jpod

I agree with papogi unless the plan says that you can't participate unless you have a "qualifying individual," in which case participation was a "mistake." Probably not there explicitly, but someone should take a look.

I would vote for termination; you can then roll the money into your new profit sharing plan or an IRA, and preserve the tax-deferral. You still must amend your MPP, however, to comply with the so-called "GUST" changes in law, even if you terminate the MPP before year-end. You should already be subject to the 5500 filing requirement, if your MPP has at least $100,000. Terminating the MPP would not trigger any new 5500 filing obligations. Filing a 5310 with IRS in connection with the termination of a qualified plan is a right, not a requirement. Usually it's the prudent thing to do; sometimes it's not warranted. If you've never, ever, had any employees whatsoever since you set up the MPP, and you are not an owner of any other incorporated or unincorporated trade or businesses, you can probably feel comfortable without filing a 5310, but that is a difficult question to answer via a message board.

I have done several, but not in the last five years. If your facts are comparable to the dozens/hundreds issued over the years to organizations related to the Catholic Church, you should expect 4-6 months, I think. If it's not cookie-cutter, it could be a lot longer.

What is this organization? Only 2 types of employees can have 403(B)s: 1. employees of organizations exempt under 501©(3) of the Code (note: only ©(3)s, not any ©); and 2. employees of a state, political subdivision of a state, or an agency or instrumentality of either, who perform services for an educational organization which normally maintains a regular faculty and curriculum and normally has a regulary enrolled body of pupils or students in attendance (e.g., a public school district or a state-owned college).

It still seems odd to me that NQDC paid to a death beneficiary would be reported on the 1099-R, although it seems pretty darn clear that this is what the IRS instructions want to happen. It is strange because NQDC payments are wages, plain and simple (except for the little twist involving of the FICA/Medicare liability), and wages paid to the estate of an employee are reportable on the W-2 and/or 1099-MISC, depending upon the timing of payment in relation to the date of death. Maybe it has something to do with the distinction between payment owed to and paid to a designated or default beneficiary vs. payment owed to an employee and received by the estate after his or her death. But, what if the beneficiary of the deferred comp. was the employee's estate?!?

I stand corrected; sorry! I've seen so many instances in which nonqualified deferred comp. paid to the PARTICIPANT was reported on the 1099-R that I gave you my knee-jerk reaction.

1099-R is definitely not correct. Check the W-2 instructions and maybe also the 1099-MISC instructions. While ordinarily everything would be reported on a W-2 and subject to all tax withholdings (except FICA and Medicare if the deferred comp. was properly taxed when vested), there are some special rules in a death situation.

Clearly, you must file. And, remember, you must file everything these days at the DOL's filing address. I am taking at face value that all of the filings are "eligible" for 5500-EZs and are not subject to the ERISA, Title I, filing requirements. You should file all of them at once, each with its own Statement of Reasonable Cause attached, and preferably everything should be filed under cover of a lawyer's or an accountant's transmittal letter, accompanied by that individual's Form 2848. Based on my experiences with these things, there is an excellent chance that you will never, ever, hear anything from the IRS about this, good or bad. However, I haven't had this situation since the liberalization of DFVCP. It may be that eventualy the IRS will get around to your situation and will want to impose penalties equal to what the DFVCP penalties would have been if the plan had been subject to Title I of ERISA.

I think that salary reduction contributions are still deductible under 404 by reason of the flush language at the beginning of subsection (a), but they are not subject to the profit sharing plan deduction limit (now, 25% of comp); and salary reduction contributions do not reduce "comp" for purposes of the deduction limit.

Appleby: Please give me one more chance to explain, and tell me where you think I've gone wrong. First, let's assume that Schedule C net income minus 1/2 of SE tax is $15,000. [For what it's worth, you need net Schedule C net income of $16,140 to reach this result, not $16,250.] Second, I have assumed all along that this is a one-person plan covering only the self-employed person. For a self-employed person, 415 comp. is "earned income" as defined in Section 401©(2). [415©(3)(B)] Per 401©(2), "earned income," in our example, would be $15,000 reduced by the deductions allowed by Section 404. [401©(2)(A)(5)] Per 404(n), elective deferrals are not subject to any 404 limitations. Per 414(v), catch-ups are not subject to any 404 or 415 limitations. Therefore, the 415 limitation is "earned income," which in our example is $15,000 minus the profit sharing contribution. If the profit sharing contribution is $3,000, that leaves us with "earned income" of $12,000. To complete the circle, if earned income is $12,000, the 415 limit is $12,000, and if the profit sharing contribution is $3,000, that leaves only $9,000 for an elective deferral.

Appleby: In your revised example, if the profit sharing contribution is $3,000, then the 415 limit is $12,000 [$15,000 - $3,000]. 415 is the critical limitation in this situation. If the 415 limit is $12,000, and the profit sharing contribution is $3,000, that only leaves $9,000 for an elective deferral. I think we agree that the catch-up of $1,000 is a free-bee. So, if the profit sharing contribution is $3,000, the total put away is $13,000. Ironically, as in my example, if the profit sharing is only $2,000, that leaves us with a 415 limit of $13,000, which leaves room for the full $11,000 elective deferral. That, plus the catch-up, gives us $14,000!!!

Appleby: The example assumed that $15,000 was AFTER the deduction for 1/2 of the SE tax. But, putting that point aside, in the case of a self-employed person, isn't the 415 limit ANBI minus the profit sharing contribution? i.e., the 415 limit is "earned income," and that means ANBI minus the Section 404 deduction.

In the example involving $15,000 of net income (after the self-employment tax deduction), I believe the answer is as follows: Regular elective $11,000 Catch-up $ 1,000 Profit Sharing $ 2,000 Total $14,000 415© compensation here is $13,000 [$15,000 - $2,000]. The sum of the regular elective contribution and the profit sharing contribution is $13,000, and the catch-up is a free-bee, so we're ok under 415. On the deduction side, you have to do the algebra so that the net earned income is further reduced by the profit sharing contribution (but not the regular elective contribution or the catch-up). So, the deduction limit is 25% x [$15,000 - $2,000] = $3,250, but that is trumped by the 415 limit.

No. Why do you think this language imposes the type of burden on the plan which the statutory language was designed to avoid?

I agree with MBozek's observation, insofar as it concerns criminal prosecutions. However, given that the plan is assumed to be non-ERISA, any civil action brought privately by participants or an enforcement action by the appropriate State agency would not be preempted by ERISA. Second, we all know that ERISA plan participants have a cause of action for such violations and the DOL is aggressively trying to enforce the "timely deposit" rule. Therefore, if there is any basis for a private civil action or an enforcement action under State law, I would think that State court judges would be very interested in making sure that employees who do not have the Federal law protections afforded by ERISA are equally protected.

I haven't had a situation like this one, but it could be a real mess to clean up properly. I assume from your post that the investment was not a self-directed investment for a single participant, but rather a plan-wide investment. Clearly, the value of the invesment belongs to the participants, but which participants? When the plan was alive, was the value of the asset taken into account each year in determining each participant's account balance? If not, the asset would not necessarily belong solely to the participants who had open accounts as of the termination date; some portion of it may also belong to participants who received a full distribution (or thought they received a full distribution) before the termination. Also, you have the issue of whether the plan was not "terminated" within the requisite period for tax-qualification purposes. If not, you would have, technically, a frozen plan that was never terminated and may not have been timely amended for TRA 86 (let alone GUST). How much money are we talking about? If it's an investment that was worth $500 but the plan's assets at termination were $1,000,000, the real risks (as opposed to the theoretical risks) associated with doing nothing and turning the money over to the State, or to a public charity, are a whole lot different than if it is an investment worth $50,000. Putting aside the question of who will pay your fee for sorting through all these issues (although that's an important issue too), you should have a conversation with someone at IRS who is relatively high up in the EPCRS unit, to sort through the qualification issues. And, to the extent there are potential ERISA fiduciary responsibility issues involved, you should look at the DOL's new fiduciary violation relief program and perhaps speak with someone at DOL. In the end, I suspect that you will find a million potential problems here, but perhaps nobody will agree to pay for your or another competent professional's time to fix them.

State wage payment laws and similar statel law protections could create issues (e.g., interest for delayed funding of custodial accounts or annuity contracts).

The definition of QPAM is relevant solely for purposes of the exemption from 406(a) prohibited transactions available under 84-14. I can't imagine how the trustee would be relieved of any particular ERISA fiduciary responsibilities as a result of the investment manager having QPAM status. If you explain to the board why you think this is a possibility, maybe we can be of some help?

If it is a 403(B) plan, there are no schedules or attachments required. You have to go back and look at the instructions for each year, but I believe that you will not have to assemble any financial data for any year. If the plan never had more than 120 participants, the total stipulated penalty under DFVCP would be $750.

Don't have a clue, but I imagine that the relevant state laws and regulations are easily researchable. By the way, are you using the term "QPAM" to mean one as defined in PTE 84-14, or something more generic?

I think the so-called "issue" has to do with the fact that the statute permits investments solely in shares of regulated investment companies, and, therefore, one could imagine that a loan is not a permitted investment. Fortunately, the IRS has been ruling favorably for 15 years on this conundrum, so unless one is trying to convince a client to pay professional fees to secure another cookie-cutter ruling from IRS, there is no real "issue." So, is anybody interested in my original question?

I hear you, but that still doesn't help me understand why the grant of a discounted option is "deferred compensation." I'll even go so far as to assume that Section 457(f) trumps 83 where there is "deferred compensation" involved. But, if you compensate me for services by giving me a fully vested, discounted option to purchase shares of an S&P 500 index mutual fund, that sounds like current compensation to me, in which case I would be subject to tax when Section 83 says I'm subject to tax.

Could it be a problem in terms of compliance with the "definite allocation rule?" By amending the plan after 12/31/01 to add new participants, you are taking away a portion of the allocation (if any) which each original participant would have had in the absence of the amendment. And, it wouldn't matter that the contribution had not been made before the amendment was adopted.

Tax-exempt employer maintains 403(B) program funded solely by employee elective contributions. Same employer also maintains 401(a) defined contribution plan. Loans are NOT PERMITTEED from the 401(a) defined contribution plan. QUESTION: In determining maximum loan an employee can take from the 403(B), do you agggregate 403(B) account balance with vested 401(a) account balance for purposes of determining the 50% limit? I know what 72(p) says. Any citations beyond the statute would be appreciated.

Check the instructions. I believe that you only need to answer questions 1-5 and 8 on the 5500, regardless of the number of participants; no schedules and no audit.