jpod

If an employer pays for an employee's life insurance coverage and the employee's spouse is the death beneficiary, why wouldn't the death proceeds be tax-free to the spouse? Sure, the premium payments may be taxable as current compensation, but I am struggling to figure out why the fact that premiums are funded with the employee's pre-tax 457(b) contributions, or perhaps the employer's tax-deferred 457(b) contributions, make any difference.

The employer or a Rabbi Trust is the owner of all the assets held under the Plan; in either case the employer is the owner for tax purposes. Don't we need to know more about the arrangement for designating the spouse as the death beneficiary and how the premium is being paid before we know whether the death proceeds are taxable or tax-free?

It seems that nobody wants to take a crack at answering 401(h) questions. Here's another one. ERISA/PBGC-covered DB plan is terminating. There is $X in a 401(h) account which can't be used up fast enough under the terms of the retiree medical plan funded by that account. Under the IRC and Title I of ERISA, what must/can be done with the 401(h) money upon termination of the plan? Can it just revert to the employer (it so happens that in this case the employer is tax-exempt, so no income tax or reversion tax)? If it reverts to the employer must it be held in some type of trust for ERISA Title I compliance?

First of all one needs to be certain that it is in fact a church plan (rather than merely the employer or someone else thinks it is a church plan) and that no 410(d) election was EVER made. If you are an ERISA attorney or other specialist and that is your conclusion, I respect that. If you are just repeating what someone told you, then go back to my first sentence. Assuming it is in fact a non-electing church plan, just stop filing. Someone will have to respond to correspondence from DOL and/or IRS, but if it is a non-electing church plan this will be merely a hassle, not a compliance risk. I don't know of any other way of handling this.

Is it an "overt" discontinuance, meaning is the plan being amended so that by its written terms there will be no more contributions? If so, full vesting is required. If, on the other hand, it is a 100% discretionary profit sharing plan and the employer merely has it in its head that it won't be contributing any more - which naturally means there won't be anyone new who could share in contributions - when full vesting is required is a little more twisty.

it's only October 6; find another auditor

they can file an EZ

Agreed that the PT is subject to excise taxes and still needs to be corrected, but I was just making the point that you wouldn't have to worry also about DOL sanctions and/or correcting in accordance with the DOL's correction program. The thought occurs to me now, however, that the facts appear to be so bad and the amount may be so great that this may also raise qualification issues under 401(a)(2).

Sounds like it is a one-person plan exempt from Title I of ERISA. Has that been the case since the loan was made? If so, at least you don't have any DOL PT sanctions to worry about.

FGC, if they complied with the literal terms of a boilerplate Notice provision in their contract you would advise them to stop there? If I were a TPA I don't know that I would want it to get around town that I didn't make a little bit of effort to find a live human, and once I did if he told me to forget about it and mind my own business I would be happy with that.

This doesn't sound right. How could a Plan Sponsor/Employer with over 100 employees less than 3 years ago, as well as all of its owners and management, just vanish off the face of the earth so that you can't find anyone with whom to discuss this matter? I agree with Lou that if you are not the Plan Sponsor or the PA you have no responsibility under ERISA, but I think from a business perspective to minimize the risk of someone claiming you committed professional negligence you have to at least notify the right person or persons, and it is hard to believe that this is impossible.

We all realize the silliness of the rule but if you don't want to get into a PT fight with IRS or DOL you play by the rules. However, the record-keeper's "rule" is not one of those rules.

Three questions. First, is the plan a "single employer plan" in which two or more controlled group members or affiliated service group members participated, or is the plan a multiple employer plan? Second, tell us exactly what you mean when you say the employer was "sold." Were the ownership interests in the employer sold to a unrelated new owner or owners, was the employer merged into another unrelated entity, or were the assets of the employer sold to an unrelated buyer? Third, what did the acquisition agreement say about the 401k plan going forward, if it said anything at all?

I agree; highly improbable.

Is it a fiduciary act under ERISA to wire money to an account selected by the participant? I have no idea, but I wouldn't be surprised if it is, or at least I wouldn't be surprised if a judge could be convinced that it is if the facts end up being bad enough. While a fiduciary doesn't have to undertake any due diligence concerning the account, you established as a fact that someone acting for the plan thinks the joint account holder is sketchy, so that would make me nervous if I were that person. What would be wrong with just refusing and saying "we'll hand you a check or wire it to an account that is not a joint account with the sketchy person"? Are they afraid to confront the participant over this?

It may be or may not be the primary reason for a vesting requirement, but it is always an expected benefit of one.

To add to my own comments, if the plan permits the use of all plan assets to pay expenses, not just forfeitures, then I suppose the employer can bite the bullet and allocate the forfeitures this year, but next year, or whenever thereafter there aren't forfeitures available to pay expenses, it can tap participants' accounts to pay the expenses, so eventually the employer does not get hurt by the IRS interpretation which Austin and everyone else legitimately complains about. It would have a PR problem on its hand if it did that, and that alone may be a reason not to do it, but legally it would be perfectly sound.

Your comments on the new definition of fiduciary are quite coherent. Not so much on the fee pre-payment issue. It is a given that the plan can pay reasonable fees if the terms of the plan don't prohibit it. There is no fiduciary risk to the employer whatsoever in electing not to pay the fees itself. But, there is a fiduciary risk in my judgment to pre-pay fees which don't need to be pre-paid unless you can come up with a reason to do so (and that reason can't be to use up forfeitures).

I think the regulations (under IRC Section 411) say that if you are using the computation period method you can only exclude YOS completed prior to the plan year in which the individual attains age 18, whereas if you were using elapsed time you could exclude time prior to 18th birthday. Don't hold me to this; check the regs.

A plan had a single late deposit of $250 (due to an off-cycle paycheck to a terminated employee). Is there IRS authority saying that there is no need to file the 5330 or pay the excise tax if the tax is less than $1.00?

No need to go that far. We only are talking about a significant pre-payment of fees, not paying fees.

Andy: Point well taken. In this instance, however, I think it is worth advocating in the client's interest, rather than voluntary reporting information to a government agency AND the public at large information that is not required to be reported.

Yeah, MP, why the cat and mouse?

Ok, forget about the motivation: Is it prudent for a fiduciary to use plan assets to make a significant pre-payment for administrative services? It depends on the facts and circumstances, but you need to be able to come up with SOME reason why it was in the best interest of the plan (rather than the plan sponsor).

Why is all of this analysis and repartee necessary to come to the obvious conclusion: the auditor doesn't know what he/she is talking about.