jpod

It is somewhat of an issue based on an IRS ruling from the 70s or 60s, albeit a hyper-technical one. Easy cure is to make the spouse a co-trustee, or the individual who would become the executor upon the death of the participant. This is also a good idea from a practicality standpoint so that someone can step in immediately if the participant dies. The other answer, to which mbozek alluded, is that a plan that is not subject to Title I of ERISA does not need to have a trust; it can be funded through a custodial account held by a bank, trust company or other person that has been approved as a non-bank custodian (but that won't solve the "what happens if the participant dies" problem).

Sieve is correct: the extra $75 would not appear to qualify for a hardship distribution. But there is the easiest of solutions here, which Sieve already mentioned: the $75 can be paid from plan assets, more specifically the participant's account, assuming the plan by its terms provides for the payment of plan expenses with plan assets. This is unquestionably a plan expense, and if it is paid with plan assets it is not a "distribution," but it accomplishes the objective of paying the fee without decreasing the amount of the hardship distribution.

Perhaps a more important question is: Does he/she wish to make a contribution for 2009? If so, if there is any obstacle to that in the plan document the document can be amended before the close of the year to remove the obstacle(s).

Bird: Per the 401(a)(11) exception for DC plans not subject to minimum funding rules, absent spousal consent the entire benefit must be payable in full, upon the death of the participant, to the surviving spouse. It never occurred to me that it would be acceptable, under this exception, to have any strings attached to the spouse's rights. Certainly, requiring the spouse to survive by X number of days would be such a string. Also, forcing the spouse to take every last nickel before he/she died because he/she would not be able to effect a plan of distribution per her last will and testament would be another such string. While I agree with you that the area is a little grey, absent guidance I have no trouble favoring the interpretation that says everything must go to the surviving spouse's estate.

Bird: I take that back. I should not have said "a plan subject to ERISA." I meant to say a plan subject to the J&S requirements, which would include one-person plans not subject to Title I. With that said, I have always understood the J&S requirement that the surviving spouse be the sole beneficiary (unless he/she consented otherwise), to preclude attaching any type of strings; in other words, if the spouse survives, end of story. You could not have a condition that requires, for example, that the spouse survive by X number of days, or that the spouse be alive to accept the payments. Therefore, the estate of the spouse would step into the spouse's shoes as the rightful and required beneficiary. Has the IRS said otherwise?

Getting the payroll deduction amounts deposited before DOL finds out may help keep someone out of jail; earnings will be required to stop the PT bleeding, but that's small potatoes in the scheme of things.

If this is an ERISA plan, it must be the estate of the spouse. If this is not an ERISA plan, what do the plan document and beneficiary designation say that might suggest that it should be paid to someone or something other than the estate of the spouse?

Under these circumstances I would not delay one minute trying to come to grips with the earnings component: get the payroll deduction amounts deposited.

He should get caught up with all late deposits.

Presumably the investment company wants assurance that the appropriate person(s) is(are) authorizing the distribution. Let's step back and ask the right questions. Under the plan documents: 1. Who authorizes the distribution? The plan administrator? If so, who is the plan administrator? If the plan administrator is the employer, what kind of entity is the employer? If the employer is a corporation, the corporation acts through its board of directors and officers. 2. Does the trustee authorize the distribution? If so, what does the trust instrument say about appointment of a new trustee? Who does that? etc. Just because the mom and dad may be the co-executors or co-administrators of the decedent's estate (and even that is no more than speculation on my part), their status as such may be totally irrelevant to the administration of the plan.

I agree; entire period. Just curious, what is pay period: bi-weekly, weekly? Coud end up being a nice little chunk of money with earnings. Does plan say that elections continue from year to year automatically unless modified, or must the participant make a new election for each plan year (in which case the bleeding stopped at the end of 2006)? This is the problem with the IRS' correction methodology: it rewards ignorance at the employer's expense. (Or, maybe the employee was crazy like a fox.)

I, too, if asked, would advise your employer not to permit you to move money from the DCA account to the medical account. However, under the circumstances I think your employer should be aable to get comfortable with the idea of refunding the money you deposited to the DCA account. Try again, explaining that you never had any children who would have needed daily care so it was obviously a mistake and you were not eligible for DCA benefits in the first place.

Obviously I don't know what the plan says, and this might be a stretch, but it's possible that an appropriate cure of the operational violation is to reallocate the aggregate discretionary amount actually contributed, rather than having to cough up the additional $250k in contributions (plus earnings). If the employer is already prepared to contribute the $250k, maybe that can serve as leverage in discussions with IRS: i.e., employer will contribute the $250k plus earnings if IRS exacts a low compliance fee; otherwise employer will only undertake the reallocation procedure.

Highly technical position, but I would agree with Vanguard that you can't have a QP if there is no longer an employer, which in this case I guess would mean the sole proprietor is no longer filing a Schedule C with any numbers on it. Aside from that, I don't know what "TIRA and RIRA" means, but this seems like an awful lot of trouble to keep a plan alive that has less than $250k in it. Also, I don't know why his estate planning objectives vis a vis the profit sharing plan money cannot be accomodated through a specially drafted IRA trust agreement. If Vanguard won't serve as IRA trustee under a specially drafted trust agreement, I'm sure he can find an eligible IRA trustee that will so serve.

MSN: WDIK stated it more artfully than I stated it. The filing is for a plan; that is why the 5500 asks for information if there is a sponsor identity change. So we may be able to better brainstorm with you, give us more facts. How exactly did the sponsor info change. You said "name and ein." Do you mean that there was some transaction in which sponsorship of the plan was transferred to a different entity? If so, which entity is your client, the old one or the new one? If the new sponsor previously had another plan or 2 or more plans, how did you handle the plan numbering? Also, this doesn't sound possible, but could there be an inconsistency between the 5500 and the Schedule H/I, in that maybe the Schedule reported a transfer in from another plan?

I am pretty certain that the IRS person is completely full of beans.

It is a plan expense that at least MAY be paid with plan assets, if the plan so provides. Even then, however, I would hope that the responsible plan fiduciary has some discretion as to which expenses will be paid with plan assets and which will not be paid with plan assets. If I were that fiduciary I would not feel comfortable paying any Tom, Dick or Harry investment advisor with plan assets, even if those assets come out of the account of the participant who retained that Tom, Dick or Harry. For example, what if the advisor had a relationship with the plan or the participant that created a pt which was not cured by an exemption? What if the advisor had a really lousy track record?

Unfortunately, the "right thing" and what the IRS requires to correct a failure to implement deferral elections (i.e., an unjustified windfall for the employee in the case of an unintentional failure) are two different animals.

A correction may or may not be necessary. Does the plan say that re-charging will be automatic, or does plan say that the participant must take some affirmative action, such as completing a new election? If the plan document is not clear on this point (and it probably is not), has there been a consistent practice one way or the other? What has been communicated to participants on this issue?

I don't have an answer for you, but if you're looking prospectively it may be a moot point because I've heard the IRS has a moratorium on issuing new church plan rulings where the employher itself is not a church. On the other hand, if the employer is a church, and it has an IRS ruling, as a practical matter how likely is it that the DOL would take a different view?

Why is spouse's signature necessary? Regardless of the reason, if the plan requires spousal consent, what does the plan say will happen if the spouse does not consent? Presumably it says that a 50% or greater j&s annuity will be purchased and distributed. I doubt very much that the plan language would allow you to do a mandatory rollover.

Doubt it. Even if employer was willing to allow the plan to be disqualified, that won't eliminate its obligation to make the TH contributions. Failure to do so would give rise to a cause of action under Title I of ERISA, or under state contract law if this is not an ERISA plan.

The issue is not db vs dc plans, in my opinion. Rather, the issue is signficant employer contributions vs. little or no employer contributions. Perhaps this is justified due to the resources dedicated to health insurance, as compared to prior generations, or the substitution for more cash up front in place of retirement benefits. However, at the end of the day the problem is the loss of forced savings by employers for their employees, coupled with employees' inability or refusal to save enough. I don't have a solution, but I know getting rid of 401ks is not the solution.

401 Chaos: How did attorney for estate of deceased 2nd spouse react when you said "sorry, there is no account anymore" (or something to that effect)? Is someone making an allegation that the plan should not have paid out the benefit to the rightful death beneficiary? If so, what is the legal theory for such allegation? Why did the plan request a qdro? What did it think it would do with it if it received one? Frankly, based on the facts you've conveyed I don't think you have a whole lot to worry about, other than the risk of having to pay a lawyer to get a lawsuit against the plan dismissed if it comes to that.

To all: This is my last post on this subject. We are not talking about whether an IRA will be taxed on UBTI; it most certainly will. We are talking about whether the rule of 513(b) attributing a trade or business of a partnership in which an entity invests applies to an IRA that invests in a partnership. By its terms 513(b) does not apply to IRAs, and the 97 letter ruling is wrong.