Belgarath

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?

Don't think I've ever seen this come up. The K-1 shows different percentages in Part II, Box J - one percentage for profit and loss, and 1 percentage for capital. Trying to determine which to use! 1.404(e)1A(f)(1) refers you to IRC 702(a)(8) and 704. And 704 basically refers you to the partnership agreement. Logically, to me at least, one would use the profit percentage on the Schedule K, rather than the capital percentage. Any thoughts on this?

Let's assume not.

Suppose "normal" plan entry date would occur on July 1. On June 21st, employee goes out on approved maternity leave, or short term disability. Returns to work July 15th. Is the entry date July 1st, or July 15th? Plan doesn't really address this - refers to if the individual is "employed" - so are they "employed" if they are on approved leave? Or are they considered "re-employed" when they return from leave? My inclination is that they would enter the plan on July 15th.

Nice, concise little blurb 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).

While unusual, certainly not unheard of. Often the land is the primary consideration, and if in an area of growth, for example, it can appreciate DRAMATICALLY. So it is very possible that it was a legitimate arms-length transaction. Also very possible it wasn't...

We'll have to agree to disagree on this one. I'd certainly argue that if you have an agreement with document provider "A" that says, "once you sever services with us you may no longer use this document" - therefore requires you to adopt someone else's document - and that fee is then a reasonable and necessary cost of administering a plan. On the other hand, the decision to sever services with "A" and any expenses involved in making that is a different matter. And I'm sure there are several shades of gray on all of this. Maybe we can collaborate on a racy novel of ERISA greed, intrigue, lust, and corruption and name it "Many Shades of Gray" or something like that. Anyway, I appreciate your input.

I completely agree with Kevin. FWIW, from my own perspective, I think you are far less likely to have problems during a plan audit if you have used a "pre-approved" method - and if the dollar amounts are small, I personally wouldn't mess with going outside an already pre-approved method.

I'd look at it this way. The expenses involved in making the decision to restate (consultant fees, attorney fees, etc.) are a settlor function and may not be charged to the Plan. Once the decision has been made that restatement is either beneficial (for many possible reasons) or "required" due to the expiration of "licensing" of the document, or whatever you want to call it when the client severs the relationship with current provider, then the restatement fee itself may be paid by the plan.

Thanks for the tip. I'll have to see where this would be input on our software system (FT William) - probably easy to find, but if not, their "help desk" is really excellent.

Both were accepted. Neither was filed as an amended return.