Belgarath

"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.

Employee was disabled for several months in 2004. Employer has a disability pay program where employer pays all premiums, ins company pays money to employer, and employer pays the disabled individual. This "compensation" is reported by the employer on a W-2. Plan defines compensation as W-2. Question was, can this be used toward deferrals in a 401(k) plan, and toward the employer discretionary contribution? Not sure on this. Rightly or wrongly, since the plan definition is W-2, then it seems it must be considered. But, it seems odd. Any opinions? Thanks.

Not to worry. I wouldn't have been offended anyway. It's Friday afternoon, and like the song says, "I've got no deeds to do, no promises to keep..." Since the Northeast is getting thumped with yet another major snowstorm, I refuse to work! I'm going to watch a little NCAA hoops on Saturday, and go x-country skiing on Sunday. How could life be better?

Feelin groovy...

Here's at least one prior discussion - may be others. http://benefitslink.com/boards/index.php?s...t=0entry97481

FYI - Ms. Carrington returned my call today. She said that at this point, they had no answer, but that they were hoping to discuss this within their "group" in the next two weeks. No estimated date on a firm answer.

It can be removed. See IRS Notice 2005-5, Q&A-12.

Effen - re your penultimate paragraph - yes, this can happen. In fact, I saw it once. The plan sponsor was rather unpleasantly surprised when a terminated participant in the DB plan had to become 100% vested because the PS plan terminated 2 years after the DB was established, and hence received a payout of about 25,000 more than the employer planned. As to the final paragraph - if taken purely in the context of vesting, I suppose this might work. But I find it difficult to imagine that there isn't a way for the IRS to assail such a scheme on other grounds. And what employer would want to institute and freeze several plans, paying admin and doing forms, etc., for several plans at the same time? Why not just cease contributions to the PS plan until 5 years have passed and then terminate?

I completely agree with Blinky. For the definition of a predecessor plan, see 1.411(a)-5(b)(3)(v)(B).

I have both, but for only one source, I would choose Sal's EOB. He has a genius for not only providing the technical information, but giving real life examples of (and solutions to) thorny problems. The downside of Sal's book? The table of contents is challenging - until you get familiar with it, the way it is organized often makes it difficult to know where to look. And I don't like the online version either - although I have the same problem with anything else. I'm just old fashioned, I guess, but I can scan real pages WAY faster than I can on a computer - particularly if I'm flipping back and forth with several cross references. I find the pension answer book particularly helpful when I think I know the answer, but want to double check myself. It is arranged and indexed such that you can get fast answers, and it is a great source. So I'd hate to be without either one, but if forced to choose, I'd go with the EOB.

Thanks for the opinions. This isn't a plan we have anything whatsoever to do with, so I'll pass this information along to the CPA. Obviously going to be messy no matter what they do - with a lot of employees who are going to have to refile tax returns based upon their new W-2. Apparently at least 30 employees younger than age 50 contributed in excess of 3,000, not including the employer match, and several of the over 50 employees making more money contributed over 7,000.

No, you can't do a direct rollover from a qualified retirement plan to a Roth. You'd have to roll to a regular IRA, then convert or rollover the regular IRA to a Roth IRA.

Did a search and couldn't find any situation/question exactly the same, so here goes. Employer established a SIMPLE-IRA in 2004. Employees deferred, employer matched, etc.. However, the employer had more than 100 employees who had earned more than 5,000 in both 2003 and 2004. The question was, what can they do? It seems to me that this is corrected through Rev. Proc. 2003-44, and is an "employer eligibility" failure. It further appears that since the SIMPLE corrections are similar to the normal qualified plan corrections, that this cannot be corrected through SCP, and will have to be submitted through VCP. However, since I've never encountered a situation like this, I thought I'd see if anyone has other thoughts/ideas? Thanks!

I don't see any problems with the initial design. This type of provision isn't at all uncommon. However, if they amend the plan 1 month after setting it up, which then has the effect of excluding the 42 additional NHC that they also subsequently hire from the same previous company, then yes, I think it's a problem. If you are applying for a determination letter on the plan after amendment, I don't see how you could justify this on the ?believe it is Demo 7, but I don't have one handy at the moment?

1.411(a)-7(d)(4)(vi). So if the distribution is made after the close of the second plan year following the plan year of termination of employment, it isn't "on account of" temination of employment, and the 5 year rule KJohnson mentions kicks in.