Belgarath

I thank you for your reply, but I still don't get it. And believe me, I apologize for being thick! Any interest earned is earned on the actual assets remaining in the account. So how can there be a "double" reduction? In other words, if the 20,000 had not been withdrawn, the earnings "would" have been 2,500 (100,000 x 2.5%). Since there was less money due to the withdrawal, the earnings were only 2,000 (80,000 x 2.5%). But these earnings are real, and based upon the participant's remaining money actually in their account - albeit only partially vested. So now that the participant is 80% vested, how can that vesting only apply to a portion of the earnings?

Since the new LRM's required this for PS plans that allow for in-service withdrawals with no immediate forfeiture, I'm struggling with something. Math isn't my strong subject!! I was given the following example: "If a distribution is made at a time when a Participant has a nonforfeitable right to less than 100 percent of the Account balance derived from Employer contributions and the Participant may increase the nonforfeitable percentage in the Account: (a) A separate account will be established for the Participant's interest in the Plan as of the time of the distribution, and (b) At any relevant time the Participant's nonforfeitable portion of the separate account will be equal to an amount ("X") determined by the formula: X=P(AB + (R x D)) - (R x D) For purposes of applying the formula: P is the nonforfeitable percentage at the relevant time, AB is the Account balance at the relevant time, D is the amount of the distribution, and R is the ratio of the account balance at the relevant time to the Account balance after distribution." So, for an example, let's say the 12/31/08 account balance is $100,000, 60% vested. Vested account balance is $60,000. On January 2, 2009, the participant takes a distribution of $20,000. For 2009, the participant's plan account earns $2,000 interest, and the participant increases vesting to 80%. The 12/31/09 account balance is now $82,000. P = 80% (the new vesting) AB = $82,000 (updated balance) R = $82,000/$80,000 = 1.025 percent gain D = $20,000 R X D = 1.025 X $20,000 = $20,500 distribution with gain X = .80 X ($82,000 + $20,500) - $20,500 = $61,500 If the money had not been distributed, the fund would have earned 1.025% interest and the vested account balance would be $100,000 X 1.025 X .80 = $82,000. $82,000 - $20,500 (amount distributed with interest that would have been earned on it) = $61,500. I'm having a problem with this. It's very clear that if there is no interest earned, so there's actually an account balance of 100,000 x80%, if the participant terminates on 12-31-09, the participant would be entitled to 80,000 minus the 20,000 already received, for a total remaining distribution of $60,000. So far, so good. My real question is that according to the above, the participant is only entitled to $1,500 of the interest earnings. Yet it seems to me that the participant should be entitled to 80% of $2,000, or $1,600. There's something amiss, and it is probably just me - I just can't spot the flaw in the formula assumption that's giving an answer of $1,500 interest. Can one of you math whizzes for whom this is childishly simple educate me here? Thanks!!!

In this go-round (EGTRRA documents) the IRS would not allow us to have waiver of participation in the documents - neither in prototypes nor in volume submitters. In the GUST documents, they allowed us to have it in volume submitters. I don't know what they required for everyone else... in the last round, it depended upon who you got for a reviewer!

The 5300 instructions (which haven't been updated for years) require that if there have been 4 or more amendments, a restated document is required. The 5307 doesn't have this requirement - merely asks you to list the number of amendments, and if more than 4 you attach a separate sheet. In the old days, when we used to file for determination letters for every plan, we routinely restated after 4 amendments, but I see no need for anything like that now. Anyone have any other thoughts on this?

How can you possibly make distributions BEFORE the valuation has taken place, in a plan that doesn't have daily recordkeeping? I agree with Sieve (and others) - I don't see this as an impermissible cutback.

Global warming/climate change?

Well, you must unfortunately factor in the chances of assassination. Sadly, this increases the percentage of Presidents not completing a term. I'll leave it to you people who don't count on your fingers to determine how that works into it.

This is a question I've wrestled with as well. Sieve's interpretation represents one side of the debate, while others take the opposite view, contending that the contribution, while not deductible FOR THAT YEAR under 162, is nevertheless "deductible" under 162 as an ordinary and necessary business expense, and can therefore be carried over. I've never seen any definitive IRS guidance, although I have seen 1 audit where such a carryover was not not challenged. Doesn't mean that this is the IRS position!! I've got a question for the CPA types - specifically with regard to S/E, are there NON PENSION ordinary and necessary business expenses under 162 where a carryover is allowed, for deduction purposes in a future year? If there are, then I think this would strengthen the argument that the pension contribution may be carried over. If there are no such carryovers for non-pension expenses, then it would strengthen the opposite view.

You may want to first take a peek at the new Revenue Procedure 2008-50. I haven't had time to read it yet, but they updated some loan fixes under VCP, so depending upon the amount of money involved, it's possible that this will be useful.

He's a member of Red Sox Nation! This automatically confers respect and adulation.

I asked a "DB" person, and it apparently depends upon whether a PBGC notice is required re the variable rate premium. If no PBGC notice required, then a "reasonable" compliance timeframe, since they agreed with you that the DOL hasn't issued any guidance. If the PBGC notice (ERISA 4011??) is required, then this apparently requires the 60 day information, and is acceptable for satisfying the ERISA 101(d) notice requirment.

Here's one other thing to possibly consider. And I cannot caveat enough that I'm not an investment advisor!! Depending upon risk tolerance, overall portfolio, etc., I know that some people are putting the more speculative PORTION of their portfolio into the Roth. The theory apparently being that if you hit a home run on your long term investment earnings, then the tax-free aspect becomes particularly attractive. Since there's always a downside to everything, I suppose that if you lose your investment you've paid income tax on that money and gotten nothing out of it! If you just stay poor, you won't need to worry about these various investment philosophies.

I have a question re your first paragraph. "I am a newly divorced gay female in the Commonwealth of Massachusetts. My ex-wife recently signed a separation agreement for the divison of property and splitting of the 401K at her work. In Massachusetts, her company recognized me as her spouse for 3.5 years. I recieved dental benefits from her through her plan at work and for three years, I contributed to the 401 K account. Her company matches the amount that she adds to the account every payday." It seems like you are saying, in the 4th sentence, that YOU contributed to HER 401(k) account. Is that really the case? Presumably her salary was reduced by the contribution amount to the 401(k), and this isn't really what you are saying, or meant to say?

How can you afford a Roth-IRA? I thought you blew the reward money hiring Van Halen to play your birthday party? (Spicoli is one of my fovorite characters - I had a roomate in college who was a clone - he was more like a mascot or a pet, but always amusing) That aside, I'm not an investment counselor, but I'd just observe that with regard to the Roth contributions - the contributions themselves can always be withdrawn with no taxation, as they are after-tax anyway. So unless your chosen investment has a big surrender charge, I don't see why Roth contributions can't be considered part of your "emergency fund" if so desired. Other than that, I'd just second what Janet said.

When you say "rep" do you mean an insurance agent? If so, bypass the agent and go directly to the home office. As Sieve mentions, there may be other amendments as well - as an example, depending upon their cash-out amount definition, there may be a mandatory IRA rollover amendment.

I'm sure they must have done a "good faith" EGTRRA amendment way back that they sent to all customers. Even though they won't be restating for EGTRRA under the RAP, they should still be able to provide a copy of this amendment - probably for a fee.

Gracias. I didn't read it exhaustively, but on a skim I found nothing to answer the question. It did confirm that 502(i) wouldn't apply. At this point, I think they will just correct the PT, report it on 5500's, and wait to see if anyone imposes a penalty.

Thanks Sieve. If nothing else, this whole thing has at least made me feel a little better - apparently I'm not the only person who finds it challenging! I was originally certain there must be a simple answer in bold print right under my nose that I was somehow missing, but it appears maybe that's not the case. If I find out anything more, I'll be sure to post it.

Hi Sieve - thanks for the response. I had looked at the 502(i) penalty earlier, but if I'm reading things correctly, the last sentence seems to say that it won't apply to a transaction with respect to a plan described in 4975(e)(1) of the Code. And 4975(e)(1) includes a trust under IRC 401(a). Am I misunderstanding this section? Any further thoughts? Thanks again.

Thanks for responding - but I'm well aware of the other issues, and have no question about those. My question is specific to the PT. See my earlier comment. Thanks. "Yes, there are operational/qualification issues, but that's not where my question lies. And in answer, no, there were no loans taken on the policies prior to assignment. So I'm back to the original question(s) re the PT and penalty. Thanks!"

Thanks for the response. But it still doesn't get to my original question - since none of these people are a "disqualified person" under IRC 4975, then we have a PT under ERISA, but not the IRC. So I'm trying to determine exactly what the penalty is (if any), to whom it is paid, and how is it paid? And perhaps this is unanswerable, but I'm trying to see what I can find out. Thanks! "ERISA 406(a)(1)(D) prohibits a fiduciary from transferring plan assets to any party in interest. Party in interest is defined under ERISA 3(14)(H) to include an employee. However, each of these common law employees, while a "party in interest" under ERISA, is not a "disqualified person" under IRC 4975(e)(2). So, it appears that there has been a Prohibited Transaction. But, what penalty is payable in this specific situation? It would appear that the IRC 4975(a) tax isn't payable, as it isn't imposed on a fiduciary who is acting only in that capacity? And if that's correct, what is paid, and to whom? Since the DOL gets the 5500 forms that will presumably show that a PT has taken place, do they send the information to the IRS under their "coordination" clause in ERISA 3003, and then the IRS imposes a penalty? Would the DOL have to bring an action under ERISA 502(a)(2) for a Fiduciary breach? Basically, we're looking at something on the order of a $3,000 distribution, so the recovery plus interest will be peanuts, but I'm trying to see if any other penalty is automatically imposed."

Facts and circumstances and "reasonableness." Only time I've actually seen this, the Plan Administrator had the participant submit documentation from the educational institution as to the cost of room and board, and determined that any off-campus room and board that was equal to or less than this amount would be an acceptable amount for hardship purposes. I'm sure other reasonable approaches could be found. Now, I could easily envision a situation where an even larger amount could be acceptable. Suppose, for example, that campus housing is full, so the student has no choice except to live off campus. Depending upon the price of apartment rentals, it could be higher than on-campus housing. Again, some sort of "resonable" assumptions, including a signed statement from the participant, would probably need to be considered. A luxury penthouse with domestic servants might be a bit hard to justify...

Right, but to perhaps get a bit more specific - I'm assuming that the Trustee/Administrator will get the amounts repaid to the plan. But what is the penalty, and how and to whom is it paid? The IRS form 5330 doesn't seem to have a category for this, since at least as I read it, the 4975(a) tax isn't applicable. This is where I'm getting stuck. Thoughts?

Yes, there are operational/qualification issues, but that's not where my question lies. And in answer, no, there were no loans taken on the policies prior to assignment. So I'm back to the original question(s) re the PT and penalty. Thanks!

Here's a strange one - at least seems strange to me. Participants in a Defined Benefit plan have an insured death benefit. Plan sponsor decides to reduce plan formula, so the life insurance must be surrendered or purchased from the plan for its Fair Market Value. There has been NO distributable event under the plan, so no participants are eligible for any current distribution. Pursuant to Prohibited Transaction Exemption 92-6, the plan may sell the policy to a participant for its Cash Surrender Value. Note that this may be less than the FMV, but isn't germane to this question. Here's where the rot sets in. The plan assigns the ownership of the policies to the participants. However, the participants HAVE NOT paid the plan anything whatsoever. This apparently took place a few months ago. So, the participants have received an impermissible distribution from the plan in the amount of the FMV of the policies. ERISA 406(a)(1)(D) prohibits a fiduciary from transferring plan assets to any party in interest. Party in interest is defined under ERISA 3(14)(H) to include an employee. However, each of these common law employees, while a "party in interest" under ERISA, is not a "disqualified person" under IRC 4975(e)(2). So, it appears that there has been a Prohibited Transaction. But, what penalty is payable in this specific situation? It would appear that the IRC 4975(a) tax isn't payable, as it isn't imposed on a fiduciary who is acting only in that capacity? And if that's correct, what is paid, and to whom? Since the DOL gets the 5500 forms that will presumably show that a PT has taken place, do they send the information to the IRS under their "coordination" clause in ERISA 3003, and then the IRS imposes a penalty? Would the DOL have to bring an action under ERISA 502(a)(2) for a Fiduciary breach? Basically, we're looking at something on the order of a $3,000 distribution, so the recovery plus interest will be peanuts, but I'm trying to see if any other penalty is automatically imposed. Thanks in advance for any insight!