Belgarath

As you know, I'm a Sox fan. But the simple fact is this: THEY LOST THE GAME. Paint the comeback in all the glowing terms you want, blame umpires until the cows come home, but they lost. They're 0 and 1. Now, does this mean you write off the series? Absolutely not. But I find nothing terribly praiseworthy about last night - moral victories, if there is such a thing in baseball, don't win you the World Series. As for the sportswriters, it's hard to blame them. They have their bylines written before the games ever started. Most of them lauding the Yankees (after all, historically a safer bet than the Sox) and the optomists have one ready for the Sox finally breaking the curse. Now, Pedro is about due for a great game, so we'll hope for something better tonight! Maybe this is the year...

FWIW - I also know nothing whatsoever about antitrust law, but I can tell you that one of my associates attended some conference (don't know which one) with a lot of other TPA's at some point during the last 3 months. They specifically were told not to discuss fees due to antitrust concerns.

Take a look at IRS Notice 84-11, Q&A-8. Although this deals with the opposite (common law employee becomes leased) my understanding is that this is applied to the reverse as well. It also seems to be common sense - if a "leased" employee is treated as an employee of the recipient while leased, then it would seem to follow that once hired as a common law employee, that service would still count. Q-8. For purposes of determining if an employee has performed services for the recipient on a substantially full-time basis for at least one year, does that one-year period include service of the employee prior to the effective date of section 414(n)? A-8. Yes. For example, in the case of a recipient that is a calendar year taxpayer if, as of January 1, 1984, an individual has been performing services for the recipient on a substantially full-time basis for one year or more and the other requirements of section 414(n)(2) are met, such individual is a “leased employee” as of January 1, 1984. In addition, any period of service performed by the employee as a common law employee of the recipient is taken into account for purposes of determining whether the employee has performed services on a substantially full-time basis for a period of at least one year. For example, assume that Individual B has been a common law employee of Corporation X for a period of 3 years. On April 1, 1984, B terminates his employment with X. On May 1, 1984, B is hired by and becomes a common law employee of Leasing Company Z. Leasing Company Z is not related to Corporation X. Z enters into a contract with Corporation X to provide leased employees. On May 2, 1984, Individual B is leased to Corporation X. Corporation X does not maintain direct control over Individual B's day to day activities sufficient for B to be considered a common law employee of X. Individual B is considered to be a leased employee of X for purposes of section 414(n) as of May 2, 1984, because prior service performed by Individual B for the recipient as a common law employee is taken into account for purposes of determining whether an individual has performed services on a substantially full-time basis for a period of at least one year.

I'll play devil's advocate and take the other side of the fence. And I'm speaking in generalities - even if one accepts my general viewpoint, there are always situations where the opposite is true. From an employee point of view, I would rarely want to roll my personal IRA over to an employer plan. I would want the control of my funds, without having to go through a plan Trustee/Administrator if I want to take a withdrawal, another rollover, etc. With the various low cost/decent yield investment alternatives available even for relatively small IRA's these days, the direct control without one more intermediary (Trustee/Administrator) involved would outweigh the perceived advantages of having it all in one basket. As an employer, I would rarely want to allow rollovers into my plan. Just one more potential hassle for every screw-up that has taken place over the life of the rollover funds. Again, I know there are valid exceptions - I'm speaking in general terms. And as a TPA, it can be a royal PIA. It's fine to say it's the problem of the Trustee/Plan Administrator, but you know where the burden usually falls when it comes to correcting a problem!

Does anyone know if there exists some sort of a state by state survey of whether state law allows an IRA to be set up without a signature? Let's say hypothetically that New York won't allow it. Doesn't matter what the DOL regs say, the plan administrator cannot comply. So the only choice available would be to amend plan to NOT require mandatory cashouts of 1,000 - 5,000. I don't know if any or all states have such restrictions. If none do, does anyone know of a nationwide IRS provider or providers that will be willing to accept this business in all states?

Hey, FWIW - one of my cohorts was cleaning up some accumulated debris on his desk, and discovered this precise question had been asked at the American Bar Association May 7 meeting with the IRS. He has no idea where he got a transcript of this meeting. Anyway, although this is an unofficial view and does not necessarily represent agency policy, etc... the IRS response (Q&A 44)was that the distribution could be made, because the distribution is made to the individual in his or her capacity as an alternate payee, not as participant. There were a couple of other questions in this transcript that ring some bells - I think the same or substantially similar questions have since been asked. If I can locate them here on the boards, I'll post those responses as well.

Difficult to say without seeing specific document language. I'm only guessing, but I suspect the document does not allow forfeitures to simply accumulate - in other words, the forfeitures for any given year pay fees, reduce contributions (whatever that means in a PS plan) and are then reallocated - right away. But not accumulated for years. If that's the case, you have operational errors stretching back apparently several years. If they are deemed "significant" then you may have lost the window to self-correct, and may have to correct under VCP - possibly a "John Doe" approach. I'd consult someone experienced in the correction procedures under Rev. Proc. 2003-44. There's enough money involved, with potentially serious ramifications, to make it worth the client having to pay for some good tax/legal advice.

I root for the Braves in the National League, BoSox in the AL. Maybe they'll meet in the series, and I won't feel quite as bad of the Sox lose. Hey, why should you never run over a Yankee fan who is riding a bicycle? Chances are good it's your bicycle.

October 15. And I confidently predict that some actuary will accurately predict the date once it has already happened. (That's for you, John)

The mere fact that there is a combined 401(k)/PS plan does not necessarily require gateway. It is the PS allocation method itself which will either require gateway or not.

See # 4 below. P.S. - for anyone who is interested, I jotted down the following points when zipping through the regs - feel free to add, disagree, etc... This is not meant to be any kind of detailed analysis, but just some points that struck me. The DOL has issued the final regulation on this subject. It clears up some issues, and ignores or confuses others. Big surprise. My initial reading indicates the following: 1. The DOL also issued a Prohibited Transaction Class Exemption - 2004-16. I don't see that this affects most TPA's - it is for banks, ins. companies, etc., to select themselves or affiliates as the IRA provider for mandatory distributions from their own plans. 2. The regulations provide that they can be used for amounts of less than 1,000 dollars. Note, however, that this is voluntary - only amounts in excess of 1,000 (and less than 5,000) are required to fall under the mandatory rollover rules. 3. These regulations provide a safe harbor, but are NOT the exclusive means by which a fiduciary could comply with the requirements. Realistically, it seems likely that the safe harbor would be used in most situations. 4. As to whether a participant loan would be considered a portion of the present value for purposes of the safe harbor, the DOL declined to rule, and referred this to Treasury. Personally, in the absence of guidance, I would say that a loan should be included. After I sent this, I've revised my opinion on #4 above. Since there's an immediate offset once there's been a distributable event, then I don't think an outstanding loan should be included in the account balance. Wasn't really thinking about this when reviewing the reg. 5. IRA providers who want to receive funds will be required to provide a written agreement on which the plan fiduciary may rely in making the rollover under the safe harbor. The fiduciary is not required to monitor the provider's compliance with the terms of the agreement beyond the time to funds are rolled over. 6. Investment product, fees and expenses - it must be designed to preserve principal and provide a reasonable rate of return (but doesn't have to be guaranteed); must be offered by a state or federally regulated financial institution (bank, credit union, insurance company, Registered Investment Company); fees and expenses cannot exceed those charged for comparable IRA's of that provider for non-mandatory rollover IRA's; the participant will have the right to enforce the terms of the IRA contract against the IRA provider, not the plan fiduciary. 7. Information concerning the automatic rollover procedures must be provided in the 402(f) notice, as well as in a SPD or SMM. I do not know yet, and will need to determine, if plans must physically be amended prior to the 3-28-05 deadline. It would seem unreasonable for this to be the case. 8. In terms of state laws regarding signature and escheat laws, the DOL ducked the issue entirely. If you have a state law that says, for example, that no account may be established without a signature, then it is unknown how this will play out. 9. Re the requirements of the USA PATRIOT Act, the DOL has affirmed that both Treasury Department and other Federal regulators have interpreted the PATRIOT Act to only apply at such time as the former participant or beneficiary first contacts the IRA provider to assert ownership or exercise control over the account. Customer identification and verification procedures (CIP) will not apply at the time the IRA is being established. So if state law permits, and a willing provider could be found, this would allow IRA's to be established for lost or missing participants - the one major benefit I see to this whole bucket of manure. We'll see. If there are no providers who are willing to accept such IRA's, then the fiduciary is in an impossible position. Presumably the DOL would have to address this - but who knows when, or how adequately. 10. Beneficiary designations would NOT carry over from the plan to the IRA.

I should clarify - by "direct rollover rules" I meant the new DOL regs regarding mandatory rollovers of amounts over 1,000 and less than 5,000. I'm not clear on this. It seems pretty clear that the 402(f) Notice, and either an updated SPD or SMM must be done. But is an actual "good faith" amendment required to be adopted (for VS plans) by then? By the way, in IRS Announcement 2004-33, the IRS said that a VS practitioner would be allowed to amend the plan on behalf of adopting employers, for changes in the Code, etc. - great provision! However, I don't see, offhand, that this was retained in the draft Revenue Procedure under 2004-71. Anyone know what happened, or if the IRS is planning on adding it back in?

IRS Notice 2004-62 extended the minimum funding deadlines - for a calendar year 2003 plan, to 10-15-04. Does anyone know if there is any additional extension contemplated? Or has one been issued and I missed it? Thanks!

I would absolutely get a legal opinion on this one. My own personal recollection is that if there is a court order that the participant is legally separated, then no consent is required. But please consider this an uninformed opinion - this is just my memory of something I read from a secondary source. Probably some of the legal experts here will chime in with some better opinions.

I don't have any definitive answer - not sure there even is one. But, like bzorc, I'd take a conservative position. The instructions for the 5500 EZ state the plan cannot "... provide benefits for anyone except..." While you could maybe argue that amounts segregated under a QDRO do not constitute "providing benefits" under the plan, I'd be very reluctant to hang my hat on that without some clear guidance. Granted that this result seems a little foolish to me, I'm still inclined to err on the side of caution - it isn't really that big a deal to prepare the 5500 as opposed to the EZ in this situation. Just another of those minor PIA's which enrich our lives!

Maybe I'm misundrstanding the situation that you have. I'd say that when you have a MP merged into a PS, that although you can merge the assets into one account, you must TRACK them separately. The prior MP assets are subject to QJSA requirements. How would you justify ignoring this requirement?

The only contributions permitted to a SIMPLE IRA are employee elective deferral contributions and required employer matching or nonelective contributions. Also rollovers FROM another SIMPLE IRA. After tax contributions in the normal meaning, such as to a regular IRA, are not allowed. I suppose you could get into an esoteric discussion of whether a self employed person, for example, could make contributions but then not claim the deduction. While not an after tax contribution in the normal sense, it's possible that this could subsequently be considered basis when distributed. Or maybe not. Perhaps some of the experts in this area can help you out on that.

Just noticed the numbers don't match the title of the post. I had already typed this before I saw page 2 of the census, which had 4 more employees. But the question is the same. We had a question come up from another TPA who does not handle cross tested plans. He has a client who has 12 employees, (including the owner) and wants to have 12 groups. We've never administered a plan on this basis. I know at one time there was some discomfort that the IRS might consider this a "deemed CODA" and there were also dark hints, rumors, and mumblings about it being a lack of a definitely determinable benefit. Sal Tripodi makes reference to a 2001 ABA conference where the IRS did NOT raise the CODA question, but I don't have a transcript of the question and IRS response. While such a design doesn't necessarily thrill me, I also cannot find any guidance that specifically prohibits it. If after consulting with his tax/legal counsel, the client still wants to pursue, they can full for a full determination letter and we'll see what the IRS does. My question is - have any of you ever had a client receive a determination letter on a similar basis? Or had one turned down? I'd rather benefit from someone else's misery than experience it on my own...

Infinite are the arguments of the mages. Thankfully, we depend upon the client and their attorney(ies) to make the decision! We just operate on the basis they instruct us to. But the subject does provide opportunities for interesting discussion. Thanks for sharing your viewpoint on this.

Mbozek - I freely admit that much of this is beyond my understanding, so I give you instead some excerpts from S. Derrin Watson, who in my humble opinion is one of the foremost practitioners and acknowledged experts in this arena. And I'm picking a couple of excerpts, which doesn't really do justice to the logical progression and development of his arguments. "Community property ownership is direct ownership. Under the laws of each community property state, if stock is held as community property, each spouse has an equal ownership of the stock." "This means that both spouses have direct ownership in community property assets. Their ownership does not come through attribution. It comes by operation of state law, just as any other ownership does. This was the holding of the court in the Aero Industrial case..." "Some practitioners take a different approach, believing that community property ownership should not be treated as direct ownership. These practitioners feel that Congress "clearly intended" to create a spousal exception and would not have wanted to make a difference between community and separatre property states. The author disagrees. Congress knows how to put community property and separate property jurisdiction on an equal footing and did not do so." To support that last line, Mr. Watson has a footnote to "Compare e.g., IRC 219(f)(2), 402(d)(4)(E), 402(g)(6), and 408(g)." He does go on to say that there is a way around this rule. "They can have their stock treated as separate property. Usually this is accomplished through an agreement between the parties, signed before or after the marriage." Note: He then goes on to warn about serious side effects of such an agreement, (in a divorce, stock basis after death, etc.) and says that it should not be considered unless husband and wife are separately represented by experienced counsel. So, we get some clients (the vast minority, to be sure, but some nonetheless) who get a legal opinion that they are not a CG in the CP state. But most, when they get an opinion, find that their attorney agrees with Mr. Watson's conclusion.

"Truer words were never spoke!"

I would say they can take a distribution. Assuming that it is a valid QDRO, the participant is an alternate payee, and receives treatment under IRC 414(p) and ERISA 206(d). I'm not aware of any additional guidance restricting the ability of a plan participant to take distribution of an amount awarded as an alternate payee under a QDRO, just because he is also a plan participant.

Blinky - while I agree with you on the community property issue, you'd be surprised at how many don't. We've had clients come to us with legal opinions saying they are not a controlled group in this situation.

But once the client receives the IRS notice of deficiency for the 100% second tier tax, he has 90 days from the date of that notice to correct the deficiency and have the 100% tax abated. At least as I understand it. Have I got that right? I frankly find the statutory language and cross referencing between 4971, 4961, and 4963(e)(1) a tad confusing.

On the other hand, as I think about it a bit more - given that you have to file regardless of whether under DFVC or not, are you any worse off by attempting this approach? I mean, if they accept it, great. If they don't, you have to give them the usual sob story and hope for the best - at least you've demonstrated an attempt at compliance. Is there a potential downside that I'm overlooking?