Belgarath

I don't think so. 1.401 through 1.401-14(inclusive) reflect the provisions of 401 prior to ERISA. The reg sections following 1.401-14 and preceding 1.402(a) reflect the post-ERISA provisions of section 401.

KJohnson - Sal Tripodi, on page 7.496, discusses taxation of disqualified trusts, and states that the Grantor Trust rules generally don't apply. Don't know if he's right, or if you agree, just thought I'd pass along FWIW.

IMHO, the participant absolutely can be forced to sell. The investment is still owned by the Trustee of the plan, in spite of the fact that the participant has been allowed to direct where the Trustee invests the money. The right to direct investments, or the right to a particular investment, is not a protected benefit. See 1.411(d)-4, Q&A-1(d). Now, there may be an issue of fiduciary breach, where the Trustee/Plan Administrator allowed an investment that was too risky/didn't have sufficient liquidity, etc. - then sells it. The Trustee/Plan Administrator is still responsible for due diligence/prudence in the allowable investments, and while this may be mitigated if it is a 404© plan, it could get tricky. Especially depending upon the amount of money/loss, this one sounds like ERISA counsel should be called in.

Cool! Fortes fortuna juvat. Best of luck in whatever approach you take. The discussion has been interesting, and has prompted me to read up on some of this stuff, which is a good thing.

" .... 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!