Belgarath

" .... but my sole question has always simply been ...Does the IRS require that the employer notification of "3% match/2% contribution" or "salary reduction agreement (employee election to defer)" have to be written? And finally the answer to that question is NO." At the risk of beating a dead horse, I remain unconvinced that the IRS will buy this argument. Maybe they will - I don't know. I wonder what would happen if your client applied for a PLR on this issue - would the IRS say OK, or would they come up with a resounding NYET? If you actually end up negotiating with them on this case, I'd love to hear the results. Of course, in this specific case, it sounds like the question is moot anyway, since they never provided the written SPD anyway, so they are up the creek regardless of the outcome of the Notice issue. Keep us posted if you hear anything from the IRS on this. For any of you that may be attending ASPPA conferences, etc., this might be a good question to "pre submit" so the IRS can discuss from the podium? While I know such discussion is unofficial, it is helpful in determining their general opinion. Thanks.

It's now too late to file a 5558 for a calendar year 2004 plan year. Assuming plan and fiscal years are the same, do they have a tax extension for 2004? If not, then I think all they can do is hop to it and get the 5500 forms filed promptly under the DFVC program.

I have no trouble believing that the employer did walk through and tell everyone that he was adopting a plan, and that the employer would match dollar for dollar, of whatever the employee contributed, up to 3% of salary. Or something generally in that vein. I furthermore have no trouble believing that none of the three employees elected to defer. But here's the thing - I don't think that matters a hoot. I flat out do not accept the argument that the client "complied" with the requirements. Your arguments as to how the employer complied, and what constitutes an "arrangement" - etc., etc., are creative, and if I were in the client's shoes, or perhaps the shoes of the advisor from the vendor who may possibly be on the hook for something, I'd attempt to use the same arguments plus anything else I could come up with. There's no alternative - if IRS comes calling on this, the client either pays the penalty, or hires counsel to hopefully successfully negotiate a lower settlement. Or, on advice of counsel they may approach the IRS voluntarily in the hopes that this would improve the chances of reduced penalty. I'm just not all that sanguine about their chances - but maybe the Service would cut them some slack. They do in a surprising number of situations. Good luck!

Thanks! I'm so accustomed to these not being available until after the end of the year that I didn't look on the EBSA website.

Do you by any chance mean the 2004 5500 forms, where instructions were released in 2005? I'm not aware of 2005 forms or instructions being released yet - if they have, I'd appreciate any info you might have on where to view them. (I looked at the IRS forms & pubs section on their website - only 2004 listed) Thanks.

Depends. If the distribution is from an IRA, then you can only roll the otherwise taxable portion. As to how this would work if there are deemd IRA accounts, I'm not sure, as I haven't looked into this. Our plan documents do not allow rolling in after tax money, so we avoid these problems.

No. The 10 year averaging applies to certain lump sum distributions from qualified plans, but not to IRA's.

I'm assuming that this person is a party in interest for reasons OTHER than her simply being a participant, so that the relief in Section 7©(1) of the revised VFC program is not available? That being the case, I believe you have a prohibited transaction, with all normal penalties. It must be reported and corrected. EBSA has a online calculator now to assist a client with calculating the plan asset restoration amounts. But even if they are a small plan, and don't have an ERISA lawyer, I'd still recommend they engage one here.

Just for instance... IF the sole prop has any intention of hiring employees and doesn't want to mess with it. Possible additional document revision/confusion/fees. For example, Congress passes something specific to 401(k) only, which requires an amendment to be adopted. If sole prop isn't interested in using the (k) feature to start with, he may have to pay for an amendment to a provision he didn't need/want in the first place. There may be other reasons - this is all I could think of off the top of my head.

Rcline - I respectfully disagree. The deemed IRA can be either a "regular" IRA or a ROTH. See Section 2 of the IRS model amendment from Rev. Proc 2003-13 for a quick confirmation of this. P.S. - here's a copy of the language. REV-PROC, PEN-RUL 17,299Q-61, Rev. Proc. 2003-13, I.R.B. 2003-4, January 27, 2003. SECTION ___. DEEMED IRAs 1. Applicability and effective date. This section shall apply if elected by the employer in the adoption agreement and shall be effective for plan years beginning after the date specified in the adoption agreement. 2. Deemed IRAs. Each participant may make voluntary employee contributions to the participant's ___[insert “traditional” or “Roth”] IRA under the plan. The plan shall establish a separate ___[insert “account” or “annuity”] for the designated IRA contributions of each participant and any earnings properly allocable to the contributions, and maintain separate recordkeeping with respect to each such IRA. 3. Reporting duties. The ___[insert “trustee” or “issuer”] shall be subject to the reporting requirements of section 408(i) of the Internal Revenue Code with respect to all IRAs that are established and maintained under the plan. 4. Voluntary employee contributions. For purposes of this section, a voluntary employee contribution means any contribution (other than a mandatory contribution within the meaning of section 411©(2) of the Code) that is made by the participant and which the participant has designated, at or prior to the time of making the contribution, as a contribution to which this section applies. 5. IRAs established pursuant to this section shall be held in ___[insert “a trust” or “an annuity”] separate from the trust established under the plan to hold contributions other than deemed IRA contributions and shall satisfy the applicable requirements of sections 408 and 408A of the Code, which requirements are set forth in section ___[insert the section of the plan that contains the IRA requirements]. (Adoption agreement provisions) Section ___of the plan, Deemed IRAs: (check one) ___ shall be effective for plan years beginning after December 31, ___(enter a year later than 2001). ___ shall not apply.

I think John is right, and that the discussion got sidetracked onto Roth 401(k), which is not the same thing as deemed IRA's. Under 1.408(q)-1(f)(6), the availability of a deemed IRA is not a "benefit, right or feature" so isn't subject to nondiscrimination testing for availability. However, when I was reading the model amendment that the IRS did in Rev. Proc. 2003-13, I notice that Section 2 refers to "Each Participant" - so you'd have to use custom language in your document rather than simply adopting the model amendment. We have no intention of messing with deemd IRA's anyway, so fortunately I don't have to worry about this garbage!

I'm finding this rather confusing - not an uncommon situation. It seems to me that the 410(b) rules would deem the person in Frank's situation to be benefitting. What is the regulatory language for deeming them NOT to be benefitting? Humor me for the moment - if they are benefitting under 410(b), then aren't they also benefitting under 1.401(a)(26)-5? I got interrupted in the middle of typing this - I now notice that Andy has provided a link to prior discussion. I'll see if that answers my question, or deepens the mystery for me... Deepens the mystery - it seems to be addressing a sub-question?

Interesting question. It might possibly depend upon what caused the overpayment. For example, was it a payroll withholding error? Or did the participant write out a check for an incorrect amount? Etc.? And was it an overpayment on the final payment, or are there still additiuonal payments to be made? Was it a one-time occurrence, or has it been regular?

My favorite Fenway seats are actually the front row in the center field bleachers, up on the 20+ foot section of the wall. Great view - you can call balls and strikes just like the camera view on TV. And my 3 favorite Fenway memories were in those seats (I won't talk about all the times I was stuck behind a pole in right field). 1. I was actually there at the famous Carlton Fisk/Thurman Munson fight. First and only time I ever heard my dad Boo an opposing player. 2. In '77, saw Jim Rice line a HR over the screen into the teeth of about a 40 MPH gale. To this day, the hardest hit ball I've ever seen. 3. Again in '77, watched my idiot college roommate drop a Fred Lynn home run. Naturally, as I grabbed for the ball, I was crushed by about 40 people behind me who all spilled their beer all over us, just to add insult to injury. Sorry, I think I'm getting rather off track on this post! I'll cease and desist.

Wow! The fact that you made this reference and the fact that I understood it is exposing our advanced ages. Still, as the old saying goes, getting old may ####, but it sure beats the alternative. I realized last night that the true core of a Bosox fan's soul never changes. The fact that they finally won a world series doesn't matter. After they went ahead 4-0 in the first inning last night, I knew - KNEW! - that they were going to lose the game.

Knowing how you feel about these things, I'm surprised you didn't convince him to purchase a Ferrari 412i. Yes, they actually did make a 412i model!

Mbozek - accepting for the moment that your assertion is correct (and I have no opinion one way or the other), I'm curious as to the next step where a participant could bring a claim against the plan. So, what could a participant get from the plan? Can they get punitive damages of some form, or only "equitable" settlement, whatever that means? I have a layman's impression that in an ERISA suit you can generally get, to paraphrase, what you would have gotten in the first place. Plus maybe attorney's fees? If so, this seems to put the PA between a rock and a hard place, and I'd be interested in your opinion as to which is the better or less risky approach. The PA can refuse to withhold, and risk a fight with state authorities (even though PA will ultimately win if your ERISA premption argument is upheld/accepted) or the PA can risk a suit/complaint by the participant. So who do you choose to irritate? And if you potentially have a fight on your hands, which fight can cost you the most as a PA? Thanks!

Thanks! As I look at my question again, it looks a bit odd - I wasn't intentionally being a wiseguy - what I meant was I leaned toward B (Using code D) as you suggest, but it sort of looks like I was leaning toward an option I didn't give.

Effen - while I understand your general sentiments, I'm not sure just what a TPA is supposed to do. (And we do have an EA on staff, so I have no axe to grind here.) But one who engages the services of an actuary ought to be able to trust that the EA is competent. I mean, even if you have an EA on staff, if the EA is incompetent and messes up work for the last 5 years, how is that any different than a TPA who subcontracts the work out to an EA? You have the same predicament. I'm just not sure what the solution to the problem is - I don't think the general practice of farming out work to an EA is necessarily wrong - you are "hiring" an EA either way. Now as for non-actuaries doing the work of an actuary, that is a whole different ballgame. I wouldn't dream of doing this, nor would anyone else here. Certainly I can see where this leads to problems of a magnitude too terrifying to contemplate!

Short answer - yes, they have to be in cash for a PENSION plan. An employer could generally contribute unencumbered property to a profit sharing plan, as long as it was consistent with all normal Fiduciary standards. You might want to look, among other things, at DOL reg 2509.94-3, DOL interpretive bulletin 94-3, Commissioner vs. Keystone Conslidated Industries, as well as ERISA 406-408, and IRC 4975.

Sad that my 1,000th post should be something this boring. To all you BoSox fans, shouldn't I get a couple of Green Monster seats for this post? Situation is this: participant terminated employment, and was properly reported on a SSA. Two years later, participant is rehired. Do you: A. Report on a SSA with a code B, and change benefit to zero? B. Report on a SSA with a code D? C. Something altogether different? I lean toward D, but I'm not really certain. Any opinions? Thanks!

This subject interested me, so I did a brief web search for information. I found several entries from different states that were substantially similar to the following: TIR 97-2 Income Tax Massachusetts Tax Treatment of Certain Pension Income -------------------------------------------------------------------------------- This Technical Information Release (TIR) explains the Massachusetts income tax treatment of certain pension or retirement income following enactment of Public Law 104-95 (P.L. 104-95). This law prevents any state from taxing income from certain pensions and deferred compensation plans paid to individuals who are not residents or domiciliaries of that state. Massachusetts already exempts much of the pension income paid to non-residents covered by P.L. 104-95, but will, in accordance with it, now exempt from taxation some previously taxable pension income. Discussion Public Law 104-95 amends Title 4 of the United States Code to include new Section 114. This section prevents a state from taxing pension income received after December 31, 1995 by persons who are neither residents nor domiciliaries of that state if the income is received from: (1) a qualified trust under IRC § 401(a) exempt from taxation under IRC § 501(a); (2) simplified IRC § 408(k) plans; (3) IRC § 403(a) annuity plans; (4) IRC § 403(b) annuity contracts; (5) IRC § 7701(a)(37) individual retirement plans; (6) eligible deferred compensation plans of state and local governments and tax exempt organizations as defined by § IRC 457; (7) IRC § 414(d) government plans; (8) a trust or trusts described in IRC § 501©(18); and (9) any plan, program or arrangement described in IRC § 3121(v)(2)© if payments are made at least annually and spread over the actuarial life expectancy of the beneficiaries, or if payments are spread over at least a ten year period. Such income is also protected from state taxation if the plans are trusts under IRC § 401(a), but exceed limits laid down in IRC §§ 401(k), 401(m), 402(g), 403(b), 408(k) or 415 or any other limitation on contributions or benefits which may apply in the Code. P.L. 94-105 also prevents taxation of any retirement or retainer pay of a non-resident or a non-domiciliary member or former member of a uniformed service computed under Chapter 71 of Title 10 of the United States Code (military pensions). Much of the income from pensions listed above was already exempt from Massachusetts taxation when the income was received by a non-resident. See 830 CMR 62.5A.1(5), exempting, in general, non-resident pension income from qualified plans. The principal new exemptions affecting Massachusetts taxation relate to income from: (1) non-contributory government plans; (2) eligible deferred compensation (IRC § 457) plans; (3) IRC § 501©(18) plans; (4) non-qualified plans under IRC § 3121; and (5) military pensions of non-residents. This TIR applies to amounts received after December 31, 1995. Nothing in this TIR affects the taxation of pension income received by residents or domiciliaries of Massachusetts. Mitchell Adams Commissioner of Revenue January 31, 1997 As to whether ERISA prempts any state law regarding mandatory state withholding for a resident in a situation where distribution isn't being rolled and federal 20% withholding is required, I have no opinion, although it does seem odd to me that so many states would impose this requirement if it is in fact unenforceable. However, I agree with previous comments that most PA's/payors would just do it. And it doesn't sound like Hancock thinks otherwise - only that they believe it doesn't apply yet.

WDIK - I don't read it that way. Section 107 says that every person subject to the filing requirement, "...or who would be subject to such a requirement but for an exemption or simplified reporting requirement undre section 104(a)(2) or (3) of this title..." has to retain the records for 6 years. And I agree with you that as a practical matter, the amount of time they should keep records is much longer than the required time. We recommend that our clients (small plans, so the records don't take up THAT much space) keep everything forever.

Thank you Gary. I went through the same exercise and uncertainty regarding the definition of eligible retirement plan, etc... Ultimately, I was basing my thinking on the fact that rollovers from a SIMPLE to a SIMPLE are clearly permitted. Under the definitions on the 5304 SIMPLE form, Article V, #4, "...and rollovers or transfers from another SIMPLE IRA." I probably should have been more specific in that I can't see any common sense reason why a surviving spouse couldn't roll to her own SIMPLE. Whether common sense means anything here (or at least my version of common sense) is another issue. Do you have any gut feeling on the risk factor here? Now, other than the spouse not wanting two accounts and/or account fees, there's no advantage I can see to rolling it to a SIMPLE as opposed to a regular IRA, so I'd be inclined to take the conservative route and roll to an IRA, as opposed to the SIMPLE. But if a spouse beneficiary is bound and determined to roll to her own SIMPLE, do you think this a a big risk? And, I always refer them to their own tax counsel anyway. Thanks again.

There was a brief article on this subject in BenefitsLink today: http://oppenheimer.com/news/detail.asp?id=631 This was interesting, as I hadn't realized that this had changed for "most situations." Does anyone know what the exceptions would be - in other words, in what situations would this outcome/relief NOT be true?