Dave Baker

Will the trust be a QTIP trust for a surviving spouse?

I suppose an amendment eliminating plan loan provisions ideally would say "effective X/X/XXXX, except for loans outstanding on that date" -- but arguably that's not needed because the promissory note is basically a contract, setting forth the lender's rights and the borrower's obligations. That contract isn't affected merely because one party decides to change it without the consent of the other party; no amendment to the plan could expressly force the borrower to repay the loan immediately, so I don't think an amendment that merely removes loan provisions would have that effect.

The IRS National Office has published a : IRS Revenue Procedure 99-13. Excerpt: This revenue procedure provides a comprehensive system of correction programs and procedures for an employer that offers a plan that is intended to satisfy the requirements of section 403(B) of the Internal Revenue Code (the "Code"), but that has failed to satisfy those requirements because of Operational, Demographic, or Eligibility Failures. This system permits an employer to correct these failures, and thereby provide its employees with retirement benefits on a tax-favored basis. This revenue procedure modifies and amplifies the Employee Plans Compliance Resolution System (EPCRS), set forth in Rev. Proc. 98-22, 1998-12 I.R.B. 11, to include specific programs and procedures relating to 403(B) Plans. In addition, this revenue procedure replaces the program described in Rev. Proc. 95-24, 1995-1 C.B. 694, which established the Tax Sheltered Annuity Voluntary Correction (TVC) program, and which was extended by Rev. Proc. 96-50, 1996-2 C.B. 370. Except as otherwise indicated in this revenue procedure, the specific provisions of EPCRS apply to 403(B) Plans. Here's a link: http://www.benefitslink.com/IRS/revproc99-13.shtml (click)

Please list names, phone numbers and prices! This is great info for sharing. Thanks!

Basically you just have to avoid causing the IRA to engage in a "prohibited transaction" -- can't purchase the investment from the IRA owner, a company controlled by the IRA owner, etc. -- the tax code doesn't really prohibit any particular kind of investment at all (other than so-called "collectibles"). So a security issued by a start-up company generally would be fine. Sometimes prohibited transaction problems crop up when the IRA owner is involved in starting the company that issues the securities, or will be an employee of that company. Generally it's OK for the IRA owner to invest in the company at the same time that the IRA makes the investment, or even to serve as a director of the company. One of the prohibited transactions, you see, is where an IRA owner "uses" the IRA's investments for his or her own benefit ... it's a squishy concept.

Yup, I think it would be. Once the time for making the contribution has passed, the funds are considered "plan assets." Hence the employer is "using" plan assets by definition ... they're still part of the employer's general assets, and vulnerable to being taken by some creditor or bankruptcy trustee. Here are the final regs (click)-- issued under the ERISA definition of "plan assets." From the preamble to those regs: "ERISA's fiduciary responsibility provisions also prohibit certain transactions involving plan assets. ERISA sections 406-407, 29 U.S.C. 1106-1107. In particular, ERISA section 406(a)(1)(D), 29 U.S.C. 1106(a)(1)(D), provides that a plan fiduciary shall not cause the plan to engage in a transaction if he knows or should know that such transaction constitutes a direct or indirect transfer to, or use by, or for the benefit of a party in interest of any assets of the plan. The employer of employees covered by the plan is a party in interest with respect to the plan. ERISA section 3(14)©, 29 U.S.C. 1002(14)©. Violations of ERISA's prohibited transaction provisions subject the fiduciaries and parties in interest to liability for the plan's losses and other relief. In the case of pension plans qualified under the Code, the parties in interest (referred to as disqualified persons) are subject to excise taxes under IRC section 4975. In the case of other employee benefit plans, particularly welfare plans, the parties in interest are subject to civil penalties under ERISA section 502(i), 29 U.S.C. 1132(i)."

Bitch, bitch, bitch. Announcing the new Welfare Plans in General message board (click)

Here they are: http://www.dol.gov/dol/pwba/public/programs/ori/ori.htm (click)

I'm the webmaster ... I'd be happy to create separate, new message boards if the "Health Plans (Including COBRA and HIPAA)" is too broad. Whatcha think?

Oughta turn on the language of the amendment. If it's worded carefully, it would apply only to persons have at least an hour of service on or after the effective date.

The plan probably won't make three distributions, but if the surviving spouse takes the account balance and opens one IRA then there's nothing to stop him or her from rolling over a piece of that IRA into each of two other IRAs ... (or, better, a direct transfer from the first IRA into each of the others) ... no limit on the number of IRAs he or she can have.

Here is the Department of Labor regulation on the point: http://www.benefitslink.com/erisaregs/403.shtml (click)

The trouble with interpreting the plan in a way that would benefit the ex-employees more than the long-time employees is the liquidity problem ... there is still an exempt loan outstanding, and the finite cash available to the plan sponsor is needed for payments on the loan. The usual exception to the put option rules, that payments from the plan sponsor to a participant who exercises a put option need not be made until an exempt loan is paid off, doesn't seem to apply to stock distributed per the age 55 diversification/distribution rights ... or does it?

(Assuming they're not part of an affiliated service group or a management group per 414(m) and that one company isn't leasing employees to the other per 414(n).)

I agree that a surviving spouse always has the rollover option, whether or not the decedent had passed his required beginning date (April 1 of the calendar year after the calendar year in which he attained age 70-1/2). When you say "payments had commenced" by the date of the IRA owner's death, do you mean he had passed his required beginning date already?

The $64,000 question: is it 10 years since one became a participant in the plan, or ten years of service (1,000 hours or more?) for the employer while a participant? 401(a)(28) requires that an ESOP must grant a "qualified participant" the right to diversify 25% of his or her account into something other than employer stock in the year in which the employee has "completed at least 10 years of participation under the plan and has attained age 55." ESOP is established in 1988. Some employees leave during the 90s, before being in the plan for 10 years. But their accounts in the plan now have been in the plan for 10 years (not yet distributed). Some of them are age 55 or more and want to exercise the diversification option (or a distribution right, in lieu of diversification). What result, assuming the plan document parrots the language of the tax code in this regard? [This message has been edited by Dave Baker (edited 01-07-99).]

Federal register online only goes back to 1995, sigh. http://www.access.gpo.gov/su_docs/aces/aces140.html Some of the more important class exemptions are online from the Pension and Welfare Benefit Administration (of the DOL) at http://www.dol.gov/dol/pwba/public/programs/oed/oed.htm#list but 79-1 doesn't seem to be included. PWBA doesn't appear to make any special online publication of individual prohibited transaction exemptions (which are published in the Federal Register, in both proposed and final form). [This message has been edited by Dave Baker (edited 01-07-99).]

Playing with fire there. On the face of it such a loan would not be a prohibited transaction within the meaning of the tax code because it would be a loan between a plan and the brother-in-law of the person who owns the plan sponsor ... the brother-in-law is not a "disqualified person" (nor would a sister be). But the trouble-maker is the fact that the plan's trustee, who makes the decision whether to invest the plan's assets in the form of a loan, is acting in a way that arguably benefits himself personally (his sister will certainly think better of him for making the capital available). It's that "dealing" with plan assets in his own "interest" that could cause the IRS to accuse the trustee of having caused the plan to enter into a prohibited transaction, no matter how favorable the interest rate is for the plan.

I think you're OK if the termination takes place (as a formal, corporate matter) before the companies become related to each other. There's a reg that says the determination of who's the "employer" for purposes of maintaining a successor plan is made at the time of the termination, which I think means you have the ability to terminate without fear before the plan sponsor becomes owned/merged with the other company. Probably not necessary to have all distributions made from the terminated plan's trust fund before the sale/merger takes place, just a formal termination (board of directors' resolution, etc.).

Which sector is long-term care? Employees of nursing homes, you mean?

No experience with it personally, but I see where the IRS is reminding employers of its availability, in Announcement 99-2 -- http://www.benefitslink.com/IRS/ann99-2.shtml

'Course I guess you could avoid the election by providing in the plan that all participants with 3 or more Years of Service will get the better of the two vesting schedules, and then have the new schedules apply only to participants who do not now have at least 3 Years of Service for vesting purposes.

Section 403(B)(12)(A)(i) says that with respect to the employer-provided part of a 403(B) program it must meet the minimum coverage rules of 410(B) as if it were a qualified plan; section 403(B)(12)(A)(ii) basically says the salary reduction feature (if any) has to be available to every employee; but then the "flush language" later in 403(B)(12)(A), which seems to apply to both kinds of 403(B) contributions, says "Subject to the conditions applicable under section 410(B)(4), there may be excluded for purposes of this subparagraph employees who are students performing services described in section 3121(B)(10) and employees who normally work less than 20 hours per week." I think the idea behind section 410(B)(4) is that if the program excludes all students performing services described (etc.) and all employees who normally work less than 20 hours per week, then the program passes. If the program makes some exceptions (maybe has different eligibility criteria for different departments or employee categories) and hence lets some such students or less-than-20-hour-per-week people into the program, then the employer conceivably could have trouble with the minimum coverage test. But because it's likely that the student and less-than-20-hours categories have no "highly compensated employees" among them, there probably would be no trouble. The employer would test separately the group of people who are such students or in the less-than-20-hours category, and if no HCEs are in that category (and hence no HCEs in that category are getting coverage) then that separate "part" passes the minimum coverage test automatically.

There's an obscure reg under Code section 408 that says the surviving spouse is considered to have elected to treat the IRA as his/her own if he/she misses the 5-year distribution deadline ... that to keep the spouse out of minimum distribution trouble the IRS assumes the spouse has decided to consider the IRA as an "inherited IRA," meaning the after-death minimum distribution rules don't apply, but instead only the 70-1/2 minimum distributions (as applied to the surviving spouse). 1.408-2(B)(7)(ii). It's confusing because only a surviving spouse now is able to get the treatment described in that reg (which was issued before the statute was changed to provide that only surviving spouses can have "inherited" IRAs).

I wonder how the land is going to be improved. If the plan uses some of its own cash to pay the plan sponsor for the improvements (putting in sewer lines, electrical lines, etc.), then that would seem to be a prohibited transaction. But if the services are provided for free, it might not be a prohibited transaction but the IRS might call it a deemed contribution to the plan.