Belgarath

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?

Ok, here's what the DOL said. And by the way, this was from their Washington office - the local district office bumped my question up to them. Very pleasant lady, who sounded like she knew what she was talking about. For illustration, assume 4 years where an EZ should have been filed, and 2 years for a "regular" 5500. The DOL said you could not file all 6 under DFVC - only the 2 years of "regular." No surprise to that. However, I further inquired as to what would happen if he filed all 6 years using a "regular" 5500 form, instead of filing an EZ, even though he is eligible to file an EZ. She said that the DOL WOULD accept a DFVC filing for all 6 years in this situation. Now, that makes no sense to me, but that's what she said. She also said that this might only work if the employer had NEVER filed an EZ, because it would cause "confusion" with the EFAST system. So there's what I was told - take it for what it is worth!

Great. Thank you very much!

Thank you for the responses. But apparently, there are some situations where this doesn't work. I just spoke to the claims department of an insurance company involved in this question. They said that some of their annuities used for funding IRA's do NOT allow the surviving spouse, in this situation, to name a new beneficiary. But most of the newer ones DO allow this option. Could this be possible with mutual funds as well? In other words, perhaps it is not a matter of law, but the controlling language in the IRA document - so that Merrill Lynch could allow it and Vanguard would not, etc.?

I've searched some prior threads, and some of them come close, but don't directly answer my question. Suppose the IRA owner dies. Spouse is beneficiary, and their daughter is contingent beneficiary. Spouse does not want to roll the proceeds to her own IRA, as this will restrict her ability to withdraw funds without incurring a 10% penalty. However, she wants to be able to change the contingent beneficiary listed in deceased husband's IRA. Say she gets remarried, for example - she wants funds to go to new husband - not the daughter. Can she do this? While one part of me thinks that as long as the IRA is maintained in the husband's name, no one can alter a beneficiary designation, it also seems that as primary beneficiary, since she has the right to withdraw the funds at any time, she should be able to name anyone she wants. Who controls - current bene or the husband's previous and recorded designations? Thanks!

I think it's a very good question. Probably because I am actually waiting for a call back from someone at the DOL on this very same question! When (or if) I receive an answer, I'll post it here. Personally, I am expecting a negative response. And even if someone says, "Yes, you can do this" it doesn't necessarily mean that if you file on this basis it will be accepted. They might just say "oops - someone gave you a wrong answer." But if allowable, it would be well worthwhile to amend the plan to immediate eligibility, hire a part time person and contribute a few bucks for them, then file under DFVC. I just don't think it'll be allowed for those years that there were no employees. I did note that if you have several years of delinquent forms, with only 1 year as a large plan, that you must pay penalties under DFVC as a large plan for ALL years. While that has nothing to do with the question at hand, it does indicate to me that there's perhaps an inclination to hit you with the worst while still remaining within the DFVC parameters. If so, seems even more likely that they wouldn't allow the proposed solution. But I'm making a pretty tenuous connection! Anyway, we'll see what they say.

I don't recall it, but that doesn't necessarily mean I'm not old enough. Might just mean that my mother didn't buy it. My smart*** teenage son (who must inherit this tendency from my wife - couldn't be from me) maintains that I was born sometime in the Dark Ages.

All true Red Sox fans are eternally hoping for the best, and expecting the worst. So even though we secretly hope that this is the year, we'll publicly predict a complete collapse. That way we won't be too disappointed. I call it optimistic pessimism. I think it's pretty much the way New Englanders are about the weather. For example, if you say to a Californian, "Sure has been a beautiful summer" the Californian will agree. A New Englander will respond, "Yeah, but we're going to pay for it - it's going to be a hard winter." But if you say, "Boy, has it been a lousy summer" the New Englander will respond, "Yeah, and that means this weather pattern will carry over to winter." If you say, "This winter sure was warmer than usual" the New Englander will respond "Yeah, so the whole darn summer will be hotter and more humid than usual." See how it works? Same with the BoSox. So they are going to collapse in September. (But SSHHH - maybe THIS is the year...)

Agree with prior posts. There are also fun things like voting vs. nonvoting stock that can get you burned in a hurry. That's why I always recommend an attorney's opinion.

This gets a little tricky, I think. Is the purchasing company maintaining the existing plan? I believe that GCM 39824 says that if there has been an ASSET purchase, as opposed to a stock purchase, that there is a "severance from employment" with the prior seller, unless the purchasing employer either continues the old plan as a new plan sponsor, or if the assets are directly transferred in a trustee-to-trustee transfer (rather than an elective transfer or rollover.) But I'm going from memory without rereading it. The document probably defines a "distribution event" or "distributable event" or something along those lines, but may not be specific enough when trying to distinguish between a stock purchase and asset sale.

Be careful on that 2004-58 extended date. I don't believe it applies in all circumstances. See the final two paragraphs of the section "Extension of Effective Date" of that Announcement 2004-58.

This is very interesting. I don't have any answers, although a literal reading of 411(b)(1)(G) does not, to me, support the position that the IRS appears to be taking. I wouldn't say that the reduction described is "on account of" any increase in age or service. It's on account of a decrease in pay. Do you interpret the IRS position to be that you'd compare the highest accrued benefit under the "old" high average salary with the benefit calculated under the "new" high average salary, and you'd get the higher of the two? Or are they saying that you'd apply the highest average salary to all years of service? I'd think the former...