MGB

The proposed regulations on catch ups make it clear that you only aggregate catch ups that are made to plans subject to aggregation for the underlying regular deferrals.

Accepting the checks has absolutely nothing to do with taking on any liability or assets of any plan. These are demutualization proceeds of the insurance company. The contract holders had a "stake" in the mutual company. When it demutualized and issued stock to the public, the surplus remaining at that time in the insurance company is distributed to all contract holders. The plan sponsor (or any successor) is the contract holder. It does not have anything to do with who is responsible for the plan at this time. If you send back the checks, there should be instructions to increase the plan participant's annuities.

Do a search on the board for "demutualization". It is the demutualizations of insurance companies that trigger these payments. There have been numerous discussions on the board concerning these checks in that context. It is going to make a big difference if there were any employee contributions involved. If so, allocations must be provided to them. If not, generally the money is a reversion to the employer (someone is still the legal representative for the terminated companies), subject to tax and excise tax as if received in the termination process. Alternatively, they can decide to give it back to the insurance company to increase the recipient's pensions and not have to deal with it. If they are just providing true "dividend" checks on an ongoing basis (which should not be happening), you have a bigger problem to deal with, but basically the same result.

Even if the plan allowed a distribution currently (and it probably doesn't), you would not be eligible for one until you completely terminate employment. As long as you are an employee (even on a part-time basis), you cannot receive a distribution.

The 401khelpcenter is not very good help at all and is providing terribly inaccurate advice. You do not pay taxes twice. Assume you took a loan for X dollars and you now have X dollars that you are trying to decide whether to pay back the loan. The argument put forward is that the X dollars you have now have already been taxed. That is not true. If you had not taken the loan, you would now have zero dollars (or whatever you have minus X). The X dollars you have now represent the X dollars that you took as a loan in a nontaxable transaction. It still has not been taxed. You stated you may not be in a lower tax bracket at retirement. The money you pay back does not get taxed now, it will earn money tax free in the interim, and it will be taken out at a lower tax rate than if you allow it to be taxed now. Paying it back is a win-win situation. Defaulting will significantly diminish the amount you have available (because of the immediate taxation) to reinvest. You would need to find an investment that provides much higher expected return than the 401(k) investments to make up the difference (although possible to do, it isn't easy). The only time that it makes sense to default is if you would be in a signicantly higher tax bracket (much more than the additional 10% because of compounding) in retirement than you are now (which could occur if you were out of work for most of the current year).

Not yet...still waiting.

This was sent internally in the IRS to agents reviewing determination letter requests.

dmb, Jim Holland has stated in the past few weeks that they are getting a lot of these requests and are not considering them abusive (to get a larger deduction under current conditions), so they are pretty much rubber-stamping the formal written requests. Pax, As a follow-up to your second comment, there are exceptions to the rule. This was covered in the 2002 EA Gray Book: QUESTION 14 Method Change: Automatic Approval for Plan in Effect for Fewer than Five Years Section 6.02(3) of Rev. Proc. 2000-40 denies automatic approval for any of the funding method changes listed in Section 3 of the Rev. Proc. if a change to the same aspect of the funding method occurred during any of the prior four plan years. May a plan that has been in effect for fewer than five years change funding methods pursuant to Section 3 of Rev. Proc. 2000-40? RESPONSE In general, yes. The initial adoption of a funding method upon the establishment of a plan does not count as a funding method change. However, if the plan is a continuation of another plan that was created as a result of a non-de minimis spin-off, you must consider the funding method history of the predecessor plan in determining whether or not the four-year rule is satisfied. A plan that is created as a result of a de minimis spin-off is considered a newly established plan. See section 3.03 of Rev. Proc. 2000-41.

I just spoke with Vernon Carter, author of the regulations. He says that they are effective immediately, but you can optionally ignore them until 1/1/2004, at which time you must follow them.

Just to confuse the issue a little more: In the proposed regulations, it stated that the final regulations would not be effective until the calendar year that starts at least 6 months after final regulations are issued. I guess they are ignoring that prior statement.

The regs are still being worked on. They were supposed to be issued by now, but continue to get delayed. I do not think they have reached the "sign-off" stage yet where it goes around for a couple of weeks being signed off on by everyone who cares. These are omnibus 401(k) regs, not just targeted at some particular issues. They will bring together every guidance that has been issued on 401(k) in the past. IRS & Treasury representatives have repeatedly said that the new regs would outlaw bottom-up QNECs, but the actual language of how they will accomplish this has not been released.

They are nowhere near even starting on this. I wouldn't expect it for a couple more years at the earliest (more likely 3 or 4). The DOL moves at an extremely slow pace when it comes to regulations. Especially when it is regulations about something that no one wants.

The prior response is not correct. See Reg. 2520.104b-4(B). If, at the time of separation, they received the SPD and SMMs applicable at that time, then when the new SPD is issued they only need to be given a notice stating that their benefit rights were outlined in the previous SPD and they can receive the updated SPD from the administrator without charge, if they so request. But then, if you do not give them an SPD upon termination (which you should -- not just at eligibility), you need to give them the newly updated one. You only get to do the notice if you gave them the most current SPD and SMMs at date of termination.

The above discussion assumes there is no other qualified plan offered by the employer. If there is another defined contribution plan, the above limits apply to the aggregate of the contributions to both plans.

If a plan pays out the after-tax contributions, it really doesn't do so from a tax standpoint (assuming it is post-86 money). The distribution must be pro rata taxable and nontaxable money. How does a spinoff work under this rule? It seems the IRS would consider this a subversion of the taxation rule and say that the spinoff was also pro rata. Also, although this was posted under the 401(k) discussion group, perhaps this is not a 401(k) plan and that is why the J&S rules apply.

How about 1.411(d)-4, Q&A 2 (although this says you can eliminate them, the same logic should apply to never having them to begin with): "(x) Amendment of hardship distribution standards. A qualified cash or deferred arrangement that permits hardship distributions under §1.401(k)-1(d)(2) may be amended to specify or modify nondiscriminatory and objective standards for determining the existence of an immediate and heavy financial need, the amount necessary to meet the need, or other conditions relating to eligibility to receive a hardship distribution. For example, a plan will not be treated as violating section 411(d)(6) merely because it is amended to specify or modify the resources an employee must exhaust to qualify for a hardship distribution or to require employees to provide additional statements or representations to establish the existence of a hardship. A qualified cash or deferred arrangement may also be amended to eliminate hardship distributions. The provisions of this paragraph also apply to profit-sharing or stock bonus plans that permit hardship distributions, whether or not the hardship distributions are limited to those described in §1.401(k)-1(d)(2)."

The terminology "PERS" is nothing official. It typically means a qualified defined benefit or defined contribution plan. If that is the case, then yes, lump sum distributions from it can be rolled over. But, you mentioned "a distribution". Certain distributions in annuity form could not be rolled over. People tend to throw around terminology like this referring to just about anything because PERS is not a defined term in the law. You posted this in the 457 plan area. Is this a 457 plan (which is not a qualified plan, it is a deferred compensation plan)? The best thing to do is ask the plan administrator. No one will be able to answer your question here without seeing the plan document or SPD.

AndyH, The only way the DB could be split 25-25 is if the spouse also will be earning 160k. It is probably more likely about 40/10 split with the spouse having substantially less income. firstq, Were you always planning on having the spouse take large income in this business? Note that in order for the spouse to have earnings that can be used to generate pension contributions, the spouse's earnings will probably have to be substantial. Every bit of earnings that is switched from you to the spouse is going to generate another 15.3% tax for SS. This should definitely be factored into any analysis. Also, make sure that neither you nor the spouse are putting money into another 401(k) or 403(B) plan of another employer. If the spouse is working elsewhere and is contributing to a 401(k), then the total between that one and this one can't exceed 11k (12k in 2003). This is an individual taxpayer limit, not a plan limit.

I completely agree with the prior postings that 80k is too high, it should be much less than 40k. Either they are going well beyond the IRS guidance and law (in which case you are opening yourself up to major headaches with the government and loss of a lot more money through fines and taxes) or else the plan is being heavily invested in insurance (or annuities, or whatever product produces high commissions and fees). Most plans with insurance in them are not 412(i), the insurance is just another investment in a regular qualified plan. If the person had credentials from any of the actuarial organizations (Society of Actuaries, Conference of Consulting Actuaries, American Academy of Actuaries, American Society of Pension Actuaries), they would be listed in the online directory of actuarial memberships. There is no employee of American Express in Arizona listed in the directory. Only persons that are members of these organizations are subject to the professional codes of conduct. Using a non-member subjects you to the risk that they can say anything they want and not be subject to discipline.

I was once a consultant for one of the largest benefits consulting firms in the country. Their plan allowed in-service withdrawals at any time. I needed cash flow for a separate business I owned and did not want to save for retirement at the time. However, I didn't want to lose out on any matches (they matched either after- or pre-tax deferrals). So, I contributed after-tax money and withdrew it every January 1. At one time, the IRS had a "soft" rule that profit sharing money should stay in for at least two years, but it was more of a safe harbor default rather than a strict rule. It was seen as a discrimination issue and as long as highly compensated were not abusing the put in/take out feature, you could allow withdrawals sooner.

I disagree with these analyses. The good-faith amendments for EGTRRA are on the pre-approved plans. The GUST remedial amendment period has not been extended for the pre-approved plan. It has only been extended for the adopting employers. The adopting employers are not the ones that would be doing the good-faith amendments, it is the sponsor of the prototype, volume submitter or master plan that needs to do the good-faith amendments. Nothing has changed with respect to the deadlines of the sponsor.

The pension cost in core earnings is the service cost plus the interest cost. Subtracted from this is the actual return on plan assets, if positive, but no more than the interest cost may be subtracted. Therefore, the cost will never be less than the service cost and never more thant the interest cost plus service cost. All other components of pension cost (including SFAS 88 numbers) from GAAP are completely ignored. The write-ups you are referring to are talking about "gains" in the context of investment income, not actuarial gains and losses different from assumptions.

What do you mean by "elected to receive MRDs?" Is this a stated optional form of payment in the plan? If not, what is it they are electing? This is the whole issue that the IRS doesn't like.

I will be submitting Q&As in the next week or so (deadline is Thanksgiving) and will add this, unless someone else wants to submit the question.

davef, I would very much like a copy of that bulletin. I am often in arguments over what can be incorporated by reference and what cannot. Please let me know how I can get a copy (you can email me from the link below).