Belgarath

JAY - this part, for me at least, becomes rather murky. If you look at IRC 413©(6)(A), it appears to say that if ©(4) doesn't apply - the plan was established after 1988 - then each employer appears to compute the 404(a) deduction separately. But I do believe there may be issues about the validity of a deduction as an ordinary and necessary business expense under IRC 162 where one entity takes a deduction for expenses like this which are based upon another entity. Absent an attorney's opinion or an explanation from someone who truly has a depth of understanding of this issue (which I do not) I'd be hesitant to attempt such a deduction. I'll be interested to see what other folks here think.

Jay - my copy of the Code & Regs, Section 414(b), says the following: "With respect to a plan adopted by more than one such corporation, the applicable limitations provided by section 404(a) shall be determined as if all such employers were a single employer..."

Good point!!

I had to consider a very similar question just a couple of weeks ago. FWIW, here's an excerpt from a much longer case-specific writeup - with thanks to Sal Tripodi's ERISA Outline book, which was a succinct source for much of the following: 1. In the absence of specific regulation, one could take the aproach that 1.410(b)-3 is controlling. To be considered as "benefitting" under a DC plan in this specific situation, the participant would have to receive an allocation. Since they are not, then there would be no overlapping participation. 2. The IRS, in PLR 8743096, took the opposite conclusion. Note that this PLR predates the 410(b) regulation referenced above. To further complicate matters, in July of 2003, IRS representatives in a panel discussion indicated that the "benefitting" concept should apply. Then at the ASPA conference in October of 2003, they took the opposite view and stated that PLR 8743096 still represented their position. Given that the ASPA conference question was "pre-submitted" it is likely to be more representative of the current position, since they had an opportunity to consider their position in advance. Also, if relying on IRS statements from the podium (which do not have the force of law) this is the more recent statement.

Harwood - thanks. I also just located the following from IRS Notice 87-77 - this is presumably the source for the W-2 instructions. (I never thought of checking them - could have saved myself some time!) Notice 87-77, I.R.B. 1987-51, 9, December 21, 1987. In the case of a 401(k) plan distributing excess contributions and income earned thereon within the first 21/2 months after the close of the 1987 plan year, the payor or plan administrator must report the amount of 1987 excess contributions and income earned thereon in Box 9 and Box 10 on 1988 Form W-2P with a Code P in Box 14 or, in the case of a total distribution, on 1988 Form 1099-R in Box 1 and Box 2 with a Code P in Box 7. These amounts are not subject to FICA taxes and are not subject to income tax withholding. So I feel reasonably confident that on the 401(k) situation, you don't have to allow the participant any withholding option. But I'm still not sure on the IRA...

Thanks for the responses. Appleby - what does OTOH mean? As far as the 3405(e)(8), I interpret that to mean that you don't have to withhold more than the available cash. Example - account balance of 30,000, of which 15,000 is a loan. Participant elects to roll over 14,000 in cash, and will receive a deemed distribution/offset on 15,000 outstanding loan, and will receive 1,000 cash distribution, for a total of 16,000. The 20% withholding would ordinarily be 3,200, but since 100% of the cash distribution is less than the 20%, then only 1,000 is withheld. On all of this gobbledygook, I'm inclined to think it is safer to just allow withholding, but I'm trying to determine if mandatory, and I'm not completely confident that I'm thinking through it correctly. And if there's no definitive guidance, then I definitely agree with you that the conservative approach is more prudent.

This question is an oddball, so be gentle! Suppose you have a corrective distribution from a 401(k) plan - calendar year 2003 plan. Let's say excess contributions under an ADP failure. These are not eligible rollover distributions. Let's further suppose that the distribution is made in January of 2004 - within 2-1/2 months after the correction period, so it isn't taxable in 2004. My interpretation is that 10% withholding does not apply. First, do you agree? And assuming you do, the question was - MUST the Plan Administrator allow the participant the option to elect withholding at 10% or even more than 10% if the participant wants to? My interpretation would be no. Moving on to a somewhat related question - suppose you have a non-periodic IRA distribution, to which 10% withholding applies unless the participant elects out of it. Is an IRA custodian REQUIRED to allow the participant to elect additional withholding? I don't find anything in the regs to require this, although I may have missed it, and I know that many custodians do allow this - of course if required, then they probably all do! The W4-P has a line to elect additional withholding, but I'm not sure if additional withholding option is required for all IRA distributions. Appreciate all opinions. I just hate these fiddling little questions.

I would say you have no required distribution for 2004.

Party-in-Interest is defined in ERISA 3(14). ERISA 406 prohibits a fiduciary from engaging the plan in certain transactions with a party-in-interest. You also have the IRC 4975 definition of a disqualified person. This is a very complex area of the law, in which I am not expert. Some of the other folks on this board are, and may be able to give you answers to some specific questions - but it isn't an area to take chances with. See ERISA counsel locally. 11-4 edit on the above IRC section reference - I just noticed that my magic thumbs had transposed a couple of numbers.

Andy - you have no idea how funny it is that you should mention that. I skipped out at lunch to buy my wife some flowers. After fastening my seatbelt in the parking lot, I leaned back against the headrest and closed my eyes to enjoy the smell for a couple of seconds - and woke up 15 minutes later.

PATA - wow, that is a scary thought! I never even made that connection. I'd like to see someone like Bill Cosby, who is very good at exposing the stupidities of certain behavior, do something with some of the idiot sports fans. "My team just won. I'm so happy, that to demonstrate my happiness, I'm going to vandalize property, burn cars, and houses." I say take 'em to the top of the Bunker Hill Monument and throw them off. I just want to get some sleep! So for that reason, as well as O'Toole's corollary to Murphy's First Law (O'Toole states that Murphy was an optimist) as well as the fearsome scenario you just raised, I sincerely hope that the series doesn't come back to Beantown.

Didn't say he was well liked, or even likable. Just that he's a great player. As for for production in October, he batted .320 in the playoffs(behind only Matsui among his Yankee teammates) while Jeter hit .245. Now, Jeter is a class act, and A-Rod isn't. I just can't see bashing his performance, which was pretty good. Gaudy numbers in October are largely a matter of luck/coincidence anyway - even the greatest players are inconsistent in a given short series or two. As for teams getting better without him, I firmly believe that ANY team has a good chance of improving if they take out one player making 15 or 20 million a year, and replace him with several other players at a lesser price. No hitter is worth that much, IMHO, although you can make a pretty good argument that a really dominant pitcher, such as Randy Johnson, might be - particularly in a seried where they might be able to pitch 3 out of 7 games. Only one thing I'm certain about - it's harder to figure out baseball teams and players than to interpret IRS regs, but the discussions are a lot more fun!

First base! And I must say I don't quite understand the A-Rod bashing earlier. Aside from his giant ego/personality, which after all isn't an uncommon problem among the spoiled brats in pro sports... Yes, he had an "off" year - for him, which is still better than 95% of the rest of the league. Great shortstop - better than Jeter - but he played third this year, which can be a distraction - not an easy position to learn/play in the first year. Stole bases. I'll tell you what - take a poll of major league managers, and ask them if they'd rather have Rodriguez or Cabrera. I expect he'll again put up stellar numbers next year. I just hope he doesn't do it against Boston!

You mean the creators of the "post season disappearing offense?" I've been rooting for the Braves in the NL since the days of Dale Murphy and Bob Horner. I have to wonder at the limits of my masochism - Braves and Red Sox. There's a combination guaranteed to break your heart. But hey, at least they won ONE series in the 90's. And maybe the Sox will do it this year...

I agree with QP. You are applying the compensation limit in effect for lookback years that begin in a given calendar year. See 1.414(q)-1T, Q&A-3©(2).

Andy - I think what he means by "freezing" the death benefit is really "capping" the death benefit level. So new participants would have life insurance purchased, up to the cap level, but not beyond. If that's the case, no discrimination there, as Pax mentioned.

All of New England just exhaled for the first time at midnight last night. Great series, but I sure am glad it's over. Now I can get some sleep for a couple of nights. I'm hoping St. Louis beats Houston, just because I don't want Clemens to have the opportunity to beat the Sox. If any of my posts seem dumber than usual, just blame it on sleep deprivation.

Win or lose, I'm not sure I'd want to be on campus at BU or BC tonight...

It seems preordained that this would come down to a 7th game. No matter who wins, at least it turned into an exciting series. The Sox and the Yankers have played each other to a standstill over the last couple of seasons, so maybe it's Boston's turn. I think I'd better set up an intravenous caffeine drip in my office, and pray that tonight's game doesn't go into extra innings. And no matter who you root for, you've got to admire Schilling's guts. Pretty impressive performance on his part last night.

Lat's see... With the obvious caveat that the terms of the document must be taken into account, some general thoughts. Both Vebauru and Kirk have put forth some ideas. Kirk - yes, this can be done in a DB plan. Vebaguru - while I don't disagree that using it as "key person" insurance is possible, I must say I'm not a fan of the concept. It seems that in many cases, justifying it could be difficult. Not saying it is impossible, just perhaps questionable in many circumstances. Personally, I'd go with Kirk's suggestion, or surrender as you mention. GBurns - yes, this much insurance is perfectly allowable in a DB plan. Either the "100 times" limit or the RR 74-307 "2/3 rule" have both been approved as "incidental" by the IRS. The pension trust owns the policy. The pension trust is also the beneficiary of the policy. (proceeds paid to the trust, then distributed to the participant's beneficiary as provided under the terms of the death benefit payable under the trust.) Purpose for purchasing? Obviously unknown from this end, but presumably to provide a benefit if the participant dies prior to accruing a full benefit. In a DB plan, this is a very nice benefit for the participants, as it doesn't have any negative effect upon their ultimate benefit. Might not be quite so attractive for the sponsor who has to pay for it, but I'm assuming they wouldn't buy it in the first place if this were a problem. I typically see this only in very small plans where all or most of the benefit goes to the owners and family.

Not specifically. But my interpretation is that since a SEP can be established up until the tax filing deadline, including extensions, that since there's a special extension for filing, it also applies to establishing the SEP.

Tom, thank you. You really made my day. I came in this morning a little grumpy (the prospect of a day filled with useless meetings and IRS regulations can do that) but it's impossible to stay cranky when you read something like this! I've seen pieces of this, but never such a comprehensive example.

It depends upon your plan language, and if the language isn't clear on this issue, then your interpretation. Take a look at IRS Notice 84-11, Q&A-9. Depending upon how you read this, you can let the employee participate immediately, or not. It seems "gray" to me. I think you can make a pretty good argument for NOT including them if they haven't yet satisfied the requirements to become "leased" - assuming no common law service with the recipient employer prior to the leasing arrangement. If you take the more aggressive approach, and bring them in right away, you might want to file for a determination letter. Caveat - I didn't review the 401(k) proposed (apparently soon to be finalized) regs to see what, if anything, they say on this issue.

I'd check with an attorney versed in these matters. Sal has a reference - In Hearn v. Western Conference of Teamsters Pension Trust Fund, 68 F.3d 301 (9th Cir. 1995) the plan was required to provide a survivor annuity to a participant's spouse where the plan administrator had reasonably relied on false statements made by the participant that he was unmarried. However, the survivor annuity was reduced by the value of overpayments made to the participant under the life annuity he had elected.

It's also possible that the plan allows a "cure period." Depending upon the dates when the payment is due, and depending upon whether it is a quarterly payment, etc., it is possible that she'll be back to work well befor the cure period expires. For example - she takes a loan on August 30, 2004, quarterly repayment with first payment due on November 30, plan utilizes maximum cure period allowed by the regulation (1.72(p)-1) so it would end on March 31, 2005. She might easily be out 3-4 months and return in plenty of time to make this up with no difficulty.