jpod

Absent something flakey in the order, the payroll deductions must stop; ask for a quick review of the order by your/the plan's legal counsel. Assuming payroll deductions stop as a result of the court order, follow the normal default/deemed distribution rules. The bankruptcy court, thankfully, is more interested in economic reality and protecting the participant's true creditors than the rules for qualified plan loans.

I've always had a problem with making "contingent" periodic allocations during the year when the plan has a last day rule, but the IRS seems to look the other way at this, at least for matching contributions. Regrettably, this practice is common, and it is a big pain in the neck to have to back our YTD contributions, and earnings too: you can't let the participant have the earnings if he/she's not entitled to the contributions which gave rise to the earnings in the first place. And, what if there are losses? Can you charge the participant with the losses if he is forfeiting the contribution due to the last day rule? I don't think so. Typically, the only reason for a match is to encourage people to contribute. If you feel that you need to make periodic matching contributions to encourage people to contribute at the level you'd like them to contribute, then you should eliminate the last day rule. At least, that is what I tell my clients.

401(k) plan is a multiple employer plan. (It is NOT a multiemployer plan). Plan already has a GUST determination letter and has been amended for EGTRRA. One participating employer wants to cease its participation in the plan and have its employees' accounts distributed to them. The employer has no expectation of establishing another plan, at least not within 12 months of when the final distribution might be made to its employees. This employer is not a 414(B), ©, (m) or (o) member with any other participating employer. Questions: 1. Does the employer's cessation of participation constitute a "termination" permitting distributions? I think it does, because of the mandatory disaggregation rules in the 401(k) regs. If so, can I get a determination letter via Form 5310? 2. If not, then what can/should I do? Will a spin-off followed by an immediate termination work? Seems kind of silly that I could do this, but I could not do alternative 1.

You referred to your QDRO procedures as allowing for an immediate distribution, even before the "earliest retirement age." But, what does the Plan document say? Nonetheless, the fact that the AP happens to be a participant is irrelevant.

On the one hand, we, as practioners, had plenty of notice of the IRS' position, so we should have advised our clients to amend again to add the CRA language, whether or not they had 132(f) plans or intended to adopt them. I did about 50 one-paragraph "CRA amendments" this year for plans that already had GUST I letters. I did not advise these clients to apply for new letters just because they had to adopt CRA amendments or did not have GUST II letters. One could be cynical and wonder whose skin the author is trying to save: the professionals who may be accused of professional malpractice, or the clients? On the other hand, I agree that the CRA language should not be required if it is irrelevant, and if the IRS really tried to disqualify a plan for an alleged failure to "timely" amend to add irrelevant CRA language, or to exact an audit CAP sanction, it would never stand up in court or in Congress, and in fact I doubt that higher-ups within TEGE would ever seriously consider going to the mat on the issue.

Executive and Employer entered into a 457(f) agreement years ago. Vesting date (and payout date) is 12/31/02. Executive DOES NOT have a rolling risk of forfeiture right. However, Executive and Employer would like to amend the agreement to defer vesting (and payment) until 12/31/04, in exchange for Employer's commitment to credit Executive with a substantial amount of additional deferred compensation. Therefore, both the deferred compensation accrued as of 12/31/02 and the additional deferred compensation will be at risk for another two years. I believe this works under 457(f). Any thoughts?

Feel free to send an email to me.

As a follow-up, it occurred to me that the wife is constructively the "sole owner" too under the Section 318 attribution rules, but I do not believe that creates a discrimination problem simply because she is allowed to participate.

Small incorporated employer sets up a medical reimbursement plan with an annual reimbursement limit of $2,000 per eligible employee. This is NOT a cafeteria plan; it is funded with employer money. The plan covers out-of-pocket expenses for medical care for the employee and his or her spouse and dependents. The sole owner runs the business and works full time and the sole owner's wife is a legitimate employee of the corporation and also works full time. There are unrelated eligible employees as well. It seems to me the husband and wife, collectively, have a limit of $4,000 for expenses for themselves and their dependents, and there is nothing in 105(h) or the regulations under 105(h) to block this. Anyone disagree?

Who was it on M-A-S-H who used to say: "horse hockey!!"

I've had plan amendments approved where the plan, as amended, specifically says that "Dr. X" shall no longer be eligible to participate," both money purchase pension and profit sharing plans. Initially, the reviewers made noise, but I explained to them that no single doctor had the authority to get in or out of a plan, but that it was a Board of Directors decision as the entity responsible for amending the Plan. The IRS seems to accept this legalism even though everyone knows that the Board will usually accomodate each doctor's wishes, and then make it up to him or her through a larger bonus or salary allocation. However, I advise this type of client that once someone is amended out of a plan, he or she should expect to have to stay out forever.

It is a corporation, but it is not electing to be taxed as a p/s. It and its s/hs are electing to be taxed under the provisions of Subchapter S of the Internal Revenue Code. In a very broad "big picture" sense, Sub S treatment is similar to partnership tax treatment, but it really is very different when you get down to the fine points.

It is required.

Allow me to amend my remarks by deleting the parenthetical "(or stupid)". I truly believe that the IRS and the DOL wish to encourage voluntary compliance, and the IRS' liberal attitude over the years is probably reflective of that goal. Nevertheless, when you consider the amount of penalties which can be imposed for a late filing (or, worse, multiple late filings), DFVC may be the best thing since sliced bread.

I don't have any experience with DOL's position on "reasonable cause." However, under the new DFVC, in my judgment a client would be making a big mistake by rolling the dice rather than going for DFVC, unless the "cause" is fire, death, or something comparable. Yes, I know that the IRS has been extremely liberal (or stupid) in accepting reasonable cause arguments, and I have pushed the envelope in claiming reasonable cause after the client has already received dunning notices from the IRS Service Center. But, DFVC is really a great deal; don't let the client's or its advisor's pride get in the way.

Look at the bankruptcy documentation. I have to wonder, why on earth would the bankruptcy court treat the plan loan as a real debt? Did the plan, either through the employer, the plan administrator, or the trustee(s), receive any formal notice in the proceeding as "creditors" are supposed to receive?

1. Ask the person who you think is the EX-spouse why she believes she is entitled to anything. Maybe they were not divorced; maybe they were but she has a QDRO; maybe she has a copy of a good beneficiary designation naming her, specifically, as the beneficiary, and that would survive a divorce. 2. Ask the executor/administrator what he/she knows. 3. What are the three "default" rules in the plan (if the participant dies unmarried and there is no valid beneficiary designation). You must address these two points first. Then, if no beneficiary designation can be found, you'll know what to do.

I agree with MGB. What does the plan say? If it does not address the issue, I think it can be amended to accomodate anything you'd like to do, because the plan is not subject to the 411(d)(6) rules (if it is a church plan). However, again you must look at the document to make sure that the plan does not have its own rule which would serve as an obstacle to amending the plan to add a mandatory or discretionary cash-out provision. By the way, if the employer is not truly a church, but is some type of church-related organization, do you have IRS and DOL rulings to confirm that it is, in fact, a "church plan," or at least a definitive opinion of counsel on the issue? [be careful.]

Earl: The precise answer to your question is that DFVC is not available for plans eligible for EZ filings. However, the employer has a legal obligation to file, but if it files before it gets caught, it should come out smelling like a rose, or at least no worse off than having to pay something that probably is less than what would be required under DFVC.

A church plan is not subject to the cash-out limitations. Therefore, the plan does not have to be written to comply with those limitations. But, what DOES the plan say?

While it may "work" in a sense, it does not satisfy the employer's liability to the plan for breach of fiduciary liability, to the extent there is a breach (although it certainly minimizes the risk that anyone would be inclined to complain, perhaps not even the DOL).

MBOZEK: You are correct, but I think that approach is highly impractical, expensive, and an employee relations nightmare. If it is a small plan (i.e., not subject to the audit requirement), maybe the illiquid portion of the plan can be spun off as a separate frozen plan and the liquid portion terminated. The plan sponsor will then have to file 5500s for the spun-off illiquid plan (not a big deal) and possibly amend the plan for future law changes, until something can be done with the LP interest. I don't see how this approach can put the qualified status of the liquid plan at risk, and the need to file a pretty simple 5500 for the spun-off plan and possibly amend the plan for law changes seems less cumbersome and easier to explain to employees and probably less expensive than going through the certificate route.

If employer thinks it's worth $0, then it should find some way to sell it or have it redeemed by the LP for $1. I say that with tongue in cheek. In all likelihood it is not worth $0; it is worth something, but it is illiquid. This is always the risk one faces when retirement plan assets are invested in illiquid assets, and now the chickens are coming home to roost. The choices are: (1) the plan cannot be terminated; or (2) find a way to unload it in a transaction and at a price that do not raise prohibited transaction and other fiduciary breach issues.

125© says that there is no prohibited discrimination if "qualified benefits and total benefits (or employer contributions allocable to statutory benefits and employer contributions for total benefits) do not discriminate in favor of [HCEs]." Is it your view that you can still satisfy this standard even if the co-pay is less for some or all HCEs? I honestly don't know what 125© means, so I am curious as to how you get from A to Z. I've advised employers that if the goal is to pay 100% of the cost of health insurance for one or more owners or other HCEs, they can do that by simply making them ineligible for the 125 plan and handling their health insurance costs outside the 125 plan. I think that works (it would have been caught by section 89, but alas . . . ). However, I don't understand how a reduced co-pay under the umbrella of a 125 plan would work.

While I admit that I have never been able to figure out how to apply the Section 125 plan nondiscrimination rules, and I challenge anyone who claims he/she knows exactly how to do it, something tells me that a lower co-pay for HCEs may be a problem under those rules.