jpod

DOL said to do this?

I should have said exempt from tax under IRC Section 501(a). I don't know anything about the tax treatment or tax exemption for mutual.

The non-profit controlled group rules apply only if both entities are tax-exempt for Federal income tax purposes.

I believe your client should take a lot of comfort in this regulation. If the participant sends a letter confirming that the plan is an eligible retirement plan (as defined in the Code) and provides either wire transfer instructions or information as to how to make out the distribution check, and if those instructions or check information do not appear to be fishy on their face, I think the plan administrator is protected.

Austin, look at Q&A-7 of the regulations at 31.3405©-1.

I don't think it's so strange. It seems logical that the status as a DP or PII is to be determined at the time the transaction occurs. For example, fiduciaries and service-providers are hired and fired all the time. What would be the policy reason for prohibiting a plan's transaction with a former service provider? I agree with the general consensus that absent some look-back rule in the statute there is none. That is not to say that the former status couldn't still raise self-dealing PT issues, but we've already discussed that here.

Very interesting. I can see making the case that there is no self-dealing/self-interest involved as a sale to the ex-spouse based on these facts (and absent other, bad facts we don't know about) is designed to maximize the plan's return on its investment.

Doesn't the statute itself - IRC Section 403(b) - describe an exclusive list of employers whose employees can get the tax deferral offered by Section 403(b)? Why any need to look beyond that?

No, but beware that the plan document(s) may require deposits within a specified time frame or specifically adopt the DOL requirements for ERISA plans by reference.

Isn't the IRS FAQ misleading or, at best, not intended to address the question posed here? Why isn't the question answered simply by another question: What does the plan say? If the plan does not permit ISWs, and the only exception is the language addressing RMDs, then you have an operational violation if you distribute more than the plan allows. The RMD language may permit more than the absolute minimum, but if it doesn't then you must comply.

Ok. I agree that this is not likely to be a top-hat plan. Perhaps it can be taken out of 3(2) by providing for payment at the end of the vesting schedule. I realize that would take much of the tax deferral out of the equation, but if this is all employer money with a long vesting schedule, it doesn't sound like tax deferral is a goal here.

Is it a "pension plan" within the meaning of 3(2) of ERISA? If not, the point is moot.

If it is only one employer then there is no question here to be addressed. If there are two employers that are a controlled group, the Plan Sponsor - which is what I think you mean - is the employer that actually controls the plan in several respects as described in ERISA. If that is yet to be determined, then you determine that first before designating the plan sponsor.

I am not following the line of thinking here. If you have a last day rule there is no qualification rule that would prevent an employer from terminating someone right before the last day just to cause him to lose his profit sharing allocation. You may have an ERISA Section 510 problem, but that's not what we are exploring here. Are you saying, for example, that an employer may intentionally delay bonus payments - and the resulting profit sharing allocations - after employee x has given his two weeks notice before resigning? If you are, I ask again what is the qualification problem with that?

That's the tax standard for concluding that it is unfunded, but it's not the Title I standard.

BG5150: What qualification rule does that violate?

They are only exempt from ERISA fiduciary rules (and 5500 reporting, etc.) if they top hat plans, which among other things requires they be "unfunded."

So, Tom Poje, are you saying you think it's ok? I think it's ok, but I've never seen this before. The employer's logic is rather compelling. It views itself as providing a single annual bonus, just divided into two buckets: one bucket is a cash, taxable bonus and the other bucket is the profit sharing plan. Employment on the bonus payment date is required to receive the bonus, and logically, in its view, the same standard should be applied to the profit sharing plan allocation. By the way, as to K2retire's question, if things are so bad for a year (like 2009, for example), that there are no year-end bonuses, it is extremely unlikely that there would be any profit sharing contributions, so as a practical matter the point is moot, but I realize that we will have to draft for that contingency.

Good question. We would have to draft around that by having a last day rule if no bonuses are paid.

This issue is not limited to cross tested plans, but I had to post this somewhere. Discretionary profit sharing plan. Employer doesn't want to use the standard "last day rule" as a condition to receiving an allocation. It wants to have a rule that says the participant must be employed on the date that annual year-end bonuses are paid in December. This date is in mid-December, but it can vary by several days. In the employer's mind it feels that if an employer is entitled to a cash bonus than he should be entitled to a profit sharing contribution, even if he quits the day after. Anyone see anything wrong with the fact that the date is not a definite date but one that is subject to the control of the employer?

I am pretty sure there isn't any tax w/h on a deemed distribution.

The concept of a "transfer" of assets from a qualified 401(a) plan to a SEP is not viable.

My clients always like to work with updated "working copies," with embedded notes about effective dates where helpful, rather than pure and usually confusing restatements. Notwithstanding the caveat we insert on the cover page explaining that the actual plan documents control, etc., we realize that they may be viewed as the 402(a) written instruments referred to by FGC above, but we don't think we have anything to fear in that regard.

I am probably suggesting something that you already know and may not apply to the institution you are trying to hook up with, but it sounds like you are dealing with a person or unit that only deals with the regular "retail" customer. If there is a separate "wealth management" unit at that institution, that's where you should go. Otherwise, go to a different institution. Notwithstanding Fiduciary Counsel's fair point, if the account is registered properly, in the name of the trust, or the trustee fbo the trust, I wouldn't be concerned about a creditor being able to tap the Rabbi Trust outside of bankruptcy/insolvency just because the employer's ein is used. You do have the option of getting a separate EIN trust for the trust, but I think in that case you would have to file an annual Form 1041 for the trust even though all of the tax attributes are then thrown off and back on to the employer's tax return.

I couldn't disagree more with the suggestion that it is a "corporate asset." While we all know how grantor trusts work for tax purposes and about what should happen upon bankruptcy/insolvency, neither the tax rules nor the treatment for financial accounting purposes changes the fact that it is a trust and needs to be recognized and respected as such. FWIW, I happen to believe that Rabbi Trusts are almost always a complete waste of time and expense, but clients still want them.