projects and receives a profit-sharing allocation of $2000. The Dol takes (as of the last time that I dealt with this, which was a while ago)the position that only $1000 of the profit-sharing contribution counts for Davis-Bacon purposes because the employee spent only 50% of his time on Davis-Bacon work. If the profit-shariong plan is based solely on Davis-Bacon work (as in employees doing no Davis-Bacon work get no allocation), the employer is able to take credit for Davis-Bacon purposes for the full $2000. If the $2000 allocation in the Davis-Bacon plan is being used to help a non-Davis-Bacon plan pass a 401(a)(4) or 410(B) nondiscrimination test (for a different plan) , I believe that the DoL could take the position that the employer is getting a benefit (other than complying with Davis-Bacon rules) out of the $2000 allocation, and as a consequence, the employer is entitled (in my example) to only $1000 of Davis-Bacon credit, not $2000. In the original question, if the employee is working 100% on Davis-Bacon jobs, his rate group is $5000. However, if he is working less than 100% on Davis-Bacon jobs and if the employer needs to give him a $5000 contribution to comply with Davis-Bacon rules, his rate group is zero. Does anyone agree or disagree or have any authority to support or oppose my postion?

Regardless of Company X decides, it needs to make certain that all of Y's plans are in compliance with GUST and that the needed amendments to Y's plans don't disappear in the merger.

Andy- I'll take Holland seriously if and when the IRS takes enforcement action against the Bank of America plan.

The investment is permitted, BUT you need to figure out: - How assets will be valued and reported on the 5500 (and if there will be audit issues) - If there will be UBTI - How to deal with 401(a)(9) issues with an illiquid asset. - Whether there are any SEC issues - Whether there are any document issues (Will your prototype permit mandatory in-kind distributions of an illiquid invesment?) NOTE: Assuming that the venture capital fund is designed to produce LTGC, why would someone want to make the investment through a 401(k) plan and turn all of the income into ordinary income?

Planning Idea: Set the NRA at 30.

ERIC- I have no better understanding of the facts than you do. Assuming that your explanation is correct, there is an issue whether the employee gets his FICA "basis" or loses it when the option is granted (and I know of no ruling on the subject). You have "fairness" on your side. On the other hand, the IRS could take the position that when you accept an option grant, you agree to play by the option rules, and you ignore any predecessor NQDC. As of a year or so ago (if my memory is correct), our favorite Big 5 firm was not giving an opinion on this issue. Because the IRS is probably not thinking about this issue, it would obviously favor taxpayers to take your position. I believe that the Travelers idea died because of prohibited transaction issues.

1. I'll duck the issue whether the contribution is deductible. 2. IF the IRS treats the donation as a gift to the municipality followed by a contribution to the pension plan, the municipality is probably not an eligible S corp shareholder. 3. The pension plan will be subject to UBTI tax. (Because a trust is a separate legal entity, I don't know if IRC 115 will protect the trust from the UBTI tax. A 115 entity is not an eligible shareholder. The trust would need to claim 115 status for income tax purposes and 401(a) status for S corp pruposes but not 410(a) status for income tax purposes.) Get an opinion letter and please e-mail me with the name of the accounting firm.

You are the one who confused the issue. I never stated that a cafeteria plan was an ERISA plan. I merely stated that in order to have a cafeteria plan, you had to have an employer plan.

I don't understand your description of the plan. I'm guessing that the company wants to treat the plan as the sale of stock, not as the grant of options, so that it can get immediate deductions, and the employees can get capital gains treatment when they sell.

1. Under IRC 125 an employee gets to choose between cash and qualified benefits. Whom do you think provides those benefits: (a) the employee, (B) Amazon.com, or © the employer? There must be an employer benefit plan (and 125 would make no sense otherwise). 2. I have never seen a 125 plan in which the principal tax benefit went to the HCEs (in their capacity as employees). 3. A premium conversion plan is not an ERISA benefit plan, but the plan for which premiums are being paid must be an employer plan, and I don't see how it would not be an ERISA plan (unless the employer is exempt from ERISA). 4. Suppose that 100% of the premiums for a LTD plan are paid through a 125 plan. When someone collects LTD benefits under the policy, is he taxed as if he paid the premiums or the employer paid the premiums?

1. It isn't clear what the initial question was. If you are asking about options inside of a NQDC program, the answer depends on what kind of option is being "purchased". If the option is publicly traded, the tax consequences are no different than if the underlying stock were "purchased". If the option does not have a readily ascertainable FMV (within the meaning of the section 83 regs), then the NQDC is being converted into an option, and taxation is governed under the section 83 regs. I would guess that at least three of the "big 5" accounting firms are out trying to convince big organizations to convert there NQDC into discounted options. As far as I know, the IRS has never objected to companies converting NQDC into options and vice-versa. 2. Rev Rul 71-52 doesn't deal with 423 plans (or ESPP plans). It deals with qualified stock options, a predecessor of ISOs. If you believe that the Rev. Rul was well reasoned, it is logical to extend it to section 423 plans. If you believe that the Rev Rul was a gift from the IRS, then accept the gift for what it is and realize that it doesn't apply to section 423 plans. I think that the FSA was the IRS' way of attempting to limit the Rev. Rul. I don't know why it wouldn't be easier for the IRS to issue a new Rev Rul repealing the old one than to issue an FSA. Furthermore, I think that the IRS should be held in contempt for ignoring the Rev Rul with dealing with disqualifying dispositions of ISOs.

Once the contributions are run through the cafeteria plan, they become employer contributions. I doubt whether the plan could qualify as a non-ERISA plan. In either case it will still be a fringe benefit plan for 5500 purposes.

You probably will need to vest anyone who hasn't had a five year break in service. (and it is very dangerous to accept the opinion of someone who hasn't read the document)

Interesting that the IRS would refer to taxable trusts as VEBAs. My comment was based on the assumption that only a tax-exempt trust would be a VEBA because VEBAs are defined in IRC 501, which deals with tax-exempt organizations.

You have two issues (which are probably more theoretical than real): (1) If the plan is terminated before all of the pre-amendment terminees have a five year break in service, you might need to vest anyone who hasn't had a five year break in serivce. (2) If the amendment is made at a time that an unusually large portion of the forfeitures are allocated to HCEs, there might be a discrimination issue. NB: If you restate the plan for GUST, be careful about effective dates.

I agree with Kirk and Harry O. I drafted a non-qualified option agreement for a "dot.com" start-up earlier this year only to have the client decide to become a C corp because the tax advantages of being an LLC were more than outweighed by the aggrevations. I spent a lot of time coordinating with the corporate attorney (and explaining tax rules to him).

Is variable life insurance life insurance or an investment? One borrow from one tax-deferred investment to finance another? If the professor thinks that he can do better investing through life insurance, may it is time to upgrade the 403(B) plan investment options. Does the professor have a rational need for life insurance? If yes, would it make more sense to purchase term insurance?

The US taxes worldwide income, although depending on facts and circumstances, a US citizen stationed overseas may not owe any US taxes. If the individual has wages that are taxable in the US (even if no tax is due), he should be eligible for 403(B) contributions. I haven't checked whether a different rule would apply for IRAs, but I'm not aware of any reason why the rules would be different. NB: 403(B) or IRA contributions may be taxable by the foreign country.

You didn't discuss the ownership of the entity that sponsors the pension plan. If you work for a company owned by unrelated parties, the plan document is not likely to let you do what you want to do. If the sponsor is a family owned business, will the business survive you? (You need a sponsor to have a pension plan?) Would it make more sense to move the money to an IRA (or IRAs)? Make certain that you find an IRA custodian that isn't going to distribute everything upon your death and screw up the planning. PS: 1. Don't forget about the joint and survivor annuity rules. 2. Having a trust as a beneficiary of a qualified plan is complicated enough that I think that you are foolish to go to this board instead of a specialist.