jpod

There could be another reason or reasons in any particular case but the traditional reason is to avoid having to make top heavy minimum contributions for the associates.

There is no excise tax; there is additional income tax for which the employee is liable, assuming of course there is a 409A violation in the first place.

Which estate? The beneficiary's estate or the participant's estate?

What happens in the non-plan annuity world in this situation? What would the insurance company do?

Unmarried participant elected to receive DB Plan benefits in this form, and named a beneficiary to receive any further payments after her death, but did not provide for the contingency that that beneficiary would die inside of 10 years. Participant died inside of 10 years, then beneficiary died later also inside of 10 years. Who should get the remaining payments? Plan document does not come close to addressing this. Assuming no contrary precedent in administering this plan, I think it should be payable to the beneficiary's estate. Anyone disagree, and if so why?

You will have less than you put in only because you didn't pay tax on the money you put in. Your posts are not that clear, but if your annual contributions increased over the 22 years so they are back-weighted, I'm not so sure you're $43,000 in gains is so terrible.

The OP said the plan is terminating. A participant can't hold a terminating plan hostage, much less a beneficiary, even a surviving spouse. I don't get it.

The directed trustee IS a fiduciary because of the inherent fiduciary responsibilities of any trustee (at least that is the longstanding DOL position), but that doesn't mean it is an "investment advice" fiduciary, and BICE is needed and relevant only if it is a fiduciary in that capacity.

the Trustee needs BICE only if it is making investment recommendations and earns transaction-based compensation as a result of those recommendations. If that is the case I suppose it can use BICE but then how is it a "directed trustee"?

Interesting point David Rigby. Janie, did the SPD he was given upon hire say that he could claim a benefit at 62? Even if it did, however, it still is a bit awkward because he did not get the statutorily-required disclosures post-termination.

Absent other pertinent facts (unlikely because you were so thorough), this is not a case you would want to defend in court. Fortunately it is probably a very small amount if he had less than five years of service. I would hire counsel to try to wrap this up with a release so he can't sue you for ERISA failure to disclose penalties. I see no risk of plan disqualification if, as part of the settlement, you agree to pay him retro to age 62. Also, before turning the page I would try to make sure he is an aberration and there is no systemic problem with plan administration.

What would be the concern about charging it entirely to that participant's account?

TEL: I am confused by your last paragraph. Aren't those two sentences contradictory? Assuming the plan has the usual boilerplate language about the plan being able to pay administrative expenses, under what scenario would the legal fees and other costs associated with an interpleader NOT be expenses which the plan could pay?

If all else fails interpleader should be threatened, while making the point that the Trustee's/Plan Administrator's legal fees can and will be charged to the Plan and soak up a very healthy portion of the $15,000. This might induce a settlement.

Ask "spouse" for a copy of her most recent 1040 and see how it describes filing status. Not conclusive either way, but if it says "single" you may not hear from her again.

Is anyone surprised that these percentages are so low? I find it very surprising.

Sanity check requested here. Traditional IRA owner is well past 70-1/2. He essentially pays no Federal income taxes due to minimal taxable income and massive medical expense deductions due to nursing home charges and other expenses (he's living off his after-tax savings and Soc. Security and doesn't need to take IRA distributions beyond his MRDs). If he converted his IRA to a Roth the overall tax rate on the converted amount would be fairly low (say 15%). Non-spouse death beneficiary is in the highest bracket (39.6%). So, IRA owner takes his 401(a)(9) distribution on Monday, does the Roth conversion on Tuesday, then dies on Wednesday. Are distributions to the Beneficiary completely tax-free, including the 10% penalty, whether or not those distributions satisfy the 5-year rule for "qualified distributions"?

Perhaps not responsive to your Q, at least not directly so, but take a look at the very little-used Section 502(i) of ERISA if you haven't already.

I don't know how much you're talking about but if it's enough I would hire a lawyer just for the purpose of contacting the bankruptcy trustee (not the Plan trustee) to explain your position. The lawyer should say that you don't want to have to sue the plan but you will and you will probably succeed if you do so the bankruptcy trustee should arrange to have the plan pay it.

I simply would not treat this as a "claim" until such time as a court (or agency) of competent jurisdiction made a decision that impacted the plan in some specific way. Well, that's clearly wrong. There only needs to be an asserted or overtly threatened "claim." Carol's Q goes to the definition of "claim."

If this is a well known issue in Florida, have any ERISA attorneys opined on whether the stamp tax as applied to ERISA plans is preempted by ERISA? It seems to me if the tax is preempted than there is no criminal exposure either.

It's usually very good to be proactive, but is the participant very sick? If not, why are you spending more than 5 minutes thinking about this? On the other hand, if the document doesn't say what it is supposed to say about the spouse automatically being the 100% beneficiary, you should think about amending the document.

My understanding is that the IRS accepts the following (albeit it is somewhat of a fiction): plan terminates immediately prior to the closing, conditioned upon the closing. The idea is that nobody wants to terminate unless there is in fact a closing, and IRS appreciates that. The goal is to have the termination occur before the target company is merged into the buyer or becomes part of the buyer's controlled group, but only immediately before that occurs.

I thought the 436 possibility was refuted somewhere in this lengthy chain, but perhaps I am misremembering in which case you're right.

It doesn't matter what the DOL thinks or doesn't think. Absent compliance with 204(h) the plan was never frozen. Jim Nichols, what does your ERISA lawyer think about next steps for you to take?