jpod

Agreed that the disclaimer route is complicated, and dangerous. It's dangerous because the Plan's default beneficiaries, after the surviving spouse, are the participant's "issue per stirpes," and of course the Plan can never know for sure that there aren't any issue besides the two children named who could pop up months or years from now. Perhaps in the state in question there is a procedure to protect the Plan/Plan Sponsor from that risk, but who's going to pay to research and implement that? I suppose the spouse on her own can think of the disclaimer idea, but my client won't recommend it to her. I am inclined to agree that the spousal consent requirements as expressed in the law and regulations SEEM to contemplate that the consent must be given prior to death, but I am surprised that there is no clear confirmation of this even 33 years after REA.

Disclaiming can be complicated. The client would be much happier with a "yes" answer to my first question!

100% must be paid to surviving spouse unless spouse consents to a different beneficiary designation.

DC plan not subject to J&S requirement. Participant designated spouse and two children as equal 1/3rd beneficiaries of his plan account. Spouse did not consent before participant dies, but spouse wants the designation to be honored. Questions: 1. Any authority to allow spouse to consent now, post-death, without a tax-qualification problem? 2. Alternatively, because default beneficiaries under Plan terms are first the spouse, then children, can spouse disclaim 2/3rds and have those 2/3rds go to the two children, or if spouse disclaims must she disclaim 100%, not merely 2/3rds? Not concerned by any Title I risks here, just qualification risks.

There is no "whether" involved here. It is a per se PT.

You may be able to find the PT exemptions for similar transactions by looking through the index of exemptions on the DOL website. I have heard that staff at EBSA are so bogged down with Fiduciary Rule matters that the expected timeline for securing an exemption is ridiculous.

Bird, it's not my intention to create an artificial situation. I am just trying to address the original question as succinctly as possible, which is whether w/h is required, and the answer is "no." The caveats about electing out or not electing out are inapplicable.

Not so easy for a 990 filer to get a refund of this kind of withheld tax. Even tougher if it's a church entity that doesn't file 990s.

And what if for some (stupid) reason they refuse? Withhold 10%? That would be a mistake IMHO.

Are you suggesting that the responsible fiduciary should proceed to hire the son in the unlikely event his firm provides such a statement? I was being kind but this is classic 406(b)(1) self-dialing PT, so I wouldn't care what his firm says.

David Rigby: That approach can work, but I think if one looks at the law one would find that there is no default withholding here require a waiver by the beneficiary.

Most likely the fiduciary with authority to hire a financial advisor for the plan would engage in a 406(b) prohibited transaction by hiring the wife's son. Don't get bogged down in issues of whether the son is a party in interest to the plan; that's not required to have a PT here.

What are you talking about?

Isn't there a take-out for payments not subject to FIT?

Not an eligible rollover distribution, so no.

EBECatty, upon reflection I agree that the loan idea is problematical under 409A. Thanks for catching my mistake.

False. While you can do the backdoor IRA, if you already have pre-tax money in one or more IRAs a portion of the amount converted will be taxable. Rough Example: You have $45,000 in a pre-tax IRAs from the days when you were able to make tax-deductible IRA contributions. Now, on Tuesday, you make a non-deductible contribution to a separate IRA of $5,000, then on Wednesday you convert that IRA to a Roth. You can do that, but only $500 will be tax-free, and $4,500 will be taxable.

Does the SERP agreement/plan say anything about this? Assuming it's silent, another alternative would be for the employer to advance the employee's share as a loan (perhaps without interest if it is less than $10,000) and then repay itself out of the SERP payments, although the practicality and desirability of this would depend upon when the SERP payments start.

What I was saying to you is that if this plan is adopted on the eve of retirement the normal 3121(v) rule does not apply and the $50,000 will be subject to FICA/Medicare each year it is received.

Mike, that is impossible under 3121(v) if the plan is adopted close in time to retirement.

Just curious to know what your role is here. I think the biggest issue for the owner is whether he can do better economically by selling his ownership interest for $500,000 paid over 10 years and paying tax at LTCG rates on the portion of each payment not deemed to be interest and having no FICA and Medicare tax liability. On the other hand, maybe all of this has already been analyzed and negotiated.

It may be disguised purchase price rather than compensation, but that's really the Company's tax risk, not the owner's, although by characterizing the payments as compensation he may be cheating himself out of LTCG treatment. Assuming it is compensation, it is deferred compensation subject to 409A, but it may not be deferred compensation subject to the 3121(v) rules. Whether or not it is subject to 3121(v) it is most definitely subject to FICA and FUTA and Medicare taxes; you just have a timing question as to when it is subject to those taxes. It also would be an ERISA pension plan, but presumably a top-hat plan.

Belgarath, are you referring to retiree HRAs as an exception to the ACA rules generally prohibiting them? If so, I have a feeling that you are not going to find something that says, specifically, that it can be used for their spouses and dependents, but I don't think you'll find anything that says it can't be used for them, and the implication of that, at least to me, is that if the exception was so narrow the law and the subsequent agencies' interpretation would have said so.

Does the plan say that the plan will pay all expenses of the plan unless the employer pays them (or something to that effect)? If so, the employer can reimburse the plan for the investment advisory fees (assuming they are plan level fees and not internal fund fees) and it will not be treated as a contribution, and the employer can deduct it as a regular business expense. This is unlikely, but if the plan says that the plan will pay all expenses, with no caveat, the employer can reimburse but that reimbursement will be treated as a contribution, and it will have to be allocated to participants based on the allocation formula for non-elective contributions, and subject to the 404 and 415 limits. Regardless of what the plan says, I believe there is (old) IRS guidance saying that commissions and brokerage costs incident to the purchase or sale of plan assets are not "expenses" but are part of the cost of the assets. Therefore, if an employer reimburses the plan for those costs it must be treated as a contribution.

I wouldn't lose a minute's sleep over this: All assets were distributed by year-end, so it's a final 5500. This, in my view, is entirely different from trailing dividends, etc., which you know are coming post-year-end.