Belgarath

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?

I'd certainly check with some other CPA's - only they can answer this question. Several years ago I queried several CPA's as to their approximate fees to prepare an audit on a small plan (to be able to explain to employers the cost if they didn't satisfy the small plan audit waiver requirements). The fees were fairly steep, as you can well imagine, but nothing like the quote you received, nor was there ever any mention of having to go back to day one. I'd be interested to see if other CPA's give you the same response you first received - 'cause that sure is a pile of money and difficulty - imagine trying to reconstruct records and statements going that far back. Many of our clients can't find their own payroll records for the current year without a 6-man scouting party!

I found this thread while doing a search on a related question - here's the twist I was looking for: SIMPLE IRA participant dies. Surviving spouse beneficiary has her own SIMPLE IRA. Can she roll the death distribution directly to her own SIMPLE IRA? I cannot see any reason why this would be prohibited. Any differing viewpoints?

Generally 45 days - 15 days for small plans. Without having time to look this up, I do believe EGTRRA amended the ERISA 204(h) requirement to be a "reasonable" amount of time, but the IRS requirements under 4980 specify the 45/15. But don't accept that as gospel - memory is a tricky thing with me...

I'm not certain what your question is here. The docs I have seen define the participant's accrued benefit as the cash surrender value of the life and annuity policies. So the surrender charge comes "off the top" in a manner of speaking, then the participant receives his vested percentage of whatever is left. Remaining forfeitures reduce the employer contribution. (I'm ignoring top heavy requirements here for the moment and assuming that the values are sufficient to satisfy the TH minimum.)

I agree with Janet that this COULD be available. And usually is. But I'd caution that some documents are set up so that this isn't an automatic pass. For example, some are set up to default where the other business is automatically included - they would have to specifically elect to exclude employees acquired in a 410(b)(6)© transaction. Problem with this is that it is often too late to exclude them by the time the client thinks to notify the friendly and cooperative TPA.

I agree with Tom - this is how we've done it. If you did it wrong, I doubt that anyone will go to jail for it! I've never quite figured out the point of it myself when you are already filing a schedule A - I don't know if it is just for some statistical database stuff they do?

Thanks for the response. 1. No, not key person insurance. 2. Yes, the participant declares the taxable term cost as income each year. 3. Proceeds are paid to the Plan. Plan participant has a beneficiary designation on file with the Plan Trustee, and Trustee takes the insurance proceeds plus whatever fund value 9s appropriate, and pays all this to the participant's designated beneficiary. Net amount at risk from the insurance proceeds is income tax free. So, am I correct that no 712 is required? I'm operating on that assumption.

I have always taken the interpretation that the nonelective 3% gives the employer the pass on top heavy status, assuming all other requirements are met. While I acknowledge the fact that clearer drafting, in retrospect, would have alleviated the concerns expressed, I still feel comfortable with the more "aggressive" interpretation. The following excerpts are from the HR 1836 Conference Committee Reports. "The Committee understands that some employers may have been discouraged from adopting a safe harbor section 401(k) plan due to concerns about the top-heavy rules. The Committee believes that facilitating the adoption of such plans will broaden coverage. Thus, the Committee believes it appropriate to provide that such plans are not subject to top-heavy rules." (I should mention that the above is following a discussion of BOTH nonelective and matching safe harbor plans.) "The provision provides that a plan consisting of a cash-or-deferred arrangement that satisfies the design-based safe harbor for such plans and matching contributions that satisfy the safe harbor rule for such contributions is not a top-heavy plan. Matching or nonelective contributions provided under such a plan may be taken into account in satisfying the minimum contribution requirements applicable to top-heavy plans." To me, it isn't logical to think that the IRS or Congress wanted to prohibit the favorable treatment for a nonelective, when a matching contribution plan where many participants receive nothing whatsoever satisfies the requirements. I believe the purpose of the "and" is to confirm that a plan may have BOTH a nonelective and a match, as long as both of them meet the safe harbor requirements. And yes, it would be nice if the IRS would confirm all this at the ASPPA conference or some similar forum.

Prohibited Transaction Exemption. P.S. Here's a link to the PTE. http://www.dol.gov/ebsa/regs/fedreg/notices/2002022376.htm

Generally allowable. See PTE 92-6, the requirements of which must be satisfied. Also, for IRS purposes, be aware that you need to look at Fair Market Value (FMV) if this is greater than the cash surrender value.