Belgarath

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!

I will leave the question of Fiduciary vs. E&O to the legal experts - which type of ins. is appropriate in all or specific situations is not my bailiwick. Purely for informational purposes - we've had clients audited by the DOL in the past, and a couple of them have paid penalties for fiduciary breach. In all cases, however, the DOL has looked at our legal agreements with clients, and the facts and circumstances of each case, and they have immediately determined that we are in no way a fiduciary or operating in any fiduciary capacity. We're very careful to avoid any fiduciary actions. Can someone argue that we are acting as fiduciaries? Sure - you can bring suit and argue anything. If the fiduciary liability insurance isn't too expensive (and if the ins. companies will even issue it to someone who is not a fiduciary?) maybe it would be a worthwhile safety net. Have any of you (TPA's) ever had to pay up because you have been found to be operating in a fiduciary capacity? I'm under the impression that fiduciary liability insurance costs are skyrocketing - so it might be a pretty expensive safety net? And would you have to purchase this coverage for each plan, or is there "blanket" fiduciary coverage for TPA's that would cover all plans you administer?

I've never seen this one - Client had a document - non top heavy plan - that called for 7 year vesting. I haven't seen one of these in a long time! Anyway, prior TPA evidently did admin based upon 6 year graded. So, some terminated participants have received overpayments in the past, and some remaining participants received smaller forfeitures than they would have been entitled to under the terms of the plan. I don't know the scope of this yet - # or % of participants, dollar amounts, etc. - assuming for the moment that this could be self-corrected under Rev. Proc. 2003-44, how would you correct it? Appendix B, .03 gives specific corrections for vesting failure situations where a participant receives too SMALL a distribution, but not the reverse. So, should this not be considered a vesting failure, but simply an overpayment, and be handled accordingly according to .05 of Appendix B (which in this case refers you to 2.04(2)(a)(iii)?) That's how I'd be inclined to handle, but thought I'd see if anyone has run into this before. Thanks.

I'm not advocating this, but in an emergency situation, could you: 1. Roll the funds back into the IRA. 2. TRANSFER the IRA to another custodian. 3. Then withdraw from the new IRA? In other words, if you take advantage of a transfer (which I believe you can do an unlimited # of times) does this make it a "new" IRA, and therefore you can go through the whole exercise again in the same 12-month period? Or is it still considered the same IRA? I would think the former.

One additional note of caution: If I had 5 dollars for every time I've seen a disaster from setting up a "one person" plan, using a brokerage house or ins. co. document, and expecting to never have any administration, I'd be wealthy beyond imagination. Yes you can do this in theory, but in reality, many documents don't get updated for law changes, they take impermissible loans or withdrawals, etc., etc... Someone who knows something has to monitor such a plan, whether client, accountant, TPA, whatever. If they go off half-cocked, it will likely come back to haunt them, at a far larger expense than the small benefit they may gain from "easy" loan availability.

IMHO - taking into account the parallel provisions of 410(b)(6)© and 408(p)(10) - 1. Yes - but only for the transition period. 2. There is a cutoff. The transition period is through the end of the first plan year beginning after the transaction. So assuming calendar year, ok through 12-31-05. 3. Nothing has to happen this year.

I don't think it is just you. For a few pay periods, yes, I could understand it. But an extra 10% for two years? I agree with 401der - it's there, can't be reomoved, so sorry, and have the employees thank the employer for the unanticipated largesse. Is this employer currently hiring? I can get them a batch of applicants!

I should add that I was making an assumption (perhaps unwarranted) that Mr. D is an adult.

As always, I recommend consulting an ERISA attorney. But since I no longer have any ego or dignity (after enough years in this business) and I don't mind appearing to be a bonehead, I'll give you my opinion. No. I don't read 1563(e)(6)(B) to make this a controlled group. Neither mother nor grandfather owns MORE than 50% of the stock in XYZ, therefore there is no attribution between mother and grandfather, and no attribution from Mr. D. to either mother or grandfather. No doubt someone else can point out the flaws in my thinking.

Aren't you now required to use the Uniform Lifetime Table? (Unless a spouse is more than 10 years younger)

Maybe not an ASG, but don't you now have a controlled group? And therefore the desired arrangement gets thrown out the window?

Jquazza - thanks - actually, I "knew" that the faster traveler just ages more slowly - I just don't really understand it. And I tip my hat to all of you who are smart enough to comprehend it! It's too late. My brain no longer has the capability (not that it ever did) to grapple with these mysteries. I'm now reduced to such simplistic questions as, "If a man speaks in the forest, and his wife isn't there to hear him, is he still wrong?" At least I can answer that one. And if not, my wife can answer it for me.

Two plans. Don't know if gateway is a problem - at this point, the whole question is purely theoretical. Of course, I usually find out three months later that the "theoretical" question was based on a real situation... But I suppose that it might mean the employer has to put in as much as 2% more in the age weighted, if gateway will apply. (I haven't seen many AW, but they were always top heavy, so I'm assuming min 3% anyway.) So I'm not sure if this means that gateway automatically applies, or will it apply only if it has to move to the average benefits test?

Say you have an age weighted PS plan. The plan never gets to the average benefits test. And gateway doesn't apply. Now you add a 401(k) plan. And let's assume that it is a safe harbor nonelective, so there are employer contributions that are not 401(k) or (m) contributions. Does this move the age weighted plan into having to pass the test for gateway?

Interesting. Now, assuming for the moment that there is no contingent beneficiary as Appleby stipulated, then am I correct that a disclaimer is better than a gift, at least from Martha's viewpoint? Because without the disclaimer, Martha pays income tax on the whole 75,000, plus uses up a portion of her lifetime allowance - whereas the disclaimer gets the money directly to Mary Jane with no adverse consequences to Martha? Have I got that right, or is there other fun stuff to be considered?

Clever!