jpod

The Plan ADministrator of your plan, presumably your employer or former employer, as the case may be, must follow QDRO procedures upon receipt of a court order. One of the procedures is to notify you, immediately, of the receipt of the order, and then notify you once it has determined whether or not the order is a good QDRO. Naturally, this is to occur before any money is paid to the alternate payee (i.e., in this case your ex-spouse). You may be able to hang your loss on the Plan Administrator if the QDRO procedures weren't followed, if as a result you never had an opportunity to step up and complain before Fidelty paid the $$ to your ex-spouse. You should have your attorney look into this.

It is true that there are no special correction rules for scrivener's errors. However, you should review the general rules in Rev. Proc. 2006-27 addressing the correction of operational errors through VCP by means of a plan amendment. Those rules permit correction through a retroactive amendment to conform the terms of the plan to its actual operation, as long as the amendment does not result in a violation of 411(d)(6) and a couple of other Code sections cited in the Rev. Proc. It's usually very difficult to qualify for this, but if the facts are right it might work.

PLAN MAN: I have very little doubt that the employer must put the money in the plan in order to preserve the plan's tax-qualified status, not 50% as per Appendix B, but 100%. Perhaps in a vcp submission the IRS would allow less than 100%, but I wouldn't understand the logic in that. Nevertheless, what the employer must do to preserve the plan's qualified status is a separate issue from the employee's obligation to the employer, and that's all I was saying. If the employer puts money in the employee's account, I can't think of a defense that the employee would have to a claim by the employer to make the employer whole, albeit with some possible reduction due to the employee's loss of pre-tax treatment.

No citation is necessary. Employee made an election. Per terms of plan, election cannot be revoked retroactively. What legitimate reason do you think the employee could have for refusing to part with the money she elected to put into the plan? Let me turn the tables on you: what citation can you provide for the proposition that the employee is entitled to both the money in the plan and the money in her pocket?

I agree with those who say that to fix the plan qualification issue the employer must deposit to the plan 100% of what the employee elected to contribute, plus any corresponding match. However, that doesn't mean the employee is off the hook and can walk away with a freebie: she still owes the employer the money that shouldn't have been deducted from her paycheck. If this cannot be done on a pre-tax basis, then maybe her debt to the Company should be reduced a little bit to take that into account, but there's no reason why she must (or should) benefit from the employer's mistake.

In this provision, "administrator" means the fiduciary appointed by a court to administer the estate of a deceased individual who died intestate (i.e., without a will). It has nothing to do with the concept of "plan administrator," if that's what you're wondering.

Assuming it is a pt in the first place, and that's kind of hard to evaluate without all the facts, if it is a 406(a) pt, the service-provider exemption may be applicable. If it's a 406(b) pt, there is no statutory or class exemption. The fact that the director is neither on the "plan committee" (whatever that is) nor an employee does not necessarily mean there is no pt.

A trust is a separate legal entity, separate from the beneficiary(ies). The trustee is the "legal" owner of the assets held in the trust and the beneficiary(ies) is(are) the beneficial owner(s). A custodial account is simply a contractual relationship whereby one person - the custodian - holds assets which are legally and beneficially owned by another person; the custodial account is not a separate entity. Of course, in the world of qualified plans and IRAs this distinction is largely meaningless.

As to the g-fathered plan, it's probably a material modification. But if you know that the cc won't occur in 2006, I think the transition rule can work perfectly in both cases, as long as the amendment/new election is made before the end of 2006.

Kristine: I agree with you if we're talking about a fsa subject to ERISA (i.e, a medical fsa of an employer whose plans are subject to ERISA). However, if we're talking about a non-ERISA fsa (e.g., a dependent care reimbursement fsa, or a medical fsa that is a church plan or a governmental plan), the employer can do whatever it feels like doing with the surplus, assuming the plan document was written to give the employer that kind of flexibility.

If you draft a plan under which payment and vesting are simultaneous the result is: (a) you will avoid taxation until vesting, and (b) the plan will not have deferred compensation subject to 409A (under the "short-term deferral" rule). If payment is deferred to a calendar year beyond the year of vesting, you are taking a risk that the payment will be taxable upon vesting nonetheless.

I am advising them that if they design plans assuming they are subject to 457(f) restrictions they will be safe.

That is the word on the street in the Credit Union industry. Why are you being so argumentative? I already said that the full faith and credit argument seemed incorrect to me. Are you that much in need of always having the last word? You must be great fun to work with.

mjb: IRS' feeling (at least tentatively) is that because the obligations of a federal instrumentality are backed by the full faith and credit of the Federal gov't, deferred compensation is includable in gross income at time of vesting under the economic benefit doctrine. This doesn't seem correct to me, but that's what IRS was saying, informally, after the PLR was published.

A plan that provides deferred compensation subject to a substantial risk of forfeiture with payment simultanous with vesting will work. In other words, tax liability is deferred until the payment/vesting date. There is no provision in the Code or any judicial doctrine that would tax compensation while it is subject to a substantial risk of forfeiture.

I am by no means an expert on this, but I believe the "insurable interest" concept comes into play only at the time that policy is issued.

Any prohibited transaction (and I'm not saying that there necessarily is one) would be attributable to the fact that the policy would be purchased from the sister of the person making the decision to buy the policy.

rcline: Why should we assume that the sister will be the beneficiary? As the owner of the policy, the plan could name itself. Presumably, the sister needs/wants the cash and the participant thinks this is a good investment. Dan: Is it a term policy? Also, while purchasing from the participant's sister is not a "per se" prohibited transaction with a party in interest, consider whether it might be a fiduciary self-dealing prohibited transaction. Probably not if the transaction can be justified as a good investment for the plan, but you should consider the issue anyway.

A tax-effective non-qualified db plan with vesting is impossible, due to 457(f).

The answer to your question (unstated in the DOL document, intentionally I'm sure) is that there was no civil penalty which the DOL could assess for failure to file pre-1988 5500s. Consequently, there is no need for any DOL relief for pre-1988 failures to file. Unfortunately, the IRS could still assess penalties for failure to file for pre-1988 years (although this is probably only a theoretical problem rather than a real one).

gaham: Thanks for your comments on my issue. Insofar as your issue is concerned, I haven't really thought about it. However, I don't recall anything in the prop. regs. that could make an unrelated party a member of the seller's service-recipient group, in which case I would think the existence of the buyer's NQP should have no effect on the seller's ability to use one or more of the "termination" exceptions.

Has anyone heard Dan Hogans or anyone else from Treasury/IRS comment on the following issue? One of the exceptions in the proposed regulations permits payment upon termination of an arrangement (and all substantially similar arrangements) pursuant to "the service recipient's discretion under the terms of the arrangement" within 30 days preceding or 12 months following a change in control. If the written terms of the arrangement do not reserve this discretion to the service recipient, can you still take advantage of the exception if all of the participants and the service-recipeitn agree to terminate and pay out the money within the permitted time period surrounding a change in control? If not, can you achieve the same objective by first having all the participants and the service-recipient agree to amend the arrangement to give the service-recipient the necessary discretion, and thereafter have the service-recipient exercise that discretion? Seems kind of silly that you can do it through the 2-step approach but not the 1-step approach, which makes me think that maybe you can't do the 2-step approach either.

The social security benefits issue is probably a red herring. I can't imagine a scenario in which the combined income tax and FICA/Medicare tax savings doesn't outwiegh the present value of any decrease in social security benefit. Disability insurance is another story. If the maximum LTD coverage is 60% of pay, paying for the coverage with after-tax dollars can be a very good investment. But the answer to the original question is "yes," the employer can design the 125 plan so that it's either pre-tax or nothing.

DFVC is an option for incomplete filings as well as late filings, assuming you otherwise qualify for DFVC (i.e., haven't been contacted yet by DOL).

I think you were correct the first time. Using a cutoff hire date is not a violation of 410(a).