jpod

I am making the assumption that his equity interest will be only the equity interest held in the IRA or DBP (i.e., not up to 10% held personally and then some more in the IRA or DBP). Will he be compensated for his service as an Advisory Board member? Is he a lender to the company (or involved with or related to any entity that is a lender)? Does he have any other connections to the company (e.g., such as a relative involved with the company)? If all the answers to these questions are "no" I don't see any PT issues. Too many facts necessary to comment on UBIT, but if it's a great growth-oriented investment it's probably still a great growth-oriented investment even if some UBIT is thrown off along the way.

Preliminary follow-up questions: 1. How much money is in the account? 2. Who is default beneficiary under terms of Plan? 3. Was there group life insurance procured through employer? If so to whom was life insurance paid?

Adverse selection meaning "this guy must have some great genes to turn down the lump sum"?

My guess is that there is either a testamentary or inter vivos trust into which the residuary of the estate is to be poured (and that there may not have been any real thinking about rollover options or other plan-related tax consequences).

You have to plow through the plan and trust documents, and possibly the 404© notice, but chances are that there is absolutely nothing that would prevent the trustee (or another named fiduciary to whom the authority is reserved) from stepping in and forcing a sale of that asset (although you have to be careful about not selling it in a transaction that results in another PT). The only thing that 404© does is provide protection to the plan fiduciaries; it does not require self-direction to be honored forever.

Mbozek: Good point, but I kind of assumed that this was not the type of solution the surviving spouse was looking for.

GMK: Thanks. Always good to compare notes and I thought perhaps there was some ERISA case law of which I was not aware that was contrary to my understanding of the way this would play out.

GMK: Do you think that in all cases the plan must honor a disclaimer? What makes you think that?

Absolutely not. The surviving spouse may be able to implement an effective disclaimer that can work for purposes of the MRD rules (subject to certain limitations under the regulations), but (a) that doesn't necessarily mean that the Plan must honor the disclaimer, although it can honor it, and (b) if it does honor it that only means that the account would go to the second default beneficiary, which may or may not be the decedent's estate and if it is perhaps that is an indirect way of achieving the surviving spouse's goals. The plan administrator needs to decide (with the advice of its legal counsel) whether the plan would honor any disclaimer, because the point is moot if it won't.

The RMD was $872 and it was paid, so the taxable amount is $872, and the w/h should have been 10% of that. the fee is an expense charged to him out of the proceeds of the distribution. He may or may not be able to claim a tax deduction for the fee, but that's not relevant for 1099-R reporting. I don't see the logic of requiring that the RMD amount be grossed up to cover the fee; it would be better to take the fee out of his account separately so that there is no 1099-R reporting of the fee and no tax w/h on the fee. Am I viewing this too simplistically? Quite a conundrum if the RMD was so small that there wasn't enough to cover the fee and the tax w/h, but we don't have that here. As an aside, $125 sounds a "bit" high to me. Anyone feel differently?

Counting is not one of my specialties. The fourth response is, frankly, that the employer saves FICA/Medicare tax money by doing it pre-tax.

Chaz, two points in response: 1. Per the ruling this election does NOT have to be offered under a 125 Plan, and what I am proposing would not be done under a 125 Plan. 2. To all of a sudden start taking additional withholding taxes out of employees' pay and having then to explain why - even though the amounts would be extremely small - is likely to cause a riot (figuratively speaking), so that approach is impossible as a practical matter in this case. 3. The problem with giving everyone an election is not giving them an election and the disclosure materials, it's dealing with employee inquiries upon receipt of the election notice and disclosures, and dealing with mistakes, both those made by the employees and those made by the employer.

Assuming the participant is going to work for the acquiror and will be eligible to participate in a plan of the acquiror, the question to ask is "will that plan permit the participant to roll over his loan to that plan?". It may permit it, but not all plans do permit it.

I am not sure how to answer your question other than to suggest you look at the Section 414 single-employer rules and then consider whether a plan maintained by the corporation could meet the 401(a) qualification requirements. Also, your question pre-supposes that the partnership agreement would permit the partner to assign his partnership interest to a crporation, but that may not be the case.

I've had 65 views but only one reply. If you think my question is stupid and the answer is obvious but don't want to humiliate me, don't worry, I can take it!

The short, simplistic answer to the question is yes: a corporate partner employing the sole shareholder can establish a plan covering that individual which is intended to be qualified under 401(a). As noted, however, you have 414(b), © and (m) issues to consider, and the resulting 410(b) issues, as well as 401(a)(26) if it is a DB plan. In a typical scenario, therefore, it's not likely to fly, but in theory it could.

At the moment I am only concerned about the ability to flip the tax consequences as described in the Rev. Rul. I am not finding the logic in requiring that the offer be made available to all eligible employees, yet I have found no IRS private ruling or other guidance suggesting that the offer can be limited to certain employees.

Rev. Rul. 2004-55 (along with a handful of private letter rulings) explains how you can give employees a choice of treating their employer-paid LTD coverage either as pre-tax or post-tax. (If post-tax, disability insurance proceeds would be paid to the employee on a tax-free basis.) The facts in the Rev. Rul. are that all employees eligible for the coverage would have the right to make the election. Is there any reason why this is a critical fact? For example, can you limit the right of the election only to those executives to whom you wish to give this right? Employer does not want to be burdened of having to explain and administer the election to hundreds of employees every year.

Calendar year profit sharing plan uses allocation formula that is integrated with Social Security, at full Taxable Wage Base. Plan is terminated as of June 30 of the year. In applying the formula, MUST you use only 50% of the TWB? If not MUST, what is typically done?

If you are a partner in an entity that is a partnership for tax purposes, you must get a k-1, whether "salaried only" or otherwise. He could legitimately be a partner but the partnership is not handling its tax reporting correctly, or he's not a partner. Just trying to get the facts because the initial question is not answerable.

Please explain how he is a partner and does not get a k-1.

I am not sure I understand the expectation (or, maybe, I don't know enough about how QACAs work). Why couldn't an employee elect to reduce the 10% to 3.5% and then get the 3.5% match?

Not following you, Mike. The issue I raised is whether members of an LLC that is treated as a partnership for tax purposes are treated the same as partners in a partnership for purposes of Title I of ERISA (i.e., the DOL reg saying that a plan that only covers partners in a partnership is not an employee benefit plan).

Mike, thanks. Is that stated somewhere in the instructions or in a DOL Advisory Opinion?

It means partners in an entity that is a partnership under state law, as opposed to shareholders of a corporation. Not clear if it also includes members of an LLC that is a partnership for Federal tax purposes.