Belgarath

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...

I deal with qualified retirement plans, so my question here is purely as a consumer. The 11th circuit U.S. Court of Appeals barred a participant's state malpractice claims, and instead said that it falls under ERISA. The physician recommended treatment was denied by a CIGNA HMO "approval nurse," who allowed the use of the recommended antibiotic, but denied hospital admission and said that it must be treated on an out-patient basis. Bad things then ensued. For regular people - what are the implications of this? If justified, who could you sue, and for what? Is this decision sort of anti-consumer, or is it relatively neutral, and just requires a suit in a different venue? Does it really limit your recourse, or just sort of change it? Just curious - not planning on any lawsuits! Thanks.

I am NOT saying this just because I'm a BoSox fan, but I found the Yankees organization request for a forfeit to be disgusting and completely lacking in class. Glad to hear that at least you came through it relatively unscathed. And we'll all hope that Ivan falls apart or heads back out into the middle of the Atlantic. Good luck!

Appleby - FWIW - I looked into this a bit - mostly because the concept of someone disclaiming funds that were otherwise coming to them is so alien to me, and it piqued my interest. I say, show me the money! But the disclaimers by the executor in the case of a nearly simultaneous death, for example, made a lot of sense. I don't read the 25.2518-2 reg as specifically requiring deference to local law. But maybe this comes into play in certain circumstances if it is an executor doing the disclaimer? This is way out of my bailiwick, so you'd have to be charitable to even rate my opinion as superficial - it probably isn't even that good. Here's a link to what I thought was a very good article, that told me far more than I wanted to know... you may find it interesting in your deliberations. It appeared to me, on a quick skim, that perhaps the issue of "severability" under local law is no longer an issue? (if that was even what you were referring to - perhaps not) Happy reading! http://www.fpanet.org/journal/articles/199...p0599-art13.cfm

I don't know that there is a definitive answer. There are definite opinions, but which opinion you choose is another story. As Kirk points out, referencing RR 65-295, one opinion is that such a participant is not considered a beneficiary under the plan, and hence the compensation may not be usable in calculating the deduction limit. Alternatively, one could interpret 1.410(b)-3, which states that an employee is considered as benefitting if they are eligible to defer, as an argument that it is allowable to consider the compensation of such employees when calculating the limit. Has anyone had any discussion with some of the IRS movers and shakers on this question? Maybe they figure that 415 will limit the allowable allocations to such an extent that this deduction question doesn't turn out to be a big issue?

Interesting question came up. We have a client (actually former client - we cancelled our contract with them because they would never get us data on time) who is moving their administration to a bank. According to them, the reason they are moving the admin and assets to the bank is that the employer is taking out a business loan, and the bank will give them a better loan rate if pension admin and assets are with the bank. In case this ever comes up with a client we want to keep, I'd appreciate opinions on this. It certainly seems like a prohibited transaction to me, and I can't locate a PTE that seems to allow it. Any thoughts? (take this with a grain of salt anyway - this client is a bonehead, and may well be misunderstanding what the bank said or is doing.) Thanks.

That's correct - no life insurance allowable in an IRA.

I'm not an attorney, but I must say I find it hard to believe that this isn't somehow involving criminal action. Forging somebody's name on a document has to be illegal somehow. Any of you attornies have an opinion on this? Did you contact the District Attorney? Or maybe the NASD/SEC could spike his wheels if he's playing any games with variable annuities? I admire your forbearance, but if he does it with you, who knows what other illegalities and fraud he is perpetrating? Seems like he ought to be stopped...

If he doesn't have a business, then there's a different issue. I do believe there must be a legitimate business in order to sponsor the plan (whether zero formula or not) in the first place.

See PLR 200027058. I also believe the IRS has publicly stated, at ASPA meetings or some such forum, that it is permissible.

Fascinating! Horrifying, but fascinating. I can't wait for the next installment. Tell me, is he going to look good in his prison uniform? "But he that filches from me my good name, Robs me of that which not enriches him, And makes me poor indeed." Edited - I couldn't remember the exact lines, so I paraphrased earlier.

Lori - re the timing of signing the deferral election - 1.401(k)-1(a)(6)(ii)(B) deals with this issue for partners. Most TPA's that I know of interpreted this to apply to sole props as well, even though they weren't specifically mentioned. It seems unlikely that they would be treated differently. Apparently, the IRS would tend to agree, as in the PROPOSED regs (see prop. reg. 1.401(k)-1(a)(6)(iii) they specifically mention sole props as well.

I agree with jquazza. However, there are those who believe that this treatment is only for unincorporated partners, and does not extend to the sole props.

"a rather persistent insurance man" Is there any other kind? I can remember my grandfather, when I was in high school about a quarter of a century ago, singing some little ditty that went something like, "there's no one with endurance, like the guy who sells insurance..." But on to your question. I'm not sure it lends itself well to generalities, but certainly there are many situations where the insurance premium is deductible for the prior year. Example - 2004 calendar year plan and fiscal year, end-of-year plan valuation. You wouldn't even know how much insurance to issue, and hence the premium, until sometime in 2005 when you complete the valuation. Most of the plans I've seen backdate the insurance to 12-31-04 in this situation. And as long as the premium is paid on or before the tax filing deadline (with extensions) it should be deductible for 2004. Obviously there are many, many possible permutations to the above scenario, so I wouldn't rely on it too heavily!

And just to expand upon Rbutler's observation, many unincorporated sole props want help in calculating the proper contribution for themselves. We don't do any admin on SEP's, but we get this request a lot. If we ever decided to do this, we would certainly bill the employer for our services.

Believe it or not, a CPA is asking me the following question. Suppose a one person S-corp has a pension plan with a required contribution of 200,000. The W-2 salary is 100,000, and there is other "pass-through" income which is reported on the owner's Schedule C. Question was: can the entire 200,000 be deducted if it creates a loss? Well, I don't know. I'm not a CPA, and I don't know if there is such a thing as a "loss" allowable in an S-corp. It would seem reasonable that there is, to the extent that there is any basis on the part of the shareholder. Anybody with knowledge in this area care to venture an opinion? I searched some past threads, but the ones I looked at weren't definitive. Thanks in advance - any any cites, if appropriate, are also appreciated.

It is fine to fund solely with annuities. See 1.412(i)-1(b)(2)(i) - "The plan must be funded exclusively by the purchase from an insurance company or companies (licensed under the law of a State or the District of Columbia to do business with the plan) of individual annuity or individual insurance contracts, or a combination thereof..." You can also use group contracts that satisfy the regs under 1.412(i).

Thank you!

Don't know any details yet, not a plan we administer. But apparently a participant died, and the beneficiary of the plan is a trust. Don't know who the trust beneficiary(ies) is/are. There was stock in the participant's account. Assume for the moment that it was NOT employer stock, and assume a non-spousal beneficiary. The question was - if the stock is transferred directly to the trust, is there current taxation on the whole amount, the net unrealized appreciation, or nothing whatsoever until stock is sold? I'd appreciate any thoughts on this. Thanks.

Actuarysmith - yes, you are correct, and I agree. As I read this over, I'm not really sure what was running through my head, but it was wrong. I suspect I was thinking more along the general lines of someone with a 125.00 account balance not being able to purchase a specific mutual fund that has, say, a 250.00 minimum, rather than the specific question. But the situation described in this question certainly seems to me to be a BRF problem.

Yes, but to paraphrase the (probably apocryphal) quote attributed to Yogi Berra, "90% of this business is half mental." You could probably also make a case that all exercise is mental...

A profit sharing plan is allowed to have incidental life or accident or health insurance for the participant or his family. 1.401-1(b)(1)(ii). So I see no problem with this as long as the premium stays within the incidental limts. We don't allow insurance in our 401(k) plans anyway, because it is such a PIA to attempt to administer, but that's another issue.

I looked into this a while back. I believe this is due to 1.411(a)-7(d)(4)(ii)(D) - it appears to say that a distribution will be deemed to be made on account of termination of participation ONLY if it is made not later than the close of the second plan year following the plan year in which such termination occurs. In other words, by definition if the payout takes place after this period, it is not "on account of" termination of employment, and is therefore deemed to be on account of PLAN termination, and therefore 100% vested. If the timing is such that the payout is made within the requisite period, then I think you have a good argument for not 100% vesting, but if after that, then I think the IRS will insist upon the 100% vesting.

The reason we see most often is the ERISA protection of the assets. Lots of small employers - particularly doctors - tend to find this important. We've had lots of inactive plans where we actually suggest that the client may want to consider terminating the plan rather than paying admin fees forever, and usually they give us the reason that they want the assets protected, and that annual admin fees are a small price for the safety.

Sal Tripodi has reference to an IRS Q&A session from 1998 at the ASPA Annual Conference. The Service apparently stated at that time that a "dormant" entity may be the sponsor of a plan. Perhaps you could obtain a copy of this and this would be acceptable to them? This answer seems to be common sense anyway - I'd be interested to know how this reviewer justifies his ill considered opinion. For an unincorporated, yes, I can see this, but not for a corporation. Good luck!