jpod

You need to review your contract(s)/engagement letters with the client in question, and consult with your own lawyer. I am assuming that neither you nor anyone in your firm who services the client is licensed to practice law. Probably you have no duty to the client to keep your mouth shut, but that's Q #1. Q #2 is whether you have any legal exposure to participants if you keep your mouth shut. I doubt it, but let your lawyer advise you on that. Q #3 is do you care if the fact that you dropped a dime on a client gets spread "around town"? You are making assumptions about what your client has and has not done, which are probably reasonable assumptions, but right now you don't seem to know all the facts, you're only making assumptions. I realize you don't want to spend money on lawyers, but if you are going to take the drastic step of dropping a dime, it would be money well spent.

The assumption that the children of the owners were the youngsters involved is probably a reasonable one. Given the EGTRRA changes (eliminating the 25% limit under 415 and eliminating elective deferrals from the employer deduction limit), I have to admit that this is kind of neat, provided that the kids actually work. Just throwing $$ on a W-2 as a means of getting more family money into the 401k plan and escaping Uncle Sam won't work if the kids are not actually employed.

I have a more fundamental question (or at least a comment in the form of a question). Why in heaven's name would you want to allow people younger than age 18 to participate? I can't think of a good reason, so why even bother? I feel pretty much the same about people younger than 21. For those of you who are thinking about reminding me that the earlier you start putting money away for retirement the better off you'll be, let's be real here.

Her reasoning seems to be inconsistent with the Notice, which says (I think) that the definition of SRF in the 409A regs will be used for purposes of 457f. On the other hand, let's assume that the IRS allowed a good reason condition to be a SRF. A follow-up question would be: does the occurrence of the good reason event cause taxation under 457f, even if the employee does not elect to quit and take the money? If so, then for the IRS to say that good reason = SRF is kind of pointless.

I'm not sure the answer is as clear as J Simmons suggests, but I certainly see the logic in it, so if IRS has not opined on the issue I would certainly follow his approach. If I have missed some IRS pronouncement on the issue, my bad.

Surely you don't mean they actually take the money back FROM the plan. If that's what they do, it is a per se violation of the exclusive benefit rule (i.e., no mistake of fact).

I say it is a tougher question because I am harking back to an issue discussed recently on this message board. The issue is whether down the road Congress will change or repeal the Roth rules such that the earnings on Roth contributions will be taxable when distributed. We've already had the debate over what Congress will or won't or might do, so I am not trying to resurrect it here. However, if you assume that Congress won't change the Roth rules, Roths are a great deal for someone in a very low tax bracket (or even in a high tax bracket in many cases). But if you think that Congress will tax Roth earnings, I would favor either maxing out on your SIMPLE contributions or investing directly in low-turnover mutual funds outside of a retirement account and get the benefit of long-term capital gains tax rates when you need to tap those assets for retirement.

jchen: What do you mean when you say that you "don't need my contributions to be tax-deductible"? If you mean that your income is low enough that you don't pay any federal income taxes, then I like your idea about contributing only the amount necessary to get the maximum match. If you mean that you are in a very low income tax bracket, that's a tougher question.

I have to agree with mjb on this one; Roth IRA and 401k accounts will be a very ripe target some day. Will they be taxed? Who knows, but it certainly is possible. Generally speaking, I don't think one should ever look a gift horse (in this case, a current tax deduction) in the mouth. Sure, the Roth is a better deal for many people, but only if you assume that the earnings won't be taxed.

I must admit, reluctantly, that the Rockies are probably the best team in the NL right now by far, and possibly all of MLB. But the Phightin Phils are not dead yet.

Steelerfan: the use of the concepts of "cash out" and "discretion" suggest to me that the IRS was answering a different question, or didn't understand the question. The question is very simply stated: will a payment that is vested only upon involuntary termination, whether or not for "cause," be considered to be subject to a SRF? There is no discretion involved here, other than the employer's discretion to fire someone. If this was the question asked, and the IRS person truly understand the question, she's wrong.

There is no reason, and possibly no basis, for pursuing interpleader if you have a notarized consent form that you believe to be legitimate. Notaries are supposed to keep some sort of log book. Can you contact the notary and confirm that he or she still has a record of having notarized this document? If you get confirmation from the notary in writing, send a copy to the husband, and maybe that will make him go away. If he does not, there is a provision in Title I of ERISA that would protect the plan and the fiduciaries if you pay the $$ to the son, even if it is later determined that the notary was lying to you.

Perhaps I am saying the same thing as LRDG, but I'll give it a try. It seems to me that if the insurance product has an enrollment year that does not match the 125 plan's plan year, participants may need a Section 125 permitted reason to opt into or out of the insurance product during its annual open enrollment period. If that's the case, it sounds like a poor plan design to me. On the other hand, if participants can opt into or out of the insurance product at any time during the enrollment year (i.e., so that they can opt in or out as of the start of the 125 plan's plan year), then it should be workable.

Hopefully you can get evidence of an account balance immediately prior to or close to the marriage date. Just out of curiousity, why would post-marriage earnings on the marriage-date account balance be excluded from the marital property? Assume it was not a retirement plan. Suppose spouse had $10,000 worth of Microsoft stock in a brokerage account at the marriage date, and he/she never sold it. Would appreciation in value during the marriage be excluded from the marital property? Are defined contribution pension plan accounts treated differently than other types of savings and investment accounts?

This issue requires research, but off-the-cuff I am inclined to disagree with you. Both Section 4201 and Section 4203 describe a complete w/d in terms of a "plan." Presumably, the single fund exists solely for convenience of investing, but there are separate ERISA plans requiring separate accounting of the assets in the fund attributable to the two plans. If the employer gets a letter/bill from Plan A, you'll know what Plan A's interpretation is.

A conservative approach would be to permit investment direction, but only with respect to notional investments.

Andy: I could not agree with you more about avoiding these issues before the fact with better drafting. However, if you were in Penman's shoes, given the "cards" you were dealt, would you advise the client to pay the PBGC fees for the "phantom" participants, and include them on the 5500 as "participants," include them in the actuarial val. as such, and give them plan disclosures? Would you really demand a legal opinion to handle it differently? Would you recommend that the client go off prototpye, or find a better prototype, just for the sake of resolving this issue?

I'm not taking sides, but from a lawyer's perspective, and based on Penman's description of the document, I would feel very comfortable taking the position nobody became a participant after Date X. To take the position that someone can become a "participant" in a plan that would provide them with zero benefits seems kind of pointless. What exactly are the problems vis a vis actuarial valuation, benefit calculation, Form 5500 and Form 1 preparation?

benefits_fan did use the term "multiple plans," but I have the impression that he/she used it to describe two MEPPA plans investing through a single trust. In other words, the employer is obligated to contribute to two MEPPA plans funded through a commingled/master trust, and then withdraws from one plan but not the other. benefits_fan, please confirm or clarify.

I am going to make one more point, in the form of a question, then I will retire from this discussion because it appears that the vote is a landslide against me. If you believe that the IRS's definition of SRF requires you to have an exclusion for "for cause" terminations, then why did the IRS did not prescribe a minimum definition of "cause" that would satisfy this requirement?

I was making the assumption that the Trustee was making the decision to allow the museum to display the plan's property. Perhaps I should have not made that assumption. However, if my assumption was correct, the self-dealing prohibitions are not necessarily limited to direct financial gain. So, there would be a possibility (admittedly requiring further thought and study) that the Trustee's decision to allow the museum to use the plan's property constitutes prohibited self-dealing on his part.

jhall: Let's go through this carefully. Assume an employment agreement that says the executive gets money if he/she is fired, with or without cause. If the executive quits, dies or leaves on account of disability, he/she gets nothing. Is the risk of forfeiting that money substantial? I think it is. You seem to be suggesting that the risk is very low (i.e., not substantial) that the employee would leave for reasons other than involuntary termination. That suggestion seems to be premised on your further assumption that the likelihood of a for cause termination is equivalent to the likelihood of a voluntary quit. So, for example, the employee is just as likely to terminate as a result of being fired for embezzling money, or for drinking on the job, or for doing anything else that constitutes "cause," as a result of quitting. Do you really believe that?

I haven't traced through the definitions of Disqualified Person and Party in Interest, but this smells like a potential self-dealing PT under Section 406(b)(1), in which case it doesn't matter whether the museum is a DP or a PII.

I don't have any specific information for you. However, if the two plans are separate ERISA plans, each a MEPPA plan, I can't think of anything to support an argument that you somehow aggregate the two plans in applying the W/D rules.

Quite often there are agreements between the participating sponsors of multiple employer plans addressing these issues which are not part of the Plan documents, so you would have to look there too.