jpod

If an ERISA Title I-governed pension plan owns real estate, are laws/ordinances imposing real estate taxes preempted by ERISA? There is a New York State Court of Appeals case holding that a real estate transfer tax is preempted, but is the rationale of the decision in that case followed around the country in the context of real estate taxes? I have no experience with this issue, so I would like to know what happens in real life with ERISA plans that own real estate.

Probably it won't hound you but I think it is less likely that you'll be hounded if you demonstrate good faith by filing all years' 5500s and completing whatever line items you are able to complete. Others may feel differently, but you want to take your best shot at having every year covered by DFVCP, and I think what I am suggesting is better than keeping your fingers crossed.

A few thoughts. 1. For 2 or more plan years, DFVCP is $1,500 for a "small" plan; $4,000 for others. 2. DFVCP protects you from DOL and IRS penalties only for 5500s for which DFVCP relief is requested, which means you actually have to file a 5500 for a plan year to secure DFVCP relief for that plan year. Therefore, exposure to penalties still exists for 5500s not filed. 3. I would advise the employer to file for every year, with as much data as is available, even if for some years the only data you have is the name of the plan, plan number, etc. I realize that there are new complications associated with electronic filing, but that would be my recommendation nonetheless.

Let's assume that you can't put it back in the hsa on any kind of "mistake" theory. You didn't identify the amount involved, but let's say it's $500. As long as the participant had at least $500 of other out-of-pocket qualifying medical expenses from the day he first became an HDHP/HSA participant up to the date of the HSA distribution, there's no tax consequence and no problem.

You may wish to dig deeper and see if there is evidence of a consistent well-documented employer intent to not cover that class of employees, as evidenced through SPDs and other communications. Assuming no 410(b) problem, correction via a retroactive amendment and VCP may be an option. For example, I have had cases, resolved successfully through a retro plan amendment and VCP, where a standardized prototype was used but the employer's intent not to cover all controlled group members was consistent and evident. I also had a case, resolved successfully through a retro plan amendment and VCP, where a lawyer botched a plan amendment so that part-timers would be immediately eligible along with full-timers, whereas the consistent practice and intent was to require part-timers to complete a year of service.

Kevin C (and others), here is a paragraph from the definition of "Under Examination" in the EPCRS Rev. Proc. Insofar as my original question is concerned, what does the last sentence mean? (3) An Employee Plans examination also includes a case in which a Plan Sponsor has submitted any Form 5300, 5307 or 5310 and the Employee Plans agent notifies the Plan Sponsor, or a representative, of possible Qualification Failures, whether or not the Plan Sponsor is officially notified of an “examination.” This would include a case where, for example, a Plan Sponsor has applied for a determination letter on plan termination, and an Employee Plans agent notifies the Plan Sponsor that there are partial termination concerns. In addition, if, during the review process, the agent requests additional information that indicates the existence of a Qualification Failure(s) not previously identified by the Plan Sponsor, the plan is considered to be under an Employee Plans examination. If, in such a case, the determination letter request under review is subsequently withdrawn, the plan is nevertheless considered to be under an Employee Plans examination for purposes of eligibility under SCP and VCP with respect to those issues raised by the agent reviewing the determination letter application. The fact that a Plan Sponsor voluntarily submits a determination letter application does not constitute a voluntary identification of Qualification Failures to the Service. In order to be eligible to perfect a determination letter application into a VCP submission, the Plan Sponsor (or the authorized representative) must identify each Qualification Failure, in writing, to the reviewing agent before the agent recognizes the existence of the Qualification Failure(s) or addresses the Qualification Failure(s) in communications with the Plan Sponsor (or the authorized representative).

A Cycle E filer is preparing a determination letter application for Jan. 31, 2011. In the course of preparing the application, it is discovered that plan was not timely amended for some interim amendments. The restated plan document will be amended to reflect the changes retroactive to their respective effective dates. Do you have to file a separate VCP submission to ensure yourself of the modest $375 compliance fee, or can you skip the separate VCP filing if you specifically identify the interim amendment non-amender failures in your determination letter application (i.e., in the transmittal letter)? Stated differently, if you don't undertake a separate VCP submission, are you at risk for Audit Cap treatment and a significantly greater compliance fee even though you have highlighted the non-amender failures in your determination letter application?

A little twist on this theme. A Cycle E filer is preparing a determination letter application for Jan. 31, 2011. In the course of preparing the filing, it is discovered that plan was not timely amended for PPA. The restated plan document will be amended to reflect the PPA changes retroactive to the PPA effective date. Do you have to file a separate VCP submission to ensure yourself of the modest $375 compliance fee, or can you skip the separate VCP filing if you specifically identify the interim amendment non-amender failure in your determination letter application (i.e., in the transmittal letter)? Stated differently, if you don't undertake a separate VCP submission, are you at risk for Audit Cap treatment and a significantly greater compliance fee even though you have highlighted the failure in your determination letter application?

While it is splitting hairs, I disagree: if the merger is effective on Jan. 1, how do you escape the conclusion that both plan had assets at the end of the day on Dec. 31, and if a plan had assets at the end of the day on Dec. 31, how could it not have an opening balance on Jan. 1? Putting that hair splitting aside, what would be a reason not to merge on Dec. 31?

If the deferral is to be taken out of the final, year-end "clean-up" distribution to partners, your "DOL clock" starts on the day that distribution is paid. For example, if the final distribution is made to partners on Jan. 10 (non unusual in that it is shortly before the quarterly estimated tax deadline), you apply the time limits under the "participant contributions" regulation starting with Jan. 10 (as opposed to, for example, Dec. 31).

Anxious to find out if you came up with something. It seems that this issue comes up almost every year in my practice and I always advise that technically there is a 1-day form 5500 required if you merge Jan. 1. I can't imagine what Dingwall is relying on (other than his own opinion, which should carry a lot of weight but still . . . ).

Variation of this theme. Which participants must get the SAR? Individuals who are participants on the day you distribute the SAR? Individuals who were participants at any time during the covered plan year (i.e., including people who took their entire account balance during the year)?

But what if the non-profit actually sent a letter to Andy or Andy's firm gently requesting a gift (just like it would do, naturally, for all its other vendors)? Doesn't that put a different spin on the matter? (I do agree, however, that for a $100 gift no further discussion or hair-pulling is necessary.)

408(e) doesn't apply to a db plan.

I disagree on both counts. The spin-off construct under Section 414(l) of the Code is a transfer of assets from one plan to another. In other words, it is treated as if a new plan with no assets existed for an instant in time, and then a transfer of assets and liabilities was made from the original plan to that new plan. Therefore, I think the ED is 1/1/08 and there is no determination letter.

I realize you were only inquiring about the need to apply for a DL, and if you are committed to VCP I wouldn't fool around and would certainly advise the employer to do the DL. However, I don't know what kind of a VCP fee and professional fees the employer is looking at, but under the circumstances employer might be willing to take the risk and just go ahead and retroactively amend without VCP. Looking through the forest to the trees, and especially if participation is required by the terms of the CBA, is there really a non-theoretical risk of disqualification here? Even if an agent spotted this on audit and decided to be a cowboy, I think the employer would win at the end of the day. One call to a Congressman's office or two and this would be nipped in the bud.

I don't see how we have a 4975©(1)(A): The shares are already issued and outstanding, so where is the "sale or exchange"? If it was cash in the IRA being used to buy shares of stock there could be a 4975©(1)(E) issue, and maybe a (D) issue. But, again, with shares already issued and outstanding, I just don't see how it even fits the language of the statute, unless you take the position that the continued holding of the shares after the rollover is an (E) or a (D).

Would your conclusion be different if the plan document permit the fees to be paid by the plan if the employer chose to implement that?

Ok, maybe I didn't need to caveat my response by saying "technical." I was merely trying to suggest that the mere fact that the corporation is seeking a loan from the participant calls into question the first transaction, on many different levels. And, I think it's naive not to assume that there was a fiduciary involved in approving the first transaction. How many self-directed plans have you seen that would permit a rank-and-file employee to buy stock in a non-public company?

I agree with the technical point that a separate transaction after the plan has made the investment should not be a pt. However, the fact that this "unrelated" corporation now comes begging to this particular shareholder for a loan gives off a whiff of a self-dealing or 406(a)(1)(D) pt with the plan's investment in the first place.

Does the resolution say something like: "The plan is hereby amended to change the contribution formula to % effective ____ __, _____." If so, you have a decent leg to stand on. Does it say something like" "The plan shall be amended to freeze accruals effective ____ __, ____. The officers of the company are hereby authorized and directed to take such steps as are necessary to implement the freeze of accruals." If so, I think you have a problem.

I'm kinda confused. Is he or is he not still receiving compensation eligible for deferral? I guess he must be, or the question wouldn't be asked, but you mention "on disability," and I don't know why you mentioned it unless it was pertinent to the 401k issue. Assuming he is still receiving eligible compensation, come on now, let's be real. If the wife wants the deferrals stopped, and if the employer/plan administrator is satisfied that the employee cannot act for himself, and if the plan permits suspensions at any time and also permits re-starting at any time (i.e., if the employee should suddenly regain his powers), I say "DO IT." No way IRS would disqualify the plan for this. Can I cite anything to support that? Absolutely not. Seriously, my advice to the client would be that there isn't any clear support in the law or IRS guidance for doing it, but the risk to the plan is probably non-existant just because there is no abuse here and IRS is not looking to punish employers, plans, or employees covered by plans when employers take action in good faith to deal with extraordinary situations not addressed in the law or regulations.

You may not have given us all the facts, but from what you've described I don't see a problem. The employer is giving the employee a 100% match if he or she invests his/her account balance in stock, and the employer match will be distributed at the same time as the account balance is distributed. Where is there a 409A issue (assuming the handling of the underlying account balance is in accordance with 409A)?

What did the IRA do that could make it a defendant in a lawsuit? You need to give us more facts. Putting the facts aside, a couple of thoughts. First, if the client is going to pay some of the settlement with IRA dollars, because of risks like those described by QDRO, transfer the dollars to a separate IRA first, and then have the transferee IRA make the payment (if you can find a transferee trustee or custodian to go along with these shenanigans). That way, if this blows up only the dollars moved to the transferee IRA will be taxed, not the entire IRA. Second, assuming the client is going to pay some of the settlement with IRA dollars, what as a practical matter is accomplished if the IRA custodian is going to report it on a 1099-R as a distribution? The answer is "nothing." So, this is pie in the sky and a waste of brain power unless you know that the custodian will not report it as a distribution. Third, is the individual age 59-1/2? If so, is it worth it to him to risk the additional 10% tax on top of the regular income tax, rather than pay the entire settlement out of his own non-IRA resources?

I feel differently. If you are going to the trouble and expense of paying for an audit (granted, it is because you must do it), why not wait and pay the $750 dfvcp fee and everyone can then sleep at night?