Belgarath

It seems to me that as most plans specifically direct the Fiduciary to obtain any bonding required by ERISA 412, there's an operational violation for not following the terms of the plan. It seems as though the IRS could, theoretically, impose sanctions/penalties, etc. for this. Additionally, couldn't this be considered a breach of fiduciary duty, for which the fiduciary could be PERSONALLY liable under ERISA 409? If the funds are invested badly, embezzled, etc., and there's no bonding, this seems like a risky position for a fiduciary to be in. I'll leave it to the ERISA attorneys as to whether these thoughts are off the wall or not - but I simply can't imagine that they can get off unscathed. But maybe they can...

Bird's solution makes sense to me.

That's one interpretation. If she purchased it for FMV, then I would say it will represent basis in the life insurance policy cash values. So if at some future date it is surrendered, then she ought to be able to recover the $1,000 then. So if she bought it for $100,000, then her basis should now be $101,000. However, I'm not at all sure there is any direct regulatory support for this interpretation. An alternative interpretation would be that the basis is lost, but this seems an unreasonable result. Fun stuff, eh?

This can get tricky. Was her life insurance (a) surrendered by the Trustee with the proceeds deposited to her plan account, or(b) assigend to her as a taxable distribution or © did she purchase it from the plan for the Fair Market Value? I'm guessing (a). If so, then in your example, she would normally only roll over $99,000 to the IRA and the plan would pay her $1,000 as a non-taxable return of "basis." The Taxable term cost is not considered an "eligible rollover distribution" under 1.402©-2, Q&A-4.

I'd be very concerned that a $50.00 bi-weekly repayment requirement would be in violation of the "reasonably equivalent" requirement, as Sieve mentions. "Reasonable" is in the eyes of the auditor, but the DOL is not notable for their concern with employer/plan administrative ease. I do believe a minimum amount this high could be a hardship for some NHC, and prevent them from being able to take such a loan. In these days of electronic withholding/processing, where a minimum wage employee can and does sometimes have 4 or 5 dollars a week withheld for a 401(k) deferral, for example, I'd be extremely cautious about minimum repayment amount requirement. I wouldn't recommend any requirement at all, but if you do it, I'd use a very light touch!

Yes. IRC 404(h)(3). If a 5305 model SEP, then you can't contribute to it while participants are accruing a benefit under another plan anyway.

Or you could just amend the plan to provide 100% vesting.

Isn't Alaska part of the North American continent, and therefore part of the continental U.S.? Sorry, I couldn't resist. I know that sometimes the term "continental U.S." is used to exclude Alsaka, but it seems that "contiguous" would be a better term. And no, I'm not a lawyer.

I respectfully disagree. I'd also ask them to consider 2580.412-2. Furthermore, the TAG referenced reg and opinion letter also give the following, which is apparently being ignored by TAG. Emphasis is mine. "Such arrangements would not normally be subject to bonding except to the extent that monies returned by way of benefit payments, cash surrender, dividends, credits or otherwise, and which by the terms of the plan belonged to the plan were subject to “handling” by plan officials." But, everyone must make up their own minds, as always. I'd love to hear what some other TPA's or attorneys might have to say on the subject.

Yes.

I haven't looked at the 415 aspect, but to follow up on Tom's comment, it is Section 109(b)(3) of the WRERA that fixes the gap period calculation for excess deferrals under 402(g) - this is only for excess deferrals in post-2007 years.

I'm assuming he meant in order to avoid the premature distribution penalty tax.

Well, let's see. "Away from Canada" would mean the arrow had to be pointing West, right? Since Detroit is surrounded by Canada (Ontario) to the North, South, and East? (Depending upon where you define the geographic center of Detroit, I suppose) That's my guess... Oops - I see David beat me too it.

One would hope that the IRS is reasonable when it comes to a Trustee's good faith attempt to place a value on the investments. It seems like this is new ground.

Thanks for the information. It seems like it will be very challenging for a Plan Fiduciary to put a value on these funds for purposes of valuations and distributions.

1 year after distribution of assets. But you have to give participants the option to receive a distribution if you are actually terminating the plan.

JRN - it is really the other way around. To paraphrase, the regs say that you must fund the safe harbor contributions. That's your express authority requiring the SH, UNLESS there is a special dispensation to not make them. And there is such a special dispensation for plan terminations, and for SH matching. Since there is NOT such a dispensation for the SH nonelective, you are stuck with making it. I think nearly everyone agrees that this makes no sense, but that's what we are stuck with.

Hey - for some of you investment law savvy types: If someone HAD actually received a distribution or distributions from Madoff's fund during the last (x) years, is there any possible recovery by the receiver? In other words, you cashed out and received 20 million. But that 20 million (or some of it) is based upon fraud or theft of funds from other investors - can the receiver sue you to recover all or a portion of these funds? If so, perhaps a client ought to at least be able to recover the amount of the investment, but just get whacked for the gain or a portion of the gain? I know NOTHING about these issues, so I'm probably not even asking the right questions...

Try Section 108(f) of the new Act. I'd paste it in here, but the only one I have handy is a PDF and I'm not clever enough... Well, maybe this will work. (f) AMENDMENTS RELATED TO SECTION 829.— (1) Section 402©(11) of the 1986 Code is amended— (A) by inserting ‘‘described in paragraph (8)(B)(iii)’’ after ‘‘eligible retirement plan’’ in subparagraph (A), and (B) by striking ‘‘trust’’ before ‘‘designated beneficiary’’ in subparagraph (B). (2)(A) Section 402(f)(2)(A) of the 1986 Code is amended by adding at the end the following new sentence: ‘‘Such term shall include any distribution to a designated beneficiary which would be treated as an eligible rollover distribution by reason of subsection ©(11), or section 403(a)(4)(B), 403(b)(8)(B), or 457(e)(16)(B), if the requirements of subsection ©(11) were satisfied.’’ (B) Clause (i) of section 402©(11)(A) of the 1986 Code is amended by striking ‘‘for purposes of this subsection’’. © The amendments made by this paragraph shall apply with respect to plan years beginning after December 31, 2009.

Andy, don't sharks always circle like sharks? Or is this a case of bottom feeders now circling like sharks? My apologies to all the reasonable and ethical members of the legal profession out there - this is obviously tongue in cheek, and it was too easy to resist.

401(k)(12)©. The contribution must be "at least" 3%. So yes, it can be higher.

Seems about right. Only other solution I could think of (consider it a non-deductible contribution) is worse, because you have 10% penalty for each of two years, plus a reversion tax when it goes back to the employer. The route you describe should be cheaper.

"Since "You would have to do whatever might be necessary to pass minimum coverage, correct.", How would "The language about excluding them " protect an employer when they do come knocking ?" It would protect the employer to the extent that coverage testing would still pass. Example - 100 NHC, 70 required to pass. There are 10 of these employees in question who are excluded, all others are included, so employer is otherwise covering 90% of the eligible employees. Subsequently it is determined that these 10 are, in fact, employees. Since coverage still passes with them excluded, employer does not have to do "make-up" contributions.

"Independent contractor exclusion clearly still allowed. The language about excluding them even if they are later determined to be employees is also still allowed by the IRS--it protects an employer from being required to cover independent contractors who sue, are determined to be employees, and then come knocking on the door saying "where's my contribution for the last 5 years?". " But, if the plan doesn't pass coverage for those years during which they were erroneously misclassified as independent contractors, then you have to cover them, right?

IMHO, yes.