jpod

Chaz: But don't the for POPs only require that eligibility for the POP be nondiscriminatory? In other words, there is nothing that would require the employer's subsidy be nondiscriminatory.

Assuming it is an insured plan, there may not be any 125 non-discrimination issues either. Don't POP plans basically get a free pass under the proposed regs?

JSimmons: Here is what 513(b) says: (b) Special rule for trusts The term ``unrelated trade or business'' means, in the case of-- (1) a trust computing its unrelated business taxable income under section 512 for purposes of section 681; or (2) a trust described in section 401(a), or section 501©(17), which is exempt from tax under section 501(a); any trade or business regularly carried on by such trust or by a partnership of which it is a member. Here is what the IRS said in the private ruling: Section 513(b) of the Code defines “unrelated trade or business” to mean in the case of an IRA subject to section 511, any trade or business regularly carried on by such IRA or by a partnership of which it is a member. The IRS did not explain how it came to that conclusion (because there is no explanation, it was a mistake). We'll just have to agree to disagree.

JSimmons: I agree with everything you said. But you did not explain why/how 513(b) applies to IRAs. That is all this thread is about.

Kathy D: I take it, therefore, that you are not questioning the propriety of the assets reverting to the benefit of creditors. The affected employees are general creditors, behind the secured. Whether they stand ahead of, equal with, or behind other general creditors is a bankruptcy law issue having nothing to do with the existence of the Rabbi Trust.

I am still not seeing the linkage. JSimmons (and maybe mbozek too) seems to be saying that Congress should have amended 513(b) to include IRAs, and because it did not do that IRS can apply 513(b) to IRAs administratively. I disagree.

By definition, a Rabbi Trust (or at least a compliant one) must by its terms provide that is assets revert to the employer for the benefit of creditors in the event of bankruptcy.

not pointless, merely deferred

mbozek: But, as Sieve pointed out, the special partnership attribution rule of 513(b) by its terms applies only to certain entities which would not include IRAs. I am not seeing the linkage of 513(b) to IRAs.

GMK: All well and good except that the premise for this discussion is that the employer is nervous about denying COBRA and therefore won't deny it. Also, is it clear that the DOL will hear an appeal on the subsidy if the employer has refused to offer COBRA (or, stated differently, if the employee has not elected COBRA)? I didn't think the statutory rule requiring the appeal process was broad enough to encompass gross misconduct issues.

JSimmons: I'm not following you. All I am saying is that the special partnership attribution rule in 513 does not appear to apply to IRAs.

Here is my take on the issue. If you don't deny cobra on willful misconduct grounds, the IRS will never in a million years challenge either the employee or the employer on the subsidy. Do you think that an agent doing an audit of the employer's 941s is somehow going to spot this issue in the first place, let alone undertake an investigation into why the employee was terminated? On the other hand, if the employer does not wish to implement the subsidy, either out of spite or because of cash flow issues, do you really think there is any chance that the DOL is going to do anything other than rubber stamp the employee's appeal? When the DOL contacts the employer, the employer will have to say something like "we gave him COBRA because we weren't certain that his conduct was "gross misconduct," but we denied his subsidy because we felt certain that his conduct was gross misconduct." How far do you think that explanation will get you?

JSimmons: Huh? The only thing 408(e)(1) does pertinent to UBTI is to make IRAs subject to the taxes imposed by 511 (because if it didn't, there is nothing in 511 itself that would make an IRA subject to UBTI taxes). 408(e)(1) does not say anything like "an IRA shall be treated as a 401(a) plan for purposes of 511." So, how does 408(e)(1) make 513(b) applicable to IRAs?

My bad for not focusing on your reference to 513(b)(2). I agree that 513(b)(2) by its literal terms does not sweep in IRAs. Is the plr you cited one of a kind (so as to be a mistake)? What do pertinent IRS publications say, or the instructions to the 990-T or 1065?

401CHAOS: If the plan is insured, how, on the one hand, do you offer COBRA coverage, but tell your employee and DOL, on the other hand, that you felt he was fired for gross misconduct and therefore there is no subsidy? If there is no gross misconduct, there is no COBRA. Presumably the insurance policy follows COBRA and only COBRA, and does not say if there is gross misconduct the employer can offer continued coverage if it feels like it.

Q1: Why doesn't 408(e)(1) answer your question? Q2: How does borrowing by the p/s or llc (or, for that matter, direct borrowing by the IRA) fit within the activity prohibited by 408(e)(4)?

oriecat: I kinda think that in designing the Request for Treatment form nobody at DOL/IRS was thinking about the Dec. 31/Jan. 1 conundrum.

oriecat: I agree with your reading of the language in Q&A 10. However, the Notice articulates the rule with more specificity in Q&A 13 by saying that there must be a loss of coverage on or before Dec. 31, 2009, and the example in Q&A 14 at least implies that if coverage continues through the end of the month there is a "loss of coverage" on the last day of the month.

GMK: Actually, if you study the example in Q&A 14 is says that, based on the facts of the example, the "loss of coverage occurs on May 31, 2010." That is the dicta to which I was referring.

Employee is fired/laid off in December 2009. As is common, his coverage under the group health insurance is paid for and continues through Dec. 31, 2009. No further extension beyond the end of December will be initiated by employer, unless employee elects COBRA. Is employee an assistance eligible individual? Stated another way, does he experience a "loss of coverage" on Dec. 31, in which case he would be an AEI, or does he experience the loss of coverage on Jan. 1, which means he is not an AEI? Q&A 14 of Notice 2009-27 suggests to me that the loss of coverage would occur on Dec. 31, but that Q&A does not purport to address my question and as such it is "dicta."

(1) To the participant's beneficiary(ies). (2) In accordance with the 1099R instructions.

JSimmons: I hear what you're saying and feel your pain, but I would not be so quick to advise a client to go ahead and implement the QDRO without investigating state law. Or, are you saying you know that there is concrete legal support for your position (in which case I would be curious to see that)?

Would this not be a question of state law: does the re-marriage invalidate the QDRO or any other unexecuted aspect of the divorce settlement? For example, if there was an outstanding order of child support or alimony would that continue? The only thing Federal law says is that you have to comply with a good QDRO, but that presupposes that it still is a good QDRO. JSimmons may be correct, but I don't know.

If you don't go to other peoples' funerals, they won't come to yours.

Without regard to the merits of this case (or any other case), it's hard to argue with the conclusion that the mere fact that IRS has granted permission to cure an operational error through a plan amendment has no effect on a participant's rights under Title I of ERISA (or under State contract law principles if the plan is not an ERISA plan).