jpod

Call me skeptical but my guess on the 20% mandatory was that it was something that could be scored as a revenue raiser, offsetting something else in the same legislation that was a revenue loser.

I am assuming that there really was a good "deferral," so that it escaped the owner's taxable income for 2012. Here's what I would recommend (absent strange facts which I don't have): 1. Deposit the money. 2. Deposit the earnings calculated per the DOL calculator. 3. File the excise tax returns and pay the excise tax.

GBurns, I am not grasping your concern; perhaps it is more nuanced than I see. If the employee says "Yes, I wish to cover my spouse," hasn't he/she already told you he/she is married?

To the extent FGC's inquiry relates to insured plans, I think the more pertinent question is what do the carriers require, and depending upon the state involved what CAN they require beyond some certification by the employee that the identified spouse/dependent is in fact a spouse/dependent. I have no idea what the answer might be but I would think that if very few employers are demanding substantiation then presumably they aren't obligated to do so as the contract-holders of those group policies.

Sometimes you have to hope that sanity will prevail at IRS. If this is something other than a very small plan (e.g., at least 25 or more NHCEs with account balances, preferably some large ones), and if the person slipped through the cracks for 2 or 3 years or more and he/she never said anything, an employer could legitimately consider the approach of not correcting, with the expectation that the IRS would not disqualify the plan if the issue was spotted on an audit. The windfall to the employee of fixing via 50% QNECs plus earnings in this scenario is simply too much to stomach in some circles. As to Title I liability, I think there would be excellent defenses to any claim by the employee, at least enough to prevent a lawyer from taking the case on a contingency basis.

What I am saying is that the DOMA decision has no impact on an employer's ability to refuse spousal life insurance coverage to same-sex spouses, if it chooses to go that route, or for that matter the insurance company's refusal to offer it to same-sex spouses.

There is a problem if there is no language authorizing the employer to terminate without employee consent. Absent the employer's ability to unilaterally terminate, the employer can't terminate without employee consent, and therefore it can't avail itself of the termination exception to the anti-acceleration rule.

probably nothing

Don't know what you mean by "run[ning] . . . through payroll," but the answer is that FICA/Medicare tax must be deposited with IRS - both employee share and employer share. Typically employee share is withheld from the employee's other income; if the employee's share is withheld from the $10,000 employer contribution then the employee will be subject to current income tax on the amount withheld, and then the employer must apply income tax withholding to that amount. Assuming the flat rate of income tax withholding of 25%, you actually need to deplete the $10,000 by $1,020 in order to cover the income tax withholding and the FICA/Medicare tax withholding. If that then triggers state income tax and withholding, it can get very complicated.

74 is NOT elderly.

Forks: Assuming this is a plan governed by Title I of ERISA (which may be implied by the OP), what is it in your arsenal that leads you to think that state law may be relevant here?

Not sure why you think it's a bit dramatic. When it's not clear that the preferred answer is the right answer, explain that to client and let it decide whether to roll the dice or file and amended 5500.

I don't know, but I would hate to have that issue become a source of aggravation for my client (and/or and a basis for a malpractice claim against me).

I think it's a whole lot trickier than that. 1. It was not taxable in 2006, and it's too late for the 2006 tax to be refunded now (but see #3 below), but if it is distributed now it is taxable now. I think it's unrealistic to expect that the person responsible for tax reporting via 1099-R won't/shouldn't report it on a current year's 1099-R. 2. There is still the excise tax/Form 5329 problem. IRS technically shouldn't care that he paid tax on the amount in 2006; one of the purposes of the MRD requirement is to limit the benefit of tax-deferred compounding, and that goal wasn't satisfied here. On the other hand, I think this sounds like a good candidate for waiver of the excise tax assuming it is paid ASAP. 3. There is a provision in the IRC (Section 1311) that may be used to largely avoid the participant being taxed on the same MRD twice. I am not 100% sure about that, and the provision is complicated, but it should be investigated.

I think you've got it all covered. Unless the transfer of property was itself the payment of deferred compensation in violation of 409A I see no 409A issue here, certainly none attributable to the feared undervaluation. Employee may owe back taxes for the year of the transfer if his 1040 is pulled within the limitations period, but that's a separate matter.

In connection with the 403(b) regulatory overhaul, over which there were many warnings and expressions of the intention to make 403(b)s more "plan-like," The IRS and Treasury COULD HAVE eliminated the rule enabling you to satisfy MRDs from any one or more 403(b) accounts or annuities, and replaced that with a flat out rule that the MRDs are determined separately plan-by-plan. However, they didn't do that. Moreover, they made no effort to address this conundrum in the new regulations. Therefore, I don't see how IRS could disqualify a 403(b) plan if the decision making in that regard is left up to the participants. Well, I guess IRS can do whatever it wants, but I don't see how they it could successfully defend such an action in court.

I looked at this issue maybe 25 years ago. My recollection is that there was no specific guidance at the time but the only thing that made sense was that the successor trustee must file but the former trustee shouldn't file (otherwise you would have redundant filings with nothing to enable the IRS or the owner to reconcile them).

QDRO. Interesting thought. In fact the plan already exists and I am looking at it after-the-fact. With the exception of the employer's call option at separation from service, the payout is if, and only if, there is a CIC (or a dissolution of the employer), and it is an unlimited time frame with no right reserved by the employer to effect a plan termination. (Bad drafting in my opinion.) Are you saying that you think the unlimited time frame hurts the "substantial risk of forfeiture" i.e., short-term deferral argument?

Employer has a phantom stock program for employees subject to 409A. Payout is upon a 409A change in control. However, upon a separation from service prior to a change in control, employer has a 90-day option to repurchase the employee's vested phantom stock units at the then fair market value and pay the repurchase price to the former employee in cash immediately. If employer does not exercise this option, former employee holds his vested phantom stock units until there is a 409A change in control (if there ever is one). Doesn't the 90-day option to repurchase violate 409A, and doesn't it violate 409A even if never exercised?

The IRS' recent LRMs for 403(b)s indicated that you can have a 30-day waiting period before you let people start making elective deferrals. Is there any other IRS guidance interpreting the "effective opportunity" element of the Universal Availablity rule? Suppose a client has a standard 90-day probationary period for all new employees. Can it hold them out until the 90 days are up?

toolkit: While they are subject to 401(a)(4), I believe they are still exempt from the current 401(a)(4) regulations, so don't feel too bad. (They are subject to a "good faith" standard in implementing 401(a)(4), but do not need to comply with all of the nuances of the regulations.)

What is the reasoning for the 3% minimum? Not being critical, just curious.

I'm not familiar with that, but I do recall another conundrum. The law is pretty clear that a 403(b)(7) custodial account can invest ONLY in mutual funds. So, that leads to the question: "what about loans"? The IRS long ago came up with some explanation which I can't remember saying that loans were permitted, even though a loan is an investment (technically) and a loan is not a mutual fund.

How much more did the client take out of the SEP IRA than he had to take? The unnecessary loss of tax deferral could be additional damages caused by the advisor's bad advice, and if the $$ are big enough a lawsuit may be worthwhile here if client can find a lawyer willing to take the case on a contingency basis.

I'm in PA. I don't think 59-1/2 has any relevance. It is taxable unless it qualifies as the type of plan described in the PA regulations (and to a certain extent in the Personal Income Tax return instructions) as the type of plan eligible for tax-free treatment.