jpod

If the IRA owner directed the transaction, it was either (a) a constructive distribution, so the property would be taxable to the owner (assuming there was no after-tax money in the IRS), or (b) a pt. However, the effect of it being a pt is that the entire IRA blows up: it is treated as if the entire value of the IRA (not just the property in question) was distributed to the owner (and you can't put it back).

I wasn't thinking about IRAs when you first posted in April. Are you sure there is a pt here? It may only be a distribution, which would be impossible to correct (unless you're within the 60-day rollover period). Need more facts to evaluate.

Assuming you have (or will have) all of the historical documents, for a retirement account worth $1mm I would definitely do a 5310 and, simultaneously, a non-amender VCP. Shouldn't the VCP fee be only $750? Even if you cannot identify any problems with past amendments, the worst that can happen is that the IRS will bounce your VCP submission, but in that case I think it would be very difficult for the IRS to hit your client hard if it subsequently finds amendment deficiencies either in the 5310 process or during a subsequent audit. By the way, the foregoing assumes that (1) if you looked long and deep you would not find any other employees who were shut out of the plan, (2) there are no 414(b), © or (m) problems lurking out there (currently or in the past), and (3) all 5500s (including EZs) that had to be filed were filed. If that is not the case, I'd have to re-evaluate the situation.

Steelerfan: Is there something in the regs. that says you have an impermissible payment event if you have a double trigger (i.e., a 409A CC coupled with some other condition being satisfied, such as that mentioned by RWMalone)?

My understanding of the Q is that everyone "agrees" that the Dr. is not entitled to the allocation, but the plan sponsor wants to know whether it can take the money back from the plan. This doesn't come close to being a "mistake of fact" situation, in my opinion, in which case the answer would be "No."

You're welcome. It's interesting that the transaction was necessary to save plan assets, yet the transaction can be corrected. Oh well, it might be a good war story over a beer someday.

Randy, I will assume from your post that there is no applicable statutory or class exemption. Without knowing the details (although more likely than not the details are irrelevant), I would have to say the answer is "no." However, your scenario is exactly what the individual exemption procedure is designed to address. If there is time to apply for an exemption before entering into the transaction, consider whether EXPRO might be available. Otherwise, call the DOL's exemptions group in DC and discuss the possibility of securing a retroactive exemption.

401k plan has 3% SH nonelective contribution. No problem with meeting the requirements for the ADP safe harbor. Plan also has discretionary match. If discretionary match is subject to a "last day" requirement, does that knock you out of the ACP safe harbor? If you say "yes," can you provide a cite to the pertinent section of the regs?

There may be a pt if there are fees/commissions paid to the company he is associated with, or to someone working for that company, even if not him. Insofar as his concern is concerned, if he would be able to redirect the fees to himself, can't he just have the fees waived? All problems solved (his concerns and any pt concerns) if fees are waived.

Randy: I checked the instructions. You are correct; I was wrong. I apologize.

Under no circumstances would you use a 1099-R. I think the payment is reported on a 1099-Misc. under the beneficiary's name and SSN, and there is no W-2 or withholding (and no SECA tax). This is very adequately covered in the W-2 instructions, the 1099-Misc. instructions, or both. You should check them out.

1. I think it is a per se pt with no available exemption. 2. I can think of only one reason why he might wish to do this: the DB plan is way overfunded and he fears the excise tax on termination. If that is his fear there might be other ways of helping him out with that issue that do not involve a pt. If overfunding is not an issue, what on earth is he trying to accomplish by this?

If (and only if) the 990 is otherwise required to be filed by the non-profit employer, then information concerning deferred compensation is requested on the schedule identifying officers' compensation.

One minor caveat to the discussion of 457fs for non-profits: If it is not a "pension plan" as defined in ERISA (i.e., it does not provide for retirement benefits or for a deferral of compensation until termination of employment or beyond), there is no ERISA-related reason to limit participation to a top-hat group.

fgc and mjb: I am able to assess the strenghts and weaknesses of the position taken in the regs. all by myself thank you. What I am looking for is some information - if you have it - of what the IRS has said to defend itself in response to the criticism, or whether IRS has stated/hinted that it is going to take another look at the rule. By the way, as to the aggregation of non-stock entities, the IRS has plenty of authority per 414©. As to rollovers, you may be correct, but who would ever be disadvantaged by that position?

I know we have a few 403(b) experts who participate in this message board, so if one or more of you are interested in the issue described here and have any insight into this issue I would appreciate your thoughts. The IRS, first in the proposed regs. and now in the final regs., slipped in a requirement under the Universal Availability rule that does not seem to have any basis in the statute or the legislative history (at least which I could find). Namely, under the "effective opportunity" component of the rule, the regs. say that it is not permissible to make any other rights or benefits (other than matching contributions and a couple of other exceptions) conditioned upon a participant making or failing to make contributions to the 403(b). This is basically the same as the rule under 401k which is in the law. Do you know how the IRS justifies the promulgation of this requirement (other than that people at IRS think it's a good idea)? Are they saying it is a reasonable interpretation of the statute and that's it? I can understand how it might be a reasonable interpretation to say that you can't have universal availability if you punish people who make 403b) contributions, but I don't understand why it is a reasonable interpretation to say that you can't have universal availability if you REWARD people who make 403(b) contributions. The IRS created exceptions for matching contributions to a dc plan and a couple of other features, but it appears that no other types of REWARDS are permitted (e.g., providing an extra vacation day, or a cash bonus, or a gold watch, or a reduction in health insurance premiums). Have any IRS or Treasury people hinted that they might be taking another look at this rule? I've actually read that IRS people have said that they wanted to put 403bs on par with 401ks in that regard, but unfortunately (or fortunately) the IRS does not have the same authority as Congress and the President, so that type of statement doesn't answer my question

QDRO: I respectfully disagree. If the poster is not a lawyer, I was suggesting something to protect him/her from a malpractice claim down the road. The client came to the poster for help, so why should the poster place the client's potential discovery problems over his/her own self-preservation? Also, I think you overstate the significance of a letter vs. no letter. If the poster is not a lawyer, the client's strategic mistake was in talking to the poster about the situation rather than a lawyer. Even without a CYA letter, the poster could still be called to testify to the fact that a conversation took place and that the client was aware of the compliance problems.

The flavor of the original post suggested that there was no insurance involved, or at least no insurance giving the employee the right to name the beneficiary, so there would be no PS 58.

If you are a professional in some capacity that can be sued for malpractice, the question should not be answered unless you happen to be an ERISA attorney, in which case the answer is a very long answer that begins at the beginning and ends with "no, unless you get an exemption from the DOL, which is possible but not likely." If you are not an ERISA attorney, I think the best answer would be to send a confidential letter explaining that there appear to be PT problems here at a minimum and recommending that he engage ERISA counsel. As indicated in previous responses, the complete answer will walk the client through all the problems he has created for himself starting with the contribution of the house, the fact that he has continued to live in the house (I am making that assumption), or at least use the house if it is a vacation home, and that he now proposes to sell it to his son. An ERISA attorney would/should discuss all the tax risks this fellow faces, and the procedures to apply for and the likelihood of receiving a retroactive PT exemption on the original sale and the continued use of the house up to the present, and a prospective exemption for the sale of the house to the son. As noted, Form 5500 reporting, personal tax (Form 1040) and minimum funding issues may also be present.

I have never tried to make that argument under the facts as you described. While I have had a couple of VCP cases in which the IRS was receptive to the "scrivener's error" argument, that doesn't appear to be the situation you are describing. However, it seems to me that you have an overriding problem: you can't exclude people who are "part time;" that violates Section 410(a). You can require "part time" people to complete a 1,000-hour eligibility requirement while having no service requirement for non-part time people, but that doesn't sound like what was going on in your case, unless you can demonstrate that none of the part time people would have EVER satisfied a 1,000-hour requirement if they were subjected to one. If you can demonstrate that, and if you can somehow demonstrate that the plan document was not drafted in accordance with the employer's intent, you might consider a john doe vcp submission.

Has anyone seen ANYTHING from IRS that provides some guidance as to how to perform the 55% average benefits test? A related question is this: Assuming one feels confident that he or she knows how to apply the test, and you perform it during the year so that you can adjust participation by HCEs in order to avoid flunking the test, isn't the test a moving target such that you can't predict the results with any certainty? For example, if all of a sudden near the end of the year you have one or more NHCEs drop out of the plan (under the change in status exception), won't that require a corresponding adjustment to HCE participation (assuming it's not too late)? Is everybody ignoring the test and IRS is looking the other way, and I just don't know that? Thanks for any insight.

1. Doesn't the 410(b)(6) transition period give you some time to defer any worries? 2/ Probably obvious, but are there any hces in the small company (i.e., taking into account the "top paid group" test, if it is being utilized)? 3. If all else fails, kick the HCEs out of the small company plan (maybe have the parent include them in its plan; I'm assuming that the parent's plan is broad-based enough that this will be a flea on the parent's plan back).

A 501c7 social club can have any kind of Section 401a plan for its employees (e.g., profit sharing, 401k, defined benefit pension). It can have a simple IRA (if it's small enough) or a SEP. It cannot have a 403b program. If you're asking us what type of plan(s) do these clubs (e.g., golf/country clubs) usually have, my guess would be NONE. Rate of turnover is too high and the employees aren't interested.

My thought is: It's legality is questionable, but the devil is in the details. It's possible that the employer's offer is to pay $X in salary, reduced by the amount contributed by the employer to the ESOP for the employee, in which case it's not really "payroll deduction." If the facts are as I've stated, one needs to check pertinent state employment law to make sure it's legal, but there should not be any ERISA or tax-qualification problems with this approach, or problems with any other Federal laws (assuming the "net" salary satisfies Federal minimum wage standards).

If it is as you described, it is not a plan subject to ERISA. There is no point in filing the TH notice, although I suppose the only downside is that it's a waste of a stamp. Disputes (if any) relating to the plan will be governed by pertinent state contract and employment law. Also, the employer should understand that any advantages it perceives from ERISA (such as the requirement that a claimant exhaust administrative remedies, federal court jurisdiction, or the deference given a plan administrator's interpretations if the document is drafted correctly), will not be available if there ever is a dispute that goes to court. You didn't ask about 409A or tax issues, so I'm not commenting on J. Simmons' observations.