Belgarath

Ayup - and even though the IRS apparently doesn't have a problem with it, I still can't get myself to feel comfortable about it. We don't do it in our plans.

Hi Merlin - Well, starting first with the argument that you can fund a 412(i) plan with only life insurance. As far as I can tell, this relies on a very strict and narrow reading of the first sentence of 1.412(i)-1(b)(2)(i), placing form over substance. I don't happen to agree. This sentence doesn't exist in a total vacuum, where 412(i) exists independently of the rest of the qualified plan world. The IRS has said essentially that incidental rules apply to all plans. There is nothing in the incidental limits rulings that exempts 412(i) plans. And while those promotors will give you their arguments as to why I'm wrong, I simply don't agree. And it appears that the IRS is on my side. P.S. - for some RR's, take a look at 61-121, 68-31, 68-453, 66-143, 70-611, and 74-307. As far as the (a)(4) issues - as I've previously stated in other postings, I don't agree with Mr. Holland's interpretation. Of course, that doesn't mean I'm right, but I think the logic is rather flawed. As long as all the settlement rates are the same, etc., and as long as the same policies are purchased for all participants, it should meet the safe harbor definition. There's obviously a clear intent for a 412(i) plan, which by regulation may include both insurance and annuities, to have a safe harbor under the (a)(4) regs. But we'll see...

Merlin - well, if it isn't spelled out a bit more clearly somewhere else, then I think you are left with interpreting the document to say what is necessary. "(a) they shall provide for level annual premium payments to be paid for the period commencing with the date that each individual becam a Participant in the Plan..." I'd interpret this to require a premium payment. Suppose it is a 12-31-03 end of year plan. Depending upon plan language and practice, etc., I'd assume this requires a level anual premium, commencing sometime within 2003 - perhaps 12-31-03. Even if the contribution hasn't been made yet, it is REQUIRED to be made, and the benefit is based upon that, I believe. In other words, if the participant terminates employment on 1-3-04, he can't receive a zero benefit just because the employer hasn't sent in the check yet. So I think for testing purposes, you have to assume a benefit on 12-31. The 412(i) docs I've seen spell this out rather more clearly. As far as the incidental limits, I'm not familiar with the outline you refer to. But in order to be "incidental" it isn't possible to have 100% of the benefit funded by life insurance. So there will be some annuity premium. The 100% to life insurance doesn't fly, (most of us NEVER thought it did) and the IRS made this clear in February. If you have a plan funded 100% with life insurance, I'd run like heck!

That's what Rev. Proc. 90-49 appears to say. However, it also appears to condition the ability to apply for a return as being contingent upon the contribution being made to satisfy the quarterly contribution requirements... REV-PROC, PEN-RUL 17,299L-82, Rev. Proc. 90-49, 1990-2 CB 620, September 24, 1990. [Modified by Rev. Proc. 93-23 at ¶17,299M-62 and by Rev. Proc. 94-8 at ¶17,299M-90.] ".02 This revenue procedure applies to employer contributions to a qualified defined benefit pension plan that are made to satisfy the quarterly contributions requirement of section 412(m) of the Code for the plan years beginning after December 31, 1989 (see section 5)." Now, you'd have to get some input from an actuary on this, because I'm not really sure just how that applies in real life administration. I think a lot of plans have sufficient assets so that a quarterly contribution isn't necessarily required? And if the contribution wasn't made for this purpose, then I'm frankly not sure what your alternatives are - whether you can still apply for return of the contribution, or if you are stuck just leaving it there. Yo, actuaries, what think ye?

Jquazza - just one quick observation here - for VS plans, a current favorable advisory letter for the VS plan itself is considered a favorable letter for Voluntary Correction purposes. See Section 5(.01)(4) of Rev. Proc. 2003-44. I'm assuming, of course, tht there's no deviation from the approved VS doc, otherwise I agree that a FDL is required.

Merlin - I'm just speculating here, but does the accrued benefit perhaps have a definition that says something to the effect that the accrued benefit is the cash value of the contracts, assuming all required premium payments have been made? That would make more sense to me, and is in line with 412(i) docs that I have seen - and it would be impossible to end up with a zero value on an annuity policy in that circumstance. (And I'm not going to discuss a plan that has only life insurance, 'cause that would be verboten anyway) If the document doesn't say something to that effect, somewhere in the document, then I would say it is a faulty document.

Thanks for the followup posting!

See 1.401(a)(9)-2, Q&A-5. This is for a situation where the participant dies ON OR AFTER the RBD. Minimum distributions from the plan, even to a spouse in this situation, must be distributed "at least as rapidly" as under the distribution method being used as of the date of his death. However, as you mention, a surviving spouse has a rollover option under 402©(9). Any minimum distribution required for the year of death is not an eligible rollover distribution, and needs to be distributed. The balance, if distributed as an eligible rollover distribution, can be rolled to an IRA (or other eligible retirement plan) and further minimum distributions (when required) will then be calculated based upon the life expectancy of that surviving spouse.

See, this is precisely why I refer them to an attorney! Thanks for the information - this helps to clear it up for me.

mbozek - the original question was whether you can contribute to a SEP AND another qualified plan in the same year. I don't disagree with you at all that the two plans can be "maintained" in the same year - and that for a non-model SEP it is fine to contribute to both in the same year - but I do question whether the answer given to DGM that it is ok using a model SEP, without some official guidance. It's an open secret that many IRS telephone answers are incorrect.

FWIW Tom - The DOL release just refers to the code - it doesn't impose any new "immediate" requirement. Code 401(a)(31)(B)(ii) as amended by EGTRRA 657, refers to an "eligible plan" as one where the benefit not exceeding 5,000 shall be "immediately distributed." I interpret this merely to distinguish a plan that provides for mandatory distributions of cash out benefits from a plan that does NOT provide for them. So I don't see that any change is required from whatever you do now, other than the mandatory rollover of the cash out benefit, when paid.

Sorry - hit wrong button. Reply coming.

Mbozek - I'm truly not trying to be difficult on this, but I'm finding this rather confusing. (I should preface this by saying any such question, we would tell the Plan Administrator to seel legal counsel.) Having said that, how do the heirs of a deceased child enter into this? If the plain language of the bene designation says the plan is to distribute it to SURVIVING children, isn't the plan legally obligated to pay only to surviving children? In other words, say I have children A, B, and C. My bene designation (perhaps unwisely) says to pay all plan benefits equally to my surviving children. If, at the time of my death, C has predeceased me, isn't the plan payout a simple 50/50 split between A & B? Just because C had children, shouldn't mean they are entitled to anything, should it? Wouldn't ERISA preempt state law? I would think these other considerations would come into place if, for example, the beneficiary was the estate. Then once paid out of the plan to the estate, then state law would govern? Thanks in advance!

Tom - I'd have to go back and read the release to be sure, but offhand, I don't recall any change in the requirements for the timing of the distribution. The plan document still governs, etc... so the only change is that once you are ready to make the payout, under the same timeframes you would otherwise have used, you now have the mandatory rollover requirement.

DGM - this is very interesting information. From my own perspective, being essentially very conservative on these issues, I wouldn't dare rely on a telephone statement from an unnamed IRS person to go ahead and do this. Until I see, at the very least, some statement from IRS folks at a public forum that allows you to simultaneously contribute to a model SEP and another QP, I wouldn't do it. Did this individual you spoke with indicate whether the IRS was planning on a formal release with the clarifying information you were given? Thanks!

Thank you.

This is pretty hard to answer, since the document terms will govern. Some documents, by the way, still provide that you start taking RMD's at age 70-1/2 even if you are not an owner. In general, the plan will specify when a benefit is payable, such as normal retirement date, etc.. It will also have language specifying that even if a participant has elected to defer receipt of their benefits as permitted by the plan, that the minimum distribution requirements will override the election to defer receipt of their benefits. So the plan will distribute the required minimum, whether the participant wants it or not.

You can have a SEP at the same time as another QP. You just can't do it using the IRS 5305 model SEP document. But there are many places that sponsor prototype SEP's that would allow a combination.

I wasn't going to say anything, but I suppose since we are all a bit inclined toward technical language, that this should be "rangifer" rather than wapiti. Wapiti is an elk, I believe. I recall a little story about Rudolf Nicholyevich, who lived with his wife near Gorky Park. One afternoon, as he was eating his meal of tea, borscht, and black bread, he looked out the window. "Would you look at that" he grumbled to his wife, "It's starting to rain." "No it isn't" replied his wife, "It's snowing." He said, "NO, it's raining." She replied yet again, "No, it's SNOWING." Whereupon he replied, as you've already guessed, "Rudolf, the Red, knows rain, dear."

Gburns - sorry, perhaps I didn't make my question clear. I know what the IRS said - I read the PLR. I wanted to know what Code Section(s)/Reg(s) that YOU think permit a surviving spouse do do a rollover, not in the surviving spouse's name, but in the name of the deceased spouse. That's the part I found odd in the PLR - obviously many folks have read these differently than I have, and it appears they were right and I was wrong. Not the first time, and won't be the last! So I'd appreciate your insight as to which Section(s)/Regs(s), under a literal reading, say that this can be done. I want to read it from someone else's viewpoint (that it is permissible) so I can see how I misinterpreted them before. Thanks.

All right, the general tenor HAHAHA of these titles reminds me of a little story my father wrote. At least he says he wrote it, and I believe him, although it is possible he's pulling my leg. But since he has the best vocabulary I've ever encountered, he probably did write it. Or could have. Has nothing whatsoever to do with Christmas, but you may enjoy it anyway. The Triad of Diminutive Porcine Quadrupeds The initial diminutive porcine quadruped fabricated his domicile of dessicated monocotyledenous herbage. The rami of angiospermous arborescent flora constituted the habitation of the secondary diminutive porcine quadruped, but the tertiary diminutive quadruped assembled his commorancy from adamantine hexahedrons. Then comes one Canis Lupus, petitioning entrance seriatim into each domicile by minatory declamations concerning extreme aeolian perturbations. The negativism expressed by the first two porcine quadrupeds brought about an ex parte response by the Lupus and the subsequent aeolian demolition of their domiciles. Shortly thereafter, said Lupus engaged in porciphagous gourmandising. Finally Canis Lupus approached the commorancy of the tertiary diminutive porcine quadruped and petitioned entrance by the same minatory pronouncements. The porcine's antiphon was, "The hirsute component of my lower mandible's distal extremity renders the option of breaching the exterior of my edifice a nullity." Thereupon, the Lupus repeatedly created aeolian perturbations of the most severe sort until he was totally enervated, but the commorancy of hexahedrons proved totally renitent.

All I want for Christmas is my two front teeth?

GBurns and BPicker - I hadn't realized that the regs allowed this. I had always understood that while it was clearly allowable for a spouse to roll over the deceased's account to their OWN IRA, I had always understood that the Services position was that a rollover was otherwise "personal" - could only be elected by the IRA owner. Obviously I was incorrect. Not that it necessarily matters now that the IRS has said it is ok, but I'd like to educate myself on this a bit - what specific section(s) of the regs is it that you interpret to allow this? Thanks very much.

Do - I might suggest that if you hope to get contructive answers on these boards in the future, you might want to refrain from that type of comment. Remeber, you are the one who solicited help. Mbozek provided a reasonable answer - you may not want to take the advice, but you aren't helping your cause any. These boards are for discourse between professionals, and although there are sometimes some intemperate responses, those who engage in that sort of conduct quickly get a "reputation." I would hope you don't want to be listed among them.

I agree. Although if in the 401(k) no employee made deferrals and if there were no employer contributions, then I think you could have the SIMPLE. I don't imagine that this is the case here...