Belgarath

Lou - here's what I think - with the caveat that I'm going from memory and haven't done any research to confirm or provide citations. For purposes of taxation under IRC 72, the rules are applied separately to distributions from Designated Roth contribution accounts, and to distributions from non-Roth accounts - they are treated as "separate contracts." So, the entire Roth portion of $20,000 should be eligible for the direct rollover with no reduction in basis in the example you give, and the rest will be subject to "normal" tax rules for distributions of pre-tax money.

We've had only a few plans audited recently, but the auditors have asked for GUST documents. You don't want to even get me started on my personal opinion of this requirement...

Kind of a strange one here, or maybe not so strange. Two spouses, each with sole proprietorships, in a non-community property state. The businesses are such that they clearly meet all of the spousal noninvolvement requirements of 1.414©-4(b)(5)(ii) below, with the possible exception of the piece I have emphasized below. My question is, how is this determination really made? Yes, I know we can get a tax attorney's opinion, but any idea what parameters they might use? Anyone ever seen any additional guidance, or had a real situation like this? I mean, does the fact that the spouses talk and work together when making a decision constitute "management" in the organization? Seems like you potentially get screwed either way...seems like facts and circumstances to the utmost degree. I'd love to hear any opinions. Thanks. (5) Spouse—(i) General rule. Except as provided in paragraph (b)(5)(ii) of this section, an individual shall be considered to own an interest owned, directly or indirectly, by or for his or her spouse, other than a spouse who is legally separated from the individual under a decree of divorce, whether interlocutory or final, or a decree of separate maintenance. (ii) Exception. An individual shall not be considered to own an interest in an organization owned, directly or indirectly, by or for his or her spouse on any day of a taxable year of such organization, provided that each of the following conditions are satisfied with respect to such taxable year: (A) Such individual does not, at any time during such taxable year, own directly any interest in such organization; (B) Such individual is not a member of the board of directors, a fiduciary, or an employee of such organization and does not participate in the management of such organization at any time during such taxable year; © Not more than 50 percent of such organization's gross income for such taxable year was derived from royalties, rents, dividends, interest, and annuities; and (D) Such interest in such organization is not, at any time during such taxable year, subject to conditions which substantially restrict or limit the spouse's right to dispose of such interest and which run in favor of the individual or the individual's children who have not attained the age of 21 years. The principles of §1.414©-3(d)(6)(i) shall apply in determining whether a condition is a condition described in the preceding sentence. (iii) Definitions. For purposes of paragraph (b)(5)(ii)© of this section, the gross income of an organization shall be determined under section 61 and the regulations thereunder. The terms “interest”, “royalties”, “rents”, “dividends”, and “annuities” shall have the same meaning such terms are given for purposes of section 1244© and §1.1244©-1(e)(1).

Yeah, but a lot of the time the "entry dates" are monthly, for example, and I see no problem whatsoever with making them wait until the first day of the next month. I think the more important thing is as already mentioned: plan document/administrative provisions accurately and consistently followed.

From my earlier post. Perhaps you didn't see this part - as you can see, I agree that in the situation you posit, no contribution for the employee who terminated prior to the effective date of the plan. "But, I also just took a closer look at your question and the dates involved, and realized that I was assuming incorrectly that you were asking about a "last day" requirement. Based upon your question, I see no reason why anyone who terminated prior to the effective date of the plan would receive any contribution."

Nope, not offhand - I looked it up in my CCH Pension and Employee Benefits books. I'm a little old-fashioned - the internet is a fabulous tool, but for detailed Code, Regs, ERISA, etc. where I frequently have to flip back and forth a lot, I find it more efficient to have a hard copy.

I took a look at the regulations - take a look at Proposed Treasury Regulation 1.408-7(d)(3), which clearly states that you cannot require an employee to be employed as of a particular date. But, I also just took a closer look at your question and the dates involved, and realized that I was assuming incorrectly that you were asking about a "last day" requirement. Based upon your question, I see no reason why anyone who terminated prior to the effective date of the plan would receive any contribution.

If you are using the IRS model SEP document, then the answer to number 1 is no. If you are using a prototype SEP document, then I do not know. If a fiscal year is allowed, I'm just GUESSING that the contribution requirement will not permit a last day requirement, but that's only a guess.

Thanks!! This is really helpful information. "Some" certainly includes me - I did not know this. (Never had any reason to check, either) Do you perhaps have a reference or citation that states this - regulation, IRS publication, etc.? (Something that specifically refers to a 100% ESOP owned S-corp, or is this just done under a general or valid business purpose, etc., on a from 2553, or 444, or whatever?)

Just wondering - say a C-corp with a fiscal year, and an existing leveraged ESOP, decides to switch to S-corp status and change their fiscal year to calendar year. Pros and cons of changing ESOP plan year to match the new fiscal year and running a short plan year? Any special problems (or advantages) that you've seen one way or the other?

Interesting question. I'm neither a "DB" person nor am I an EA, but although your argument seems reasonable, I wonder if your plan language would back it up? (Even if the Commissioner does agree with you) The DB documents I've seen don't delve into it to such a detailed level. They merely, flat out, prohibit a distribution to a "restricted employee" when assets are below the 110% as you mention, subject to certain exceptions which don't apply to your question - and the "restricted employee" is defined. Example below: Definition of Restricted Employee. For purposes of this Section, "Restricted Employee" means any Highly Compensated Employee or former Highly Compensated Employee. However, a Highly Compensated Employee or former Highly Compensated Employee need not be treated as a "Restricted Employee" in the current year if the Highly Compensated Employee or former Highly Compensated Employee is not one of the twenty-five (25) (or larger number chosen by the Employer) nonexcludable Employees and former Employees of the Employer with the largest amount of compensation in the current or any prior year. Assume your plan permits the "payment if security provided" route? That might be a better option.

I may be foolishly optimistic, but even if the loan procedure weren't amended (and I agree it should be) I have trouble imagining that most IRS auditors would cause trouble over this one.

Thanks all. Good advice.

If the plan sponsor corporation dissolved, but the plan still needs to be restated, and terminated, who typically signs the documents in such a situation? The Plan Administrator/Trustee, under the general authority to administer the plan, etc., etc., or do you have to get into the DOL's "abandoned plans" guidance - which I haven't looked at yet. Not a real life situation (at least not yet) but there are a couple where this might yet come into play...

I still say the answer is no. As a matter of curiosity, what's the big deal about having it issued in the DB? Since both DC plans and IRA's can utilize QLAC's, why not do it in the DC plan or roll to an IRA and do it in an IRA?

No. The regulations as issued do not apply to defined benefit plans. The preamble does invite comments for ongoing discussion as to whether something along these lines would be desirable for DB plans, so there is apparently going to be ongoing discussion on this issue.

Well, this is sort of a mix of apples and oranges. My answer was based upon the assumption that you have appropriately established financial need, either through the "safe harbor test" or the "facts and circumstances" test, - whichever is required in your document.

Pension Dude - check out IRC 402(e), which provides the "QDRO exception." Any payment made to a spouse or former spouse under a QDRO is taxable to the alternate payee. If the participant just took a permissible in-service to pay the former spouse, without the QDRO, it would simply be a taxable distribution to the participant.

FWIW - I'd lean towards allowing it. The pool is part of the value of the principal residence, and if it is damaged, the principal residence is decreased in value. Let me ask a question: would you deny it as a hardship if the unattached 2-car garage was destroyed in a storm? I don't really see that a pool is any different.

I find that figuring out renewals and appropriate credits if you receive the designation mid-cycle is WAY more difficult than the tests...

BG - to answer your original question, the reference you are looking for is 1.401(k)-1(d)(3)(iv)(E)(1).

Off the cuff, it seems hard to consider this a cutback. I haven't looked at the regs, nor have I given this any real thought - just my initial reaction.

With the SPD.

I understand your answer, but the document does not specifically address this issue. It merely discusses whether they are not "employed" - which gets you back to the answer from ESOP. So I guess it hinges on your interpretation of the term "employed." If they are still "employed" while on disability, then they enter. If they are considered not "employed" then they don't enter. If this is FMLA leave or something like that, then I would assume they are considered "employed" and would enter. I suspect in a lot of short term situations, if they aren't getting a paycheck, it would be as K2 observed - what difference does it make? Thanks for the thoughts.

Probably none. I perhaps should have used a better example with a longer period of time - say it is medical or disability, and the person doesn't come back until January 15th of 2015. Then the entry date could become more critical if a profit sharing contribution is made for 2014, for example. So let's go with that. Entry date of 7/1/14 or 1/15/15?