Belgarath

I don't think that is what 401der is saying. If I understand 401der correctly the suggestion in this case would be to total the assets (I get 743,000) and assuming the marital property split is 50/50, the alternate payee is entitled to 371,500. I believe 401der is recommending in this case that the alternate payee take 100% of the house, checking, IRA, 401(k), and as little as possible of the NQ - in this case, 31,200 from the NQ. I have no opinion as to whether this is better than a straight 50/50 split of all assets, but I think this is what 401der is advocating. 401der - am I correctly understanding your position?

I have a question on this as it relates to new mandatory rollover rules. In a conversation with someone who handles 1099 reporting, it appears that the IRS imposes a penalty of $50.00 if a 1099 has an incorrect address. I'd like to explore how this relates to the new mandatory rollover rules. Suppose a Plan Administrator sends a distribution kit to the last known address of a terminated participant. Everything is done correctly, SPD's disclose mandatory rollover rules, 402(f) notice, etc.... After 30 days, or whatever "reasonable" period PA has selected has gone by, the PA processes a mandatory rollover to First National Bank of East Overshoe in the name of the participant. Everything has been done in accordance with the IRC, and the DOL safe harbor regulations. Now the PA does the 1099. But it turns out the address of record is incorrect. Not an unlikely occurrence in these situations. It appears PA is fined $50.00 when the IRS does its annual "audit" or whatever it is called. 1. Is this true, or am I misunderstanding? 2. Does the PA have any recourse? I am given to understand that they do not. 3. Can this expense be reasonably charged to the plan? Seems difficult if the participant's account has already been completely liquidated - I'd say no. And as an editorial comment, if the above scenario is correct, it really stinks if the PA is following the law and DOL safe harbor, and still gets fined. Comments or discussion? Thanks!

At the most basic level, if you have an option to buy stock, you are deemed to own the stock. As to what constitutes an "option" it gets trickier. I know there are a couple of Revenue Rulings addressing this - 68-601 and 89-64, but all this is something we refer to the client's attorney anyway. For some good information on this, I'd recommend Derrin Watson's book, "Who's the Employer - and although I haven't looked up this specific subject in Sal Tripodi's Erisa Outline Book, I'd be surprised if he doesn't have some good information as well.

It is because you file separate returns. Since her AGI is over 10,000, she cannot contribute to a ROTH. The exception would be if you are married an live apart for the entire taxable year, which doesn't appear to be the case here. See 1.408A-3, Q&A-3.

Aside from him increasing the (k) contribution, if she wants a plan of her own, why doesn't she sponsor a SIMPLE IRA rather than a SEP? The SIMPLE is limited only by dollars, not % of income, so she could actually contribute far more to the SIMPLE.

Kirk - yes, as you have correctly surmised, the technical term would be "optical rectitis." I just didn't want to get too graphic during family viewing hours. Honesty compels me to admit that I suffer from temporary attacks of this dreaded disease myself. But at least it isn't permanent, yet.

The only time that I actually saw an employer do such a letter (a good idea, and probably lots of them do such a letter and we just don't see it) they had a typo and inserted 8.3% instead of the 3.8% they actually contributed. Employees raised such a stink that the employer immediately terminated the plan to "fix the ungrateful @$#^$%^'s!"

Amen to that! And I try to avoid jousting with the DOL - their lances are keener, their armor is stronger, and their horses are heavier. Their eyesight is poorer, due to an optical ailment which I shall not name, but that's another issue altogether.

"A committee of persons who are capable of understanding and doing the job. A typical configuration is the head of HR, the CFO and another person to have an odd number." I fully agree with this approach for larger employers, and I assume this is what you are talking about. What would be your recommendation for a small employer - say 15 employees or less? These functions are generally all rolled into one person - the sole owner - or the 2 or 3 owners/partners in most such businesses. I think over the years I've seen maybe 4 plans in this size range where there has been an independent Plan Administrator appointed.

Corgi - like you, I know nothing whatsoever about HIPAA. But since you don't appear to agree with the advice of the previous posters, here's a website that should give you more information than you ever wanted to know. http://www.hhs.gov/ocr/hipaa/

Thanks!

The court apparently just ruled on this that IRA's can't be seized by creditors in bankruptcy proceedings. Also apparently not unlimited protection, the law shields them only to the extent "reasonably necessary for the support of the debtor and any dependent." Don't know if anyone has access to documentation on this - if so, do you know where I can look at it on line? I tried the Supreme Court website, but I could only find the oral arguments. Thanks!

My question is: how can the words "flammable" and "inflammable" mean the same darned thing? If that isn't "counter-intuitive" I don't know what is.

He became disabled and came back to work during the same plan year (2004).

"But then what would you do with banking options? Sporadic distributions before disability would be taxable and those afterward would not?" Yup. But I certainly can't prove you wrong either. Hopefully, if the IRS ever opines on this subject, they will take the "kindler and gentler" approach. Just out of curiosity, do you take your same interpretation on an IRA? The exception there utilizes the same exception under 72(t), but I've never heard of a situation where there was a timeframe enforced whereby the penalty would apply if a disabled person took a distribution after some specified amount of time following actual occurrence of disability. But if you do view them differently, then couldn't the disabled participant then just roll to an IRA and take distributions from the IRA? Thanks for the responses - it's a lot more interesting considering this than mandatory rollovers, which seems to be all I'm doing these days!

And at something over 66,000 miles per hour, too. Beats the heck out of the Concorde!

I guess we'll just agree to disagree on this one. I think you are reading too much into the statutory language. It only says that the penalty tax will not be imposed for distributions "attributable to the employee's being disabled within the meaning of subsection (m)(7)." Nowhere does it specify a timeframe for the distribution. So a participant gets in a car accident and is a quadriplegic. But given the other assets/funds available, only needs to draw on the pension sporadically for unexpected expenses. First, I can't imagine the IRS attempting to assert that the penalty tax was payable, and even if they did, I can't imagine that that they would prevail if someone wanted to take it to Tax Court. Are there any court cases you are aware of that reached an opposite conclusion in a case where the disability is clearly a disability under (m)(7)?

QDROphile - what about this would set off the alarm bells for you? As long as the disability qualifies under 72(m)(7), there's no restriction on the timing that I'm aware of. So it's possible that there are other assets, disability pay, spouse working, etc. such that withdrawals might be needed only on occasion. (Although I grant you that the "normal" disability situation I see doesn't work like this.)

Cheer up - if you are involved in this business for long, you won't have any dignity left anyway. I'm a little puzzled by the time gap between withdrawal and a check being issued. How did this transaction work? For example, if mutual funds were liquidated on 3/13, and the money deposited to the Trust checking account for subsequent distribution to the participant, then I'd vote for the 3/17 date as it is still a Trust asset on 3/15.

Thanks. Naturally, that's my inclination as well, since it is a whole lot easier! I'm hoping that no one can think of a compelling reason to do otherwise.

Just discovered a plan for which, reasons unknown (yet), the Schedule P has used an incorrect Trust Identification # going back at least 10 years. Question - would you go back and file amended returns for all years, or just correct on a current basis? (EIN on the 5500 itself has been correct every year.) I don't know if a P with incorrect TIN will fail to start the Statute of Limitation running for those years?

Was the plan subject to QJSA? If not, then no spousal consent is required anyway. 1.401(a)-20, Q&A-24.

The amount that isn't deductible for 2004 will be deductible for 2005. And since paid in 2005, no excise tax issues. Pax - you'd be surprised (or maybe you wouldn't) at how many clients just pay any bill they receive. Except our bills for services, of course. I once had a client make out a check to me personally for the plan contribution of 124,000. That will open your eyes when you haven't had the morning coffee yet!

Funny how often this comes up. Let me start by saying that yes, I have read PLR 9144041, RR 91-4, 90-49, and Notice 89-52. We've had a lively discussion on the following situation. Takeover plan, calendar year valuation, plan, and fiscal year. Defined benefit, with annuities as part of the funding, along with mutual funds, etc., etc.. Apparently what happened is this - and I don't even have firm #'s, so I'll use hypothetical. And I'm not concerned with the wisdom of their investment choices, only the situation at hand. Required plan cost for 2003 was, say, $200,000. Due to their recently unfavorable investment experience in mutual funds, they decided to put the whole $200,000 into annuity policies. The insurance company practice evidently is to send a bill each year, based upon the contribution to the annuities for the prior year. So they send a bill to the plan sponsor in December of 2004, saying there is $200,000 due for the annuities. (Now, of course, being flexible annuities, the sponsor is under no obligation to pay.) However, the receive the bill, so they pay it in early January of 2005. Later in February of 2005, the actuarial valuation is performed. Required funding is some amount less than $200,000. We're now looking at this on a takeover request. Can the excess be withdrawn as a mistake of fact? Certainly, the safest solution is to not do this, and leave excess in plan for 2005 contribution. However, sponsor doesn't want to do this. This seems a little tricky. I lean toward conservatism, and thus am not comfortable with this being a mistake of fact. On the other hand, if the billing should have been $200,000, and the insurance company had a systems error and billed $300,000 instead, which the employer paid, then I'd think this would be a strong argument for a mistake of fact, so I'm not so sure how the first situation is really all that different. Anybody ever encountered something like this, and how did you handle? Or, how comfortable would you be with considering this a mistake of fact? Thanks.

I think you are stuck. The tuition payment doesn't matter - that could make it eligible to be considered a hardship withdrawal, but doesn't affect the taxation in your situation.