jpod

matthew tae: where is it implied in the OP's question? The OP asked whether an employer's payment of premiums for a retiree's health insurance could be tax-free to the retiree. I said "yes."

matthew tae: Where did Buzzman say anything about a cafeteria plan?

The issue is not whether it is or is not a "receivable." I assume that the plan owned interests in one or more of Made-Off's funds, true? If so, you have to value that interest.

gburns: yes, that's what I'm saying. matthew tae: to what "discrimination" rules are you referring? By the way, the OP said "premiums," so I am making the assumption we are in fact talking about commercial insurance and not self-insurance.

Buzzman, to answer your question: there is no reason.

I think we have to assume that the op was describing the petinent plan language completely and accurately. Given that, what IRS rules could be relevant? Maybe you are assuming that the plan limits eligibility to 18+ children only if they are the employees' tax dependents, but evidently there is no such direct linkage.

It might be helpful if you tell us why someone believes it is necessary to change the "plan sponsor" in the manner described.

Presumably the living trust is a grantor trust which is ignored for Federal tax purposes, so that in itself should not be an obstacle. As to the issue of whether any of the income is eligible for retirement plan contributons, isn't there some kind of "active participation" standard which, if satisfied, would convert the income from ineligible to eligible?

I am not quite sure what you're getting at, but can you have an MRD for a year when you're account balance at the beginning of the year is $0?

JSimmons: Is that the standard you advise your clients to use? Even with qualified plans?

I thought of the "earned income" issue too, initially, but the OP said there are guaranteed payments, which clearly qualify as earned income.

Don't get me wrong, but you folks are over-thinking this. If the value of the account has dropped to zero, the purpose of the MRD rules has been served: preventing a perpetual tax-deferral. Now, what some people view as "zero" may not really be "zero," so in that event you take the asset in-kind and hope you can convince the custodian that the value to report on the 1099R is something to your liking.

I can't say I have the research to back it up, but I think if there is a written CBA, and if the union people are not eligible to participate, the IRS is not going to challenge the assumption that it was the subject of "good faith bargaining." The CBAs specify the employee benefits for which the covered employees will be eligible. It is a very rare labor negotiator (lawyer or otherwise) who has the foresight to make sure that there is an explicit recitation of those employer-sponsored plans for which the covered employees will NOT be eligible.

Appleby, your analogies do not match the facts. The first issue to be resolved is whether the excess amount was truly an IRA contribution by the individual, rollover or otherwise. The reporting obligations, or lack thereof, flow from that. I maintain that one can take a reasonable position that it was not a contribution by the individual. This appears to be the approach taken by DBS1's bank.

Assuming it is truly worthless, i.e., $0, what exactly would you advise the client to do other than to do nothing, regardless of what the regs say or don't say? Assuming it may not be truly worthless, the advice would be to take the asset out of the IRA in kind. Some coordination with the trustee/custodian as to the value to report on the 1099R would be necessary.

Andy, once apprised of the potential penalties and liabilities, what then could be done other than sit and wait and keep your fingers crossed? The only way to avoid penalties and liabilities is to cough up the late withholding dollars, and then try to collect it from the participant. Is that the slightest bit realistic?

Just make sure the 1099R shows $0 withholding.

If the employer sends too much money to my IRA, why is that a "rollover"?

Appleby: I had made the assumption that it was a direct rollover, in which case I don't think the excess amount was necessarily a "rollover," invalid or otherwise. If it was not a direct rollover, than I would agree with you.

I don't think there should be any 1099 reporting by the IRA (although you probably cannot successfully fight City Hall on this one). There is no distribution here; it is a repayment of an amount to which the individual was never entitled in the first place, in response to a perfectly valid claim made by the plan. I don't care how the 1099 is coded, this will likely lead to unnecessary and unwarranted aggravation for the participant. Also, I am having some difficulty rationalizing why the plan is only recovering $1,600. Why does the participant catch a break because he/she lost money on the investments?

mjb: Clinton and Johnson?

The plan either is or is not an ERISA plan. If it is a non-electing church plan exempt from ERISA, it is exempt from ERISA no matter what words are used in the document. Conversely, if the plan is subject to ERISA, it is subject to ERISA no matter what words are used in the document. However, if the plan is not subject to ERISA, the language of the plan will nonetheless control the rights of the participants by contract. So, for example, if the plan provides for the full set of J&S requirements, and if the plan provides for claims procedures in accordance with Section 503 of ERISA, etc., those plan provisions will form part of the contract with participants.

Consider whether, under the current terms of the plan, you need each participant to sign off on this change in timing. To the extent that you need participant consent, this raises constructive receipt issues under Section 451, notwithstanding compliance with 409A or the transition rule. If you determine that participant consent is necessary as a contractual matter, to fortify your argument against constructive receipt in the case of a participant who does NOT consent, you should consider making the new distribution date at least 12 months after the deadline given to each participant to either consent or not consent (e.g., deadline to consent in writing is 12/31/08; new payment date if participant consent is 1/2/10).

they apply

There is potentially a lot more than fines at risk here (i.e., recision, which in a stock market going down the tubes and in the context of a plan for 85 people could result in significant exposure for the employer).