Belgarath

First answer, of course - check your document. This is likely to be spelled out pretty clearly. But I'd say no, you cannot exclude prior service. So participant enters immediately. All years of service will count toward determining vesting in the post-break account. IF there had been a partially vested pre-break account, then the non-vested amount would be forfeited, but that doesn't apply here, since participant was 100% vested, even though he was 100% vested in nothing.

You are trying to make a distinction for "retirees" that doesn't exist. When the participant terminates employment, whether from retirement or otherwise, and is subsequently re-employed, then he falls under the rules applicable to the "break year" language you quote.

Jill, isn't there another section of the document, perhaps dealing with the effect of a "break year" or something along those lines, that addresses the rules for rehires? I find it difficult to imagine that the IRS would approve the document otherwise.

I really can't imagine why any employer who actually understood this would choose this option. Was this perhaps the DOL's backdoor method of ensuring that employers don't use an option that the DOL never wanted to allow in the first place?

You already said it. Have them increase the fidelity bond - almost certainly cheaper than an audit. Or perhaps I'm misunderstanding your question?

"Null and void" seems a little strong. Does the prior plan have any such specific language, or disclaimer? I've seen many IRS approved prototypes that had, on the signature page of the adoption agreement, a statement that the plan will fail to retain its "prototype" status if the fees are not paid. Which makes sense - why would you send updated amendments to someone who didn't pay their fees? However, I can't point you to a specific regulatory source that addresses this. I'm sure there is one somewhere...

I'll plead the 5th amendment...

I really don't know why I thought this, but for some reason I had always thought that the EZ filings were not open to public inspection. But according to the 2009 EZ instructions on Page 2, they are open to public inspection. Just not on the internet. So what's the advantage to an EZ if you are over the $250,000 filing cutoff, other than perhaps making it a little more difficult for someone to obtain the information?

By all means, they should be fined for correctly doing what the IRS said they had to in the first place. I think there is only one profession where you can screw up more than the IRS without geting fired, and that's being a weather forecaster. Or perhaps an economist. Honestly, if this were the first time something like this had happened, I'd be a little more tolerant, but it is becoming almost routine. Grrrrrrr!

It is available now on the IRS website. P.S. - here's a link. http://www.irs.gov/app/picklist/list/forms...Descending=true

Yes, but only for loans of up to $10,000.

Very possibly. Would it make any difference if the participant had the ability to "opt out" of paperless transactions, and instead chose not to? I'm just curious about this issue, as there are certain specific protections and liability limits for stolen or unauthorized use of your credit cards, for example, and as qualified plans move into the paperless arena, I wonder what may happen in situations such as the one being discussed here. Doubtless, at some point, some unfortunate sap will get nailed not just for a relatively small loan, but for an entire account, they will bring it to their Congressman, and some piece of legislation will be passed that will be complete overkill and cause unwarranted paperwork and expense for plans in general.

Let me put on my "participant hat" for a moment. My contention would be that it was a Trustee/Plan Administrator/Fiduciary decision to make all transactions paperless, that this decuision was a considered and evaluated risk to the plan, and that no home computer system in the world is immune from things like this, no matter how careful I am about passwords, etc. You can bet I'd argue that it is NOT my responsibility, and that my account had better be reestablished at no cost to me. Has there been any litigation of such issues? I'd rather expect the DOL to weigh in on the side of the participant if it were brought to their attention, but I don't really know. It seems that this might be an area of increasing scrutiny as the movement is continuing toward paperless.

Take a look at Revenue Procedure 2008-50, and in particular Section 5 which defines an "operational failure" such as you suggest as a qualification failure.

Group contracts are permissible, although I haven't actually seen a plan that uses them. See section © of regs below. P.S. - totally agree that 100% to life insurance is not allowable. Note that these regs are 412(i) instead of 412(e)(3) because the regs were issued prior to the Code section designation being changed. 1.412(i)-1 Certain insurance contract plans. (a) In general. Under section 412(h)(2) of the Internal Revenue Code of 1954, as added by section 1013(a) of the Employee Retirement Income Security Act of 1974 (88 Stat. 914) (hereinafter referred to as “the Act”), an insurance contract plan described in section 412(i) for a plan year is not subject to the minimum funding requirements of section 412 for that plan year. Consequently, if an individual or group insurance contract plan satisfies all of the requirements of paragraph (b)(2) or ©(2) of this section, whichever are applicable, for the plan year, the plan is not subject to the requirements of section 412 for that plan year. The effective date for section 412 of the Code is determined under section 1017 of the Act. In general, in the case of a plan which was not in existence on January 1, 1974, this section applies for plan years beginning after September 2, 1974, and in the case of a plan in existence on January 1, 1974, to plan years beginning after December 31, 1975. (b) Individual insurance contract plans. (1) An individual insurance contract plan is described in section 412(i) during a plan year if the plan satisfies the requirements of paragraph (b)(2) of this section for the plan year. (2) The requirements of this paragraph are: (i) The plan must be funded exclusively by the purchase from an insurance company or companies (licensed under the law of a State or the District of Columbia to do business with the plan) of individual annuity or individual insurance contracts, or a combination thereof. The purchase may be made either directly by the employer or through the use of a custodial account or trust. A plan shall not be considered to be funded otherwise than exclusively by the purchase of individual annuity or individual insurance contracts merely because the employer makes a payment necessary to comply with the provisions of section 411©(2) (relating to accrued benefit from employee contributions). (ii) The individual annuity or individual insurance contracts issued under the plan must provide for level annual, or more frequent, premium payments to be paid under the plan for the period commencing with the date each individual participating in the plan became a participant and ending not later than the normal retirement age for that individual or, if earlier, the date the individual ceases his participation in the plan. Premium payments may be considered to be level even though items such as experience gains and dividends are applied against premiums. In the case of an increase in benefits, the contracts must provide for level annual payments with respect to such increase to be paid for the period commencing at the time the increase becomes effective. If payment commences on the first payment date under the contract occurring after the date an individual becomes a participant or after the effective date of an increase in benefits, the requirements of this subdivision will be satisfied even though payment does not commence on the date on which the individual's participation commenced or on the effective date of the benefit increase, whichever is applicable. If an individual accrues benefits after his normal retirement age, the requirements of this subdivision are satisfied if payment is made at the time such benefits accrue. If the provisions required by this subdivision are set forth in a separate agreement with the issuer of the individual contracts, they need not be included in the individual contracts. (iii) The benefits provided by the plan for each individual participant must be equal to the benefits provided under his individual contracts at his normal retirement age under the plan provisions. (iv) The benefits provided by the plan for each individual participant must be guaranteed by the life insurance company, described in paragraph (b)(2)(i) of this section, issuing the individual contracts to the extent premiums have been paid. (v) Except as provided in the following sentence, all premiums payable for the plan year, and for all prior plan years, under the insurance or annuity contracts must have been paid before lapse. If the lapse has occurred during the plan year, the requirements of this subdivision will be considered to have been met if reinstatement of the insurance policy, under which the individual insurance contracts are issued, occurs during the year of the lapse and before distribution is made or benefits commence to any participant whose benefits are reduced because of the lapse. (vi) No rights under the individual contracts may have been subject to a security interest at any time during the plan year. This subdivision shall not apply to contracts which have been distributed to participants if the security interest is created after the date of distribution. (vii) No policy loans, including loans to individual participants, on any of the individual contracts may be outstanding at any time during the plan year. This subdivision shall not apply to contracts which have been distributed to participants if the loan is made after the date of distribution. An application of funds by the issuer to pay premiums due under the contracts shall be deemed not to be a policy loan if the amount of the funds so applied, and interest thereon, is repaid during the plan year in which the funds are applied and before distribution is made or benefits commence to any participant whose benefits are reduced because of such application. © Group insurance contract plans. (1) A group insurance contract plan is described in section 412(i) during a plan year if the plan satisfies the requirements of subparagraph (2) for the plan year. (2) The requirements of this subparagraph are: (i) The plan must be funded exclusively by the purchase from an insurance company or companies, described in paragraph (b)(2)(i) of this section, of group annuity or group insurance contracts, or a combination thereof. The purchase may be made either directly by the employer or through the use of a custodial account or trust. A plan shall not be considered to be funded otherwise than exclusively by the purchase of group annuity or group insurance contracts merely because the employer makes a payment necessary to comply with the provisions of section 411 ©(2) (relating to accrued benefit derived from employee contributions). (ii) In the case of a plan funded by a group insurance contract or a group annuity contract the requirements of paragraph (b)(2)(ii) of this section must be satisfied by the group contract issued under the plan. Thus, for example, each individual participant's benefits under the group contract must be provided for by level annual, or more frequent, payments equivalent to the payments required to satisfy such paragraph. The requirements of this subdivision will not be satisfied if benefits for any individual are not provided for by level payments made on his behalf under the group contract. (iii) The group annuity or group insurance contract must satisfy the requirements of clauses (iii), (iv), (v), (vi), and (vii) of paragraph (b)(2). Thus, for example, each participant's benefits provided by the plan must be equal to his benefits provided under the group contract at his normal retirement age. (iv)(A) If the plan is funded by a group annuity contract, the value of the benefits guaranteed by the insurance company issuing the contract under the plan with respect to each participant under the contract must not be less than the value of such benefits which the cash surrender value would provide for that participant under any individual annuity contract plan satisfying the requirements of paragraph (b) and approved for sale in the State where the principal office of the plan is located. (B) If the plan is funded by a group insurance contract, the value of the benefits guaranteed by the insurance company issuing the contract under the plan with respect to each participate under the contract must not be less than the value of such benefits which the cash surrender value would provide for that participant under any individual insurance contract plan satisfying the requirements of paragraph (b) and approved for sale in the State where the principal office of the plan is located. (v) Under the group annuity or group insurance contract, premiums or other consideration received by the insurance company (and, if a custodial account or trust is used, the custodian or trustee thereof) must be allocated to purchase individual benefits for participants under the plan. A plan which maintains unallocated funds in an auxiliary trust fund or which provides that an insurance company will maintain unallocated funds in a separate account, such as a group deposit administration contract, does not satisfy the requirements of this subdivision. (d) Combination of plans. A plan which is funded by a combination of individual contracts and a group contract shall be treated as a plan described in section 412 (i) for the plan year if the combination, in the aggregate, satisfies the requirements of this section for the plan year. [T.D. 7746, 45 FR 47676, July 16, 1980; 45 FR 50563, July 30, 1980]

Ah, sweet revenge - a dish best savored cold. Enjoy!

Have you broken the news to the owner yet? They always just LOVE it when you tell them that their NHC grunt is going to get an extra umpteen thousand dollars...

To steal from "The Doors" - my plea to the IRS... Waiting,, waiting,, waiting,, waiting, waiting,, waiting,, waiting,, waiting Waiting for you to come along Waiting for you to stop being wrong Waiting for you to come along Waiting for you to tell me why so long!

I wondered if anyone else is having this problem. If no one else is, it may be our software provider (which we are checking) but if others are, it may be a DOL problem. Is anyone getting error codes P-227 Plan Admin USERID & PIN are missing or invalid, or I-104 Plan Sponsor's USERID & PIN must be provided, Processing Stopped? When we check the PDF on the DOL website it appears to be signed by the Plan Administrator. When we call the DOL they are telling us "something must be wrong." Any thoughts?

As I said, if one of the other exceptions applies, then no premature distribution penalties. A bona fide "substantially equal periodic payment" withdrawal is one of the exceptions under IRC 72(t). I strongly recommend that you refer this person to tax counsel.

Unfortunately, the answer is no. If the IRA had been maintained in the name of the deceased and the surviving spouse took distributions from that, then the answer would be no - but when the spouse rolls it over to their "own" IRA titled in their own name and not as beneficiary, then subsequent distributions are subject to premature distribution penalty taxes, unless one of the other exceptions applies.

What's a money purchase plan? Isn't that from the Cretaceous era? But seriously, going from memory, I think they do, if it's a QJSA benefit.

If the refund is done after April 15th, then the fact that they are Roth does NOT prevent taxation. So they got taxed in the year deferred, (since they are Roth) AND they get taxed when withdrawn. That's the point of the regulation that Kathy quoted. That's where the house of cards falls down.

Your theory is nice, but the deferrals are reported on the W-2. I think it unlikely that the IRS systems are not sophisticated enough to total the deferrals and kick out the return for scrutiny. And if the employee doesn't get it all corrected prior to April 15th, then the penalty is double taxation, plus of course any other applicable late penalties, interest, etc....

I think that is really intended to allow signature by an authorized person if the "Plan Administrator" is, say, First National Trust Company. If so, then any authorized person at First National Trust Company can then sign as PA. But to answer your question, yes, I saw that, and initially wondered if it would allow the type of delegation we'd all like to be allowable! Unfortunately, I don't think it does.