Belgarath

Is the IRS asserting that this technique was not allowable at all, or that it was not valid specifically for a 412(i) plan? (I have no solution either way, I'm just curious.)

"Since the plan was converted from a DB plan, Section 401(a)(11)(B)(iii)(III) would seem to apply." Did you mean to say this? Or did you mean a Money Purchase plan was converted to a PS? If the former, then you may have bigger problems. Under ERISA 4041(e), you would have had to terminate the DB plan. Now, if it was properly terminated, and there weren't excess assets used to establish a qualified relacement plan, then any employee rollovers to the DC plan would have been elective, and would no longer be subject to the QOSA

I don't know how much money is involved, and whether it is worth getting a legal opinion, etc.. This could be considered a prohibited transaction under IRC 4975©(1)(B), and the parallel ERISA provision (from memory, maybe ERISA 406?). I don't think it qualifies for the exemption under PTE 2000-14, PTE 2002-13 and PTE 2002-14. Perhaps it would be less expensive for the sponsor to declare and correct the the PT and have the plan reimburse him the 60% that remains? I haven't really thought this through, nd am sort of firing off random thoughts, but at least worth thinking in this direction. I suspect others will have some more coherent thoughts on this.

I think you could also go through VCP with a retroactive plan amendment to allow entry/deferral prior to age 21.

I'd say that it is a protected benefit (an optional form of benefit) under 1.411(d)(3)(g)(6)(ii) and as such, you can't eliminate it other than prospectively for benefits accrued in the future. Without looking up the details, I do seem to recall that there was some modification of this specifically for a SBJPA change, but I think that applied only for the SBJPA change, and wouldn't apply in your situation. You shouldn't trust my memory, however...

Most folks I've talked to, including those in the insurance industry, didn't/don't think much of the subtrust concept and didn't/don't allow it in plans they administer. I did see a TAM back in 2006 where a defined benefit plan was DISQUALIFIED for using a subtrust. Whether this was due to subtrusts in general or defects in the particular subtrust involved, I can't say. The TAM was not yet numbered back then, so I can't provide you with a reference.

Hi Sieve. I started out with the same opinion as you, but after looking into it, I've changed my mind. Emphasis below is mine. Although the plain language under the 402©(11) title line and 402©(11)(A) is dealing only with a direct transfer to an inherited IRA, it seems to me that the trump item is 402(f)(2)(A), which says that it will be considered an eligible rollover distribution if it is a distribution to a designated beneficiary that would be treated as an eligible rollover distribution if the requirements of ©(11) were satisfied. Therefore, under 3405©(3), the mandatory withholding would apply, I think.

While you should check with an ERISA attorney, this may fall within the parameters of Prohibited Transaction Exemption 80-26, as subsequently modified by 2000-14, 2002-13, 2002-14. Might be considered an acceptable interest free loan.

Wow. For those of you who would 'fess up, you have my admiration. Being brutally honest with myself, I'm just not sure what I would do. I'd like to think I'd do the right thing, but I suspect I might keep silent. I just don't know. We had a similar discussion about what happens if you go to Las Vegas, and someone gives you a dollar to play a slot machine for them. If it wins 1 million, are you going to turn over the 1 million to them, or was that suddenly your dollar that was the winning dollar? (This one is a little easier, since your wife doesn't have to start doing her own nails when you give the 1 million away.)

Yes, these could be deducted for either year, assuming all other requirements for deductibility are met. The "default" under IRC 404 is that they are deductible in the fiscal year when paid. 404(a)(6) provides the special dispensation that you mentioned, to deduct for the prior year, as long as you meet the requirements.

Hi Bird - I'm temporarily going off-topic, but it does illustrate a potential point in this situation. I play golf (well, ostensibly golf - more like "a good walk spoiled") with a claims examiner for an insurance company. We were discussing what happens if someone sends in a surrender form for a life insurance policy, but dies before the company receives it. I was somewhat shocked when he told me that the cash surrender value is all that is paid - if the surrender form was valid - executed properly, etc. - then the life insurance is no longer in force as of the time the form is signed. Now, this may vary depending upon company to company and state to state - I have no idea. But it does illustrate a point similar to JSimmons' information that the signing of the forms may indeed be the determining factor IF the plan language/PA interpretation support it. The intricacies of the law never cease to fascinate (and occasionally disgust or elate.) Like you and everyone else, I'd ship this question off to counsel ASAP. I'd be interested to hear how this is ultimately resolved.

Can't you go in under VCP and "unwind" the purported 412(e)(3) plan - which clearly doesn't qualify as a 412(e)(3) - and treat it as a regular DB from inception with normal funding/actuarial requirements? While this will probably result in a reduction of some of the early deductions, it seems like a better result than getting stuck on audit, where the client will likely get flayed. Client is fortunate this hasn't yet been audited.

Well, if we're going to use Robert Frost, then I'll respond to Blinky, in the words of Robert's brother (Jack Frost): The woods are lovely, though I see The promise, which bodes ill for me Of miles to go before I pee.

Done. Done, I say! Hurray Hurray!! What an ordeal. And we'll soon get to go through it yet again with the DB plans, while starting to redraft the DC's for the next round. Do you ever feel like a squirrel on one of those revolving wheels?

Just wanted to see what other folks do or have encountered. We frequently have cross-tested PS plans that terminate without having had a contribution for the year of termination, and often previous year or years as well. In the past, we have had them pay the higher fee on the 8717, and sent a Demo 6 for the last year the cross-tested formula was utilized, on the assumption that there's obviously no point doing it for the year of termination when no contribution is made, but important to receive approval for the last year it WAS utilized. The IRS has never questioned or commented on this approach. Recently we have had reviewer feedback in some cases to complete the 5310 with the formula default provisions, not send the Demo 6 and have the Employer pay the lower filing fee of $1,000. Wondered what y'all do, and if you have received similar comments/feedback. If you have, have you changed your method? We've had so many terrible experiences and wasted so much time with plan termination reviewers who know almost nothing that we're very hesitant to adopt this approach based upon limited reviewer feedback. Maybe we are being too conservative, but I'd appreciate any opinions. Thanks!

You say you have a cure period. How long is your cure period? Since it can be as long as the end of the calendar quarter following the calendar quarter in which the missed payment occurred, then it seems like this would take care of most of your situations?

But it is referring to "annuity starting dates" under 417(f)(2), and a participant loan surely does not trigger an annuity starting date, right?

I was discussing this with an EA this morning, and we both were in agreement, but I thought I'd toss it out for discussion just for the heck of it. If a DB plan is in an AFTAP position such that distributions are restricted, can the HC still take participant loans? We both agreed that they could, as the distribution restrictions do not specify participant loans as a restricted or impermissible distribution. This makes sense, because a loan is not a "distribution" per se. Any other thoughts, opinions, or discussion?

Public opinion. Congress could change the tax treatment any time they so choose.

Denied. Your contribution is based upon W-2 only. The K-1 "pass through" income is ineligible for consideration for qualified plan contribution purposes.

Yes.

I don't think it's quite that simple. You still have IRS penalties to consider under IRC 6652©(1)(d) and (e) and 6692, I believe, so you aren't home free.

For you attorneys out there - I was just looking at this, and I wondered - if the Trustee took "reasonable" steps, whatever those might be - to determine that the person requesting the funds was in fact that person, is the Trustee then liable to replace the funds in the Participant's account? We're so used to thinking of qualified plan funds as inviolate, that I never considered what would happen in a situation like this. Restitution is great, but the thief may not be able to pay restitution. Release Date: July 7, 2009 Release Number: 09-781-KAN Contact Name: Rich Kulczewski Phone Number: 303.844.1302 Former casino employee sentenced for theft of 401(k) plan assets Kansas City — A former employee of a Kansas City, Mo., gaming casino was sentenced to one year in federal prison and three years of supervised probation after completion of her prison term. Dana Wachter also was ordered to make approximately $38,000 in restitution stolen from a co-worker. The sentencing was based on a criminal investigation by the U. S. Department of Labor’s Regional Office of the Employee Benefits Security Administration (EBSA) in Kansas City, Missouri and the U.S. Postal Inspection Service. Dana Wachter was sentenced June 29, 2009 in U. S. District Court for the Western District of Missouri. She was indicted in June 2008 on one count each of aggregated identity theft, mail fraud and theft from an employee benefit covered by the Employee Retirement Income Security Act. “Theft of employee benefit assets jeopardizes the benefits of workers. This case reaffirms the Labor Department’s commitment to protect workers’ benefits by identifying criminal activity wherever and whenever it occurs,” said Steve Eischen, director of EBSA’s Kansas City Regional Office. The indictment charged that from November 2006 through July 2007, Wachter, a former table games dealer at a Kansas City casino, stole the identity of a co-worker in furtherance of a number of economic crimes that resulted in actual damages to the victim of over $38,000. The indictment contends that, in March 2007, Wachter used her co-worker's social security and personal identification numbers to authorize an $18,000 distribution from her co-worker’s 401(k) account. Wachter is further alleged to have used the mail to steal a distribution check and forged the participant’s signature on the check. The criminal case was prosecuted by the U.S. Attorney’s Office for the Western District of Missouri. U.S. v. Wachter Criminal No. 4:08-cr-00180-GAF U.S. Department of Labor news releases are accessible on the Department's Newsroom page. The information in this news release will be made available in alternate format (large print, Braille, audio tape or disc) from the COAST office upon request. Please specify which news release when placing your request at 202.693.7828 or TTY 202.693.7755. The Labor Department is committed to providing America's employers and employees with easy access to understandable information on how to comply with its laws and regulations. For more information, please visit the Department's Compliance Assistance page.

Revenue Ruling 74-307 provides that the incidental limits apply only to insurance purchased with employer contributions. I've seen IRS approved prototypes that allow unlimited use of rollover funds to purchase life insurance in the plan. HOWEVER - be very cautious on this - and have client seek experienced ERISA counsel before taking this step - the IRS may assert that the premium paid from the rollover funds is in fact a taxable distribution. Jim Holland informally opined this many years ago, but the basis for this opinion would appear to be a bit shaky. The generally prevailing opinion that I've heard from most practitioners is that it isn't a distribution, there's no constructive receipt, etc., because the money remains in the plan, but you would, of course, have taxable term cost to report.

Why not just say that you are unaware of any guidance that would reach that conclusion, (particularly based upon the TIPRA 512 amendment to IRC 408A to eliminate the AGI limit)and ask the accountant to provide citations to support the position that the DB plan must be terminated? It's difficult to provide citations when you don't know the accountant's basis for the statement. Also, possibly the client is misunderstanding what the CPA really said?