Belgarath

I still think that's what it is. You have an approved EGTRRA document, to which a bunch of amendments were made - you are now submitting for a new D-letter, and you have to do the statement regarding those amendments. Also take a look at the "procedural requirements" checklist, #8 - see below. This statement is required, and I believe that is what 3g(ix) is referring to. But don't take my word for it, contact the IRS and ask them. Of course, good luck with getting a response within the next 6 months...you might also consider contacting Sungard and asking them - their support is very good. A list of modifications (For each modification of the approved specimen, is a separate written representation made by the VS practitioner that explains how the plan or trust instrument differs from the approved specimenplan and explains the effect of the modification of the approved specimen plan attached?);

Good point! I was wandering in the murk, and somehow thinking that the niece was a secondary beneficiary, but when I go back and tread the post, that doesn't follow.

Ignoring the tax aspects, I do believe it is possible for a beneficiary to do a legal and valid "disclaimer" - but this is most definitely something I would check with an attorney licensed in your jurisdiction. I seem to recall there were some pretty rigid requirements for timing, etc...

I agree with Bill - assuming the plan language allows it - I'm only fixating on this because I have worked with documents that would NOT permit this, so just be careful. Odds are good that the document doesn't contain any such restriction as I originally mentioned on loans from insurance cash value anyway.

I believe it refers to this - naturally not explained in the 3g instructions, which would be too easy, but on the second page of the 5307 instructions...and I'd answer it "yes" and attach the statement. If it ain't what they want, they will ask for what they want. A written representation (signature optional) made by the VS sponsor under penalty of perjury, that explains that the plan and trust instrument are not word-for-word identical to the approved specimen plan and describes the location, nature and effect of each deviation from the language of the approved specimen plan

First, and I'm not being a wise-guy, check the plan document. The insurance policy should be owned by the Trustees of the Plan, so the participant can't simply borrow from the policy. The plan may allow participant loans, and the policy cash value may be included when calculating the total vested interest for purposes of maximum loan amount, BUT, many Plans limit the loan proceeds to coming out of assets OTHER THAN the insurance policies.

From the IRS Employee Plans News - in March, I think... Tax Consequences of Plan Disqualification When an Internal Revenue Code section 401(a) retirement plan is disqualified, the plan’s trust loses its tax-exempt status and becomes a nonexempt trust. Plan disqualification affects three groups: 1. Employees 2. Employer 3. The plan’s trust Example: Pat is a participant in the XYZ Profit-Sharing Plan. The plan has immediate vesting of all employer contributions. In calendar year 1, the employer makes a $3,000 contribution to the trust under the plan for Pat’s benefit. In calendar year 2, the employer contributes $4,000 to the trust for Pat’s benefit. In calendar year 2, the IRS disqualifies the plan retroactively to the beginning of calendar year 1. Consequence 1: General Rule - Employees Include Contributions in Gross Income Generally, an employee would include in income any employer contributions made to the trust for his or her benefit in the calendar years the plan is disqualified to the extent the employee is vested in those contributions. In our example, Pat would have to include $3,000 in her income in calendar year 1 and $4,000 in her income in calendar year 2 to reflect the employer contributions paid to the trust for her benefit in each of those calendar years. If Pat was only 20% vested in her employer contributions in calendar year 1, then she would only include $600 in her calendar year 1 income. Exceptions: There are exceptions to the general rule (see IRC section 402(b)(4)): • If one of the reasons the plan is disqualified is for failure to meet either the additional participation or minimum coverage requirements (see IRC sections 401(a)(26) and 410(b)) and Pat is a highly compensated employee (see IRC section 414(q)), then Pat would include all of her vested account balance (any amount that wasn’t already taxed) in her income. A non-highly compensated employee would only include employer contributions made to his or her account in the years that the plan is not qualified to the extent the employee is vested in those contributions. • If the sole reason the plan is disqualified is that it fails either the additional participation or minimum coverage requirements, and Pat is a highly compensated employee, then Pat still would include any previously untaxed amount of her entire vested account balance in her income. Non-highly compensated employees, however, don’t include in income any employer contributions made to their accounts in the disqualified years in that case until the amounts are paid to them. Note: Any failure to satisfy the nondiscrimination requirements (see IRC section 401(a)(4)) is considered a failure to meet the minimum coverage requirements. Consequence 2: Employer Deductions are Limited Once the plan is disqualified, different rules apply to the timing and amount of the employer’s deduction for amounts it contributes to the trust. Unlike the rules for contributions to a trust under a qualified plan, if an employer contributes to a nonexempt employees’ trust, it cannot deduct the contribution until the contribution is includible in the employee’s gross income. • If both the employer and employee are calendar year taxpayers, the employer’s deduction is delayed until the calendar year in which the contribution amount is includible in the employee’s gross income. • If the employer has a different taxable year than the employee (a non-calendar fiscal year), the employer cannot take a deduction for its contribution until its first taxable year that ends after the last day of the employee’s taxable year in which the amount is includible in the employee’s income. For example, if the employer’s taxable year ends September 30 and a contribution amount is includible in an employee’s gross income for the employee’s taxable year that ends on December 31 of year 1, the employer cannot take a deduction for its contribution until its taxable year that ends on September 30 of year 2. 9 For example, if the employer’s taxable year ends September 30 and a contribution amount is includible in an employee’s For example, if the employer’s taxable year ends September 30 and a contribution amount is includible in an employee’s gross income for the employee’s taxable year that ends on December 31 of year 1, the employer cannot take a deduction for its contribution until its taxable year that ends on September 30 of year 2. Also, the amount of the employer’s deduction is limited to the amount of the contribution that is includible in the employee’s income and whether a deduction is allowed depends on whether the contribution amount is otherwise deductible by the employer. Finally, if the plan covers more than one employee and it does not maintain separate accounts for each employee (as may be the case with a defined benefit plan), then the employer is not able to deduct any contributions. In our example, assuming both the employer and Pat are calendar year taxpayers, the employer’s $3,000 deduction in calendar year 1 and $4,000 in calendar year 2 would be unchanged because that is when Pat would include these amounts in her income. However, if Pat were only 20% vested, then the employer would only be able to deduct $600 in calendar year 1 (the vested part of her employer contribution) which is the amount Pat would include in her calendar year 1 income. Consequence 3: Plan Trust Owes Income Taxes on the Trust Earnings The XYZ Profit-Sharing plan’s tax-exempt trust is a separate legal entity. When a retirement plan is disqualified, the plan’s trust loses its tax-exempt status and must file Form 1041, U.S. Income Tax Return for Estates and Trusts (instructions), and pay income tax on trust earnings. Revenue Ruling 74-299 as amplified by Revenue Ruling 2007-48 provides guidance on the taxation of a nonexempt trust. Consequence 4: Rollovers are Disallowed A distribution from a plan that has been disqualified is not an eligible rollover distribution and can’t be rolled over to either another eligible retirement plan or to an IRA rollover account. When a disqualified plan distributes benefits, they are subject to taxation. Consequence 5: Contributions Subject to Social Security, Medicare and Federal Unemployment (FUTA) Taxes When an employer contributes to a nonexempt employees’ trust on behalf of an employee, the FICA and FUTA taxation of these contributions depends on whether the employee’s interest in the contribution is vested at the time of contribution. If the contribution is vested at the time it is made, then the amount of the contribution is subject to FICA and FUTA taxes at the time of contribution. The employer is liable for the payment of FICA and FUTA taxes on them. If the contribution is not vested at the time it is made, then the amount of the contribution and its earnings are subject to FICA and FUTA taxation at the time of vesting. For contributions and their earnings that become vested after the date of contribution, the nonexempt employees’ trust is considered the employer under IRC section 3401(d)(1) who is responsible for withholding from contributions as they become vested. Calculating Specific Plan Disqualification Consequences Calculating the tax consequences of plan disqualification depends on the type of retirement plan. For example, the tax consequences for a 401(k) plan differ from the consequences for a SEP or SIMPLE IRA plan. How to Regain Your Plan’s Tax-Exempt Status Generally, if a plan loses its tax-exempt status, the error that caused it to become disqualified must be corrected before the IRS will re-qualify the plan. You may correct plan errors through the IRS Voluntary Correction Program. However, if your plan is under examination by the IRS, you must correct the errors through the Audit Closing Agreement Program. Note: This is a general overview of what happens when a plan becomes disqualified for failure to meet qualification requirements (see IRC section 401(a)). These examples provide general information and you should not rely on them as legal authority as they do not apply to every situation. For more information, see Rev. Rul. 74-299 and Rev. Rul. 2007-48 (and the law and regulations discussed in those rulings).

I'm going from memory here, but as I recall you need to get something like 64 out of 75 correct - basically 85%.

From IRS Notice 2013-74: Q–7. Would a plan with an ongoing qualified Roth contribution program violate § 411(d)(6) if it discontinued in-plan Roth rollovers? A–7. No. An employee’s ability to make an in-plan Roth rollover is not a section 411(d)(6) protected benefit. However, an amendment to eliminate in-plan Roth rollovers is subject to the rules in § 1.401(a)(4)–5, relating to whether the timing of a plan amendment or a series of plan amendments has the effect of discriminating significantly in favor of highly compensated employees or former highly compensated employees.

Gracias.

Hmm - good point! So, do you interpret this such that if there is someone who only makes, say, $10,000, and can't defer the entire $10,000, that you have a violation?

Thanks for all the comments. Believe me, none of this is my idea. I also have never seen such an election. But someone has done it, so now I'm just looking for ways the reasonably argue that what they already did was allowable. They may well still "make up" the May payroll... Confusing? You have no idea! It is much worse than you think - I'm only discussing 1 piece of this oddity, and not by any means giving you all the issues/details. I keep thinking it is a bad dream from which I will awake, carefree and happy. Kevin - your point is well taken, but in this case I actually have no worries about that. Since they had to sign a new election for 2015, are informed up front that it is based on 24 pay periods, and can change during the year, I think the facts and circumstances would pretty clearly support that they have an effective opportunity to defer the max. But maybe my normal conservatism is on vacation today.

P.S. - here's the note that appears on the salary deferral form. Fairly specific. They also have all benefit deductions for cafeteria plan, etc., done on one form, hence the reference to Flexible Benefits, which has nothing to do with the 403(b) deferral... **NOTE** All Flexible Benefits will be paid out based on 26 pay periods, however elected benefit deductions will be paid out based on 24 pay periods, resulting in 2 paychecks each year with zero deductions. This will take place when there are 3 pay periods in a month, which you will see in May & October for 2015.

Thanks. Match is discretionary, and is on a "per payroll" basis, so for any payroll (the 3rd payroll in each of the 2 months that have three payrolls) there would be no deferral and no match. We would recommend that this be modified for 2016, by the way, or at least referred to counsel... And, I just found out this is a 403(b) and not a 401(k), so ADP and Top Heavy wouldn't be an issue even if they had HC/Key, but they don't anyway. The document is pretty open-ended on deferral procedures - allows a lot of employer latitude, so I'm thinking that as long as the participants are appropriately notified. One of the clauses that seems to allow some wiggle room is: © Additional Rules. The Plan in the Plan's Salary Reduction Agreement form, or in a Salary Reduction Agreement policy will specify additional rules and restrictions applicable to a Participant's Salary Reduction Agreement. Any such rules and restrictions must be consistent with the Plan and with Applicable Law. Also, compensation refers to... (2) to all Elective Deferral Compensation or Salary Reduction Agreement Compensation as the Employer elects in its Adoption Agreement, unless the Participant in his/her Salary Reduction Agreement elects to apply the Agreement only to a lesser amount of such Compensation. Anyway, I don't know what an auditor would think, but the question becomes whether some sort of self-correction is required, or if the Plan is ok on this issue. And one could argue that "correcting" the plan - that is, requiring an additional deferral on the two extra paychecks - would itself be a violation if the clear intent of the deferral forms (with latitude permitted by the plan, and forms signed by the participants) is to limit the deferrals only to the 24 payrolls. There's way too much gray here for my taste!

Here's a new one to me. Plan deferral procedures and deferral forms specify that all deferrals, whether by percentage or by flat amount, will be deducted twice monthly (24 pay periods per year) even though they actually do bi-weekly payroll (26 per year.) Match is on a "per payroll" basis. Not a safe harbor plan, not top heavy. Although odd (in my experience) is there really a problem with this? Plan is allowed to establish deferral procedures, so do you foresee problems for an auditor with this practice? Assume no HC, so no possible testing failures involved. Seems to me that this should be ok, even though it feels a little funny in that plan definition of compensation doesn't specifically refer to this. But for a flat dollar deferral amount, the number of payrolls is ultimately immaterial, and for a percentage, as long as forms clearly specify that it is for 24 payrolls only, participants know exactly what they are signing up for. Any thoughts?

Kevin - thanks for the response. I want to make it clear again that I don't disagree with your interpretation of the regulations. I'm just not necessarily convinced that the IRS position that you assert is a certainty. There are a lot of other smart folks out there, some of them with pipelines to the IRS, who believe otherwise. So, while as always your arguments are logical and well-reasoned, (and you are very likely right) I'll stick with cowardice for the time being.

Thanks Kevin, but I don't think that in any way addresses how the IRS interprets the regulations. It just says "the regulations are there, 2007-59 is there, and we're sticking with the guidance." It does not address the question of, "great, so do you, the IRS, interpret your regulations to prohibit mid-year amendments to, say, a profit sharing allocation method, or __________________fill in the blank." And there's been more than enough questioning of this since 2011 so that they could have easily cleared it up. And they haven't. Mind you, I'm not saying your interpretation of the IRS official position is wrong. It may well be right. It's just that I don't feel confident it is right, either. So I'm neither disagreeing or agreeing with you, and continuing to play it safe until I feel confident that the IRS position is, in fact, as you believe it is. Anyway, thank you for your opinion.

Sorry, I don't agree. Under IRC 402©(11) as amended by ?WRERA?? - it is an eligible rollover distribution, (if paid in a form otherwise eligible for rollover) and thus subject to 20% withholding if not rolled over. I believe this didn't apply until 2010.

I'll merely observe this - since I don't profess to know the answer. The IRS is well aware of the confusion and practitioner questions on this issue, which has now been going on for years. If they truly take the approach that mid-year amendments that do not contradict the specific terms in the Safe Harbor plan requirements under the regulation, then they could have just said so at any time and cleared up this mess once and for all. Since they have thus far failed to do so, not even from the podium where it is unofficial - people are understandably concerned, and thus are often very (perhaps needlessly) conservative. It remains to be seen as to whether this conservatism is necessary or not. I confess that my modus operandi on such issues is generally that discretion is the better part of valor. As to the question of whether the IRS, the qualified plan practitioner community, or both, are responsible for the confusion, I honestly have no informed opinion, nor, to me, does it truly matter at this point. Until the IRS issues guidance, I'll stick with conservatism. To a degree...and that's the problem with all of this - we all have to draw the line somewhere, and the line is often blurred. It is astonishing that this one issue has caused so much trouble.

Thank you all for your replies. I did some additional searching, and found what I believe is a reasonable and apparently IRS approved method, although not the ONLY method, of calculating the imputed income, which would be: The difference between the amount the employer would contribute for the employee alone and the amount the employer would contribute for coverage of an employee and a spouse or family (as applicable). When the particular coverage provided to the individual is group medical insurance coverage, PLRs provide that the amount includible in the employee’s gross income can be the FMV of the group medical coverage. Employers can, therefore, impute income for domestic partner benefits coverage using group rates as opposed to, for example, the higher COBRA individual rate. So, as I understand it, here’s an example of how it might work, with numbers I pulled out of the air for purposes of illustration. Employer health coverage – employer contributes $6,000 per year for single employee; $11,000 per year for employee and spouse, and $15,000 per year for family coverage. Regardless of the fact that the employer currently pays $15,000 for this employee due to the children, the employee will nevertheless be taxed on the imputed income of $5,000 per year if the Domestic Partner is added to his coverage. Since the Windsor decision may not apply to health benefits, it might be a different taxation scheme for same-sex partners. I didn't go that far in looking into this. Now, this is nothing I have any involvement with, so you can bet we will refer the employer to tax counsel, but this was just to be "helpful" to a client - and I appreciate your earlier responses.

A domestic partner situation, man and woman. He has family health insurance coverage since he has children. Can he add his partner to the policy and keep the total premium as a tax fee benefit (his employer pays 100% of the family premium)? My (limited - I don't work with health insurance) understanding is that a domestic partner’s share of the premium cannot normally be a tax fee benefit and he should have her share of the premium added to his pay to be taxed as regular income. This seems simple if he was going from a single to a 2 person plan - the additional premium would be taxable. But since he already has family coverage, does it matter if his partner comes on the plan and he still receives the insurance as a tax free benefit? On the one hand, it seems like some portion should be taxable, as it would be if there were just the two of them. On the other hand, since it is family coverage, and the premium is currently tax free and will not change, it also seems ridiculous to suddenly consider a portion of it as taxable. Maybe my fundamental understanding off off base to start with... Thanks.

Qdrophile - good one. I can only say that I'm tired of all this. Tread softly.

I actually think this was sort of standard language in EGTRRA pre-approved documents. The potential scenarios involved are many, and you really have to look at each situation individually. As a very general rule, if there is qualified military service and qualified reemployment, you would only have to credit up to 5 years. And what is "fair" is determined by the law, which was of course designed to assist those folks in our armed forces who have to sacrifice a lot for the rest of us. But as mentioned earlier, you'll have a lot of reading to do. Some situations are pretty straightforward, and some are pretty complicated. And some employers are very recalcitrant when it comes to properly COMPLYING with the law. Good luck!

I'd say no can do. Or, at least, I wouldn't. By that I mean that although I don't have a problem with it based upon a (in my view) correct and less broad view than the IRS takes, I nevertheless think that it is aggressive until such time as the IRS smartens up on all this foolishness.

You might check to see if there are any Private Letter Rulings allowing a sole beneficiary of an estate to do a rollover to inherited IRA, or something like that. Even if there are, a PLR applies only to the person for whom it was issued, so you'd need legal advice to see if that could be used in your situation. Maybe some of the attorneys here would know if such a PLR exists.