jpod

SEC is not an executive branch agency.

It is possible that the Government decided to skip asking for a rehearing in the Court of Appeals and will file a petition for cert. with the Supreme Court, which it still has some time to do, but the smart money says this will not happen. It is possible, however, that we may see Fiduciary Rule 3.0, depending upon how satisfied or not the current Administration is with the SEC's final rulemaking (or the next Administration). Bottom line is that many feel that retirement investors need greater protection, if for no other reason than Uncle Sam has a claim to a large piece of that retirement money.

We once had a client that for a period of several months was using employees' 401k contributions and loan repayments to help make its payroll, believing that when it pulled through its "temporary" cash-flow problem it would make everybody whole. They actually had the best of intentions because the alternative would have been to let some employees go. Unfortunately for them an employee (or more than one) dropped a dime on them with the DOL. As I recall the DOL acted very quickly. We were able to resolve the issue without anyone being indicted.

Could be a fair assumption, in which case it is a MOF, but it's not clear those were the facts.

It's still not clear how this mistake happened. If employer was told to contribute X, why did employer contribute 2X? Or, did employer do its own math and come up with 2X and deposit it, and then lo and behold was advised after the fact that it should have been only X?

I think we're missing the point. Unless the Plan has the magic "Microsoft" language in it, it will say, presumably, that employees are eligible. That calls for an analysis of whether someone who you are not treating as an employee is really an employee under the common law definition. If he is, he is eligible. Also, most likely the definition of compensation speaks in terms of how the compensation is supposed to be treated, not how it is actually treated. This is not dancing on the head of a pin. However, under these circumstances it sounds like a simple fix is to amend the plan to say that [NAME OF PRIOR OWNER] shall no longer be eligible to participate effective 7/1/18.

RatherBeGolfing: Is there something in the facts provided which I missed that says the plan excludes individuals classified by the employer as ICs?

Unless there is an IRS ruling to the contrary, the IRA cannot be the owner of S corp stock, even for a nanosecond, because that will blow the corporation's S election.

This is #1 on my list of rules which clients don't follow correctly in operation. When I ask "why do you care whether they contribute or not (since there is no ADP testing)?" they always come up with some employment intake or payroll-related reason that doesn't make sense. And, typically, they don't follow the rule because they let certain people who should be excluded under the rule participate.

This is one of the reasons why there is vcp. IRS has been fairly generous in the few cases I've had like this.

Larry, try not to hurt yourself patting yourself on the back.

For the benefit of bpenfold, if the client is allowed under the terms of the plan to take a distribution from the plan now, the client can take a cash distribution, roll it to a "self-directed" IRA with one of the trust companies that offers IRAs for non-traditional investments, and then use that cash to purchase the home. Unless the home is rented out, and the concept doesn't make any sense unless it is, the IRA will need plenty of other cash to pay taxes and other costs of maintaining the home, year after year after year . . . . That cash may come from annual cash contributions to the IRA, other assets in the IRA, or a combination thereof. Of course, the same PT issues would apply as described above, and it is still a terrible idea because if the house appreciates in value the tax bill when it is distributed in kind out of the IRA will be that much larger.

Is it a bad idea even if not a PT? Yes, it is a terrible idea for a variety of administrative reasons. Will it be a PT? We don't know that yet. Is there a problem with an in kind distribution down the road? Not if this investment is important enough for the client to take steps to fix the problem when the time comes. There is no need to amend the plan now to permit in kind distributions. He can do it at the time he wants to take the property out in kind, which may coincide with the termination of the plan.

So far all he said is that the client wants the plan to purchase the house; he did not say that the client would use it while it's held by the plan, so technically we don't KNOW that it is not allowed. (The client may want to buy it now, even though he won't use it for many years, at which time he will take it as an in kind distribution from the plan.)

A plan can hold real estate. A plan fiduciary engages in a prohibited transaction under ERISA and the IRC if the fiduciary causes plan assets to be used for the benefit of a party-in-interest/disqualified person or engages in a transaction with such person, such as allowing that person to use a home owned by the plan rent-free or even for a fair rent.

I think it could have a very significant practical impact. Absent a state law problem, or some new application of Title VII, they could write the plan as I described so that the plan would never be in a situation of having to pay something to a surviving same-sex spouse. I would not be surprised if that's what they want. On the other hand, they are likely to find out about the marriage and fire the participant while he/she is alive, again barring state law or Title VII problems, thereby rendering the point moot.

I was playing the cards we were dealt by 30Rock, not another hand.

You say "certainly," but I'm not so certain. There would be nothing to prevent the plan from prohibiting the designation of death beneficiaries and instead to require that there be a mandatory priority of death beneficiaries (e.g., to the opposite-sex spouse, if there is one, next to the participant's issue per stirpes, next to the estate). In that way the employer guarantees that the plan will never pay anything to a same-sex spouse. Given the question asked in the first place, I wouldn't be surprised if this was also part of the employer's mindset.

Since this is a 403(b) plan I assume that there is no extra employer-provided death benefit in play here. Can the participant name his/her same-sex spouse as the designated beneficiary? If so, what's the point? I suspect I know what the "point" may be, but it doesn't make much sense to me even with all due respect to 1st Amendment rights.

Larry, I see your point, but only in a case where the client has been consulted and thought it through. However, when this discussion started you said, or at least I think you said, that you do this automatically in all your plans. Am I misremembering?

ERISAAPPLE: I am not following you. Obviously Larry is referring to the fact that a 50% QPSA leaves the other 50% up for grabs at death prior to the ASD. My point is simply this: If the owner has enough faith in his/her spouse that she/he will consent to waive the QJSA, then why isn't there the same degree of faith that the spouse will consent to the designation of some other death beneficiary(ies)?

But, Larry, I am confused. If in 99.9% or more of the cases the spouse will consent to waive the QJSA, which I think is what you said, then why wouldn't the spouse consent to the designation of other death beneficiaries for 100% of the account balance?

So, Larry, do I have this right: the owner is willing to take the risk that his spouse will force him to take a joint and survivor annuity at retirement in exchange for the certainty that if he croaks first his kids from the prior marriage will get at least 50%? That sounds like a lousy trade-off to me.

Hard to imagine that there would ever be a court opinion on this issue because the statute is perfectly clear that the beneficiary absent the surviving spouse's consent is the surviving spouse.