Belgarath

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!

I'm just hoping for that wild card. It does seem that the Yankers may be a bit more vulnerable in a short series this year - starting pitching leaves something to be desired. Although it doesn't seem to have slowed them down much... I just hope they don't get Randy Johnson!!!

I liked the title so much that I just had to respond. Seems to me like EVERY group I work with is uncontrolled... First, my longstanding advice is to consult an ERISA attorney. I'm not too swift on these CG/ASG questions. But FWIW, it seems likely that this could be an ASG. Under the regs, a business is automatically considered a service organization if it engages in the field of "health." While I'm by no means certain that an assisted living facility qualifies, it would seem reasonable that it might - I suppose it might depend upon the level of "assisting" that takes place. If it just means grocery shopping, maybe not, and then you'd have to get into the capital angle. As to #2, facts and circumstances, unanswerable, (by me, anyway) without specific knowledge of situation. #3 - Agree. #4. It might, in terms of "regularly performing services" requirement. Again, I think facts and circumstances. Good luck! And the client could request a determination letter on this, maybe, if necessary?

Let's just say that I'm far enough North of Boston so that we outnumber the Yankee fans by about 10 to 1. 20 to 1 would be better, but life isn't perfect. New England is just one state anyway, right?

Agree.

Ah - well then, FWIW, in the absence of specific guidance, my opinion is that you can't take a hardship withdrawal in this situation. Hardship withdrawals are meant to be in-service withdrawals in situations where distribution wouldn't otherwise be permissible. Since a complete withdrawal can be taken upon termination, then I don't see how it could be classified a hardship. But perhaps someone else can come up with a different rationale that would help you out.

Tom - I would love a good explanation of the theory of relativity. Having read science fiction since I was a pup, I accept it but still don't understand it! I even bought a book called "Einstein's Universe" to try to solve the mystery, but I always get stuck on the part where someone in a starship at the speed of light doesn't age... simply cannot comprehend how biological and chemical processes of cell ageing can be different for two people just because one is traveling fast. Besides, I apparently am not subject to the laws of relativity, since I'm getting younger every year.

A disclaimer of a portion of the benefit? Just a guess...

Not sure about the PBGC coverage without checking first, (my recollection is that coverage would be required) but definitely not eligible to file an EZ - must file a 5500.

flosfur - well, you have now! As I said in my original message, I didn't have a copy of the 1987 regs handy when I was typing the response. But I had a few minutes this morning, so I dug out a copy. See 1.401(a)(9)-1, Q&A F-3(e) of those regs. Also, See 1.401(a)(9)-6, Q&A 1(e) of the 2001 regs. Aside from the plain language of the regulations, it's also instructive to note the preamble to the 2001 regs. Under the "annuity payments" section, there is a paragraph stating that ,"One of the rules in the 1987 proposed regulations that the IRS and Treasury are continuing to study and evaluate is the rule providing that if the distributions from a defined benefit plan are not in the form of an annuity, the employee's benefit will be treated as an individual account for purposes of determining required minimum distributions. The IRS and Treasury are continuing to consider whether retention of this rule is appropriate for defined benefit plans..." I don't know how it could be any clearer that using this rule was a reasonable interpretation, since the regs specifically provided for it, and I have no hesitation about referring anyone to these sources in support of this.

Not sure I see the point. If the person has terminated employment, can't they take a withdrawal anyway?

I'll give you thoughts. I wouldn't dare attempt to classify it as knowledge. Just on the surface, it doesn't pass the smell test. Under the guidance provided in RR 2004-21, it might be argued that the rights of the NHC when purchasing the policy from the plan, or having it assigned to them, are not "inherently equal or greater than" the rights of the HC. I'm not sure how you would quantify or put a value on this "right or feature." But I'm inclined to think that the IRS could indeed find justification for calling this discriminatory if they wanted to. I find it hard to justify in a DB plan - since the employer has to fund the full benefit to which the participant is entitled, having a life policy that is paid up to a larger extent than the policies on the NHC doesn't seem justifiable to me. In a DC plan with self-directed investments, then I wouldn't see a problem with it, as all participants would have the option to do so if they wished.

I agree with MGB that it must be considered a "reasonable interpretation." For those who wish to continue to use the "account balance" method for 2004 and 2005 as a reasonable interpretation, I refer you to the Proposed Regulations, published in the Federal Register on December 30, 1997 (62 FR 67780) and amended on March 25, 1998 (63 FR 14391.) (Actually, I believe the question # referenced below wasn't changed, and probably appeared in the proposed regulations issued July 27, 1987 (52 FR 28070) but I don't have those handy. But I think the 1997 version only amended D-5 and D-6, and added D-7.) Specifically, Q&A F-3 (e), which states, "If distributions from a defined benefit plan are not in the form of an annuity, the employee's benefit will be treated as an individual account for purposes of determining the minimum distribution. See F-1 to determine the minimum distribution if distribution is being made over life expectancy." As an editorial comment, the current IRS position that it was never allowed seems singularly stupid to me. But what the heck - some of my own positions seem singularly stupid to me when I look back at them. The difference is - no one has comply with my positions!

Just an update with a couple of thoughts that occurred to me. It seems reasonably clear to me that Corporation A can continue the SIMPLE for 2004, while excluding B & C under 408(p)(10). Now, can C cover employees of B, while excluding employees of A under 410(b)(6)©? In other words, can you pick and choose which businesses to include and exclude under 410(b)(6)© transactions, or must you treat them all the same? I believe you can pick and choose, but maybe I'm missing something. Thanks.

Corporation A has a SIMPLE, to which contributions have been made in 2004. Corporation B has no plan at all. Corporation C purchases both A & B, in mid-2004. C has no plan at all. I don't have much in the way of specific information yet, so I'm considering generalities at this point. Corporation C may want to establish a 401(k) plan for 2004. I do not yet know if they want to include A & B for 2004, or not. This leads to several questions. Assuming they DO want to include A & B, it would seem reasonable for A to "terminate" the SIMPLE plan. But, if the corporation A still exists, even though under new ownsership, can this be done? I'm inclined to think it can't. If you think it can, then I assume you'd have to consider it for 415 limits, etc? If C does NOT want to include A & B, then I think they can simply establish a plan, and exclude the employees of A & B under the 410(b)(6)© exclusion. They can amend this away for 2005 if they want to, since the SIMPLE can be terminated for 2005. This seems like the cleanest way to handle the whole situation, although it may not be precisely what the client wants to do - don't know yet. I also don't have census figures yet - so I'm not sure if it would be possible to include B while excluding A for 2004, if that is desired. Any thoughts would be appreciated. I have a feeling that I'm looking at this cross-eyed somehow. Thanks!

"A potential client has what sounds like a 412(i) plan. I'm told its a DB plan funded entirely with insurance." I'd add that IF this is true, they already have problems. Even before the recent IRS guidance, it was not permissible for a 412(i) plan to invest exclusively in life insurance contracts. 412(i) plans are subject to the incidental limits on life insurance purchases just like any other DB plan. There are, or were, some misguided "advisors" who interpreted the code to allow 100% to life insurance, usually with the sole purpose of lining their own pockets. I wonder if they are sleeping well at night now...

Just an update in case anyone is interested. Had the same blasted thing happen again. Found the following tidbit in a writeup on the Web by Pillsbury Winthrop LLP. Naturally, I cannot vouch for the accuracy, although it seems to me to be common sense. Employee vs. Partner Status In the only case to ever recognize dual status of a partner/employee, the Fifth Circuit concluded that a taxpayer that received a share of partnership profits plus a fixed salary for his services could exclude the value of meals and lodging from his gross income under Section 119. The Service took a contrary position in Revenue Ruling 69-184, concluding that bona fide members of a partnership could not be employees for purposes of FICA, FUTA, and withholding. The Service recognized that Such a partner who devotes his time and energies in the conduct of the trade or business of the partnership, or in providing services to the partnership as an independent contractor, is, in either event, a self-employed individual rather than an individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. The Chief Counsel's office, in connection with the preparation of Revenue Ruling, 69-184, asserted that a person cannot be both a partner and an employee of the same partnership for any income or employment tax purposes. More recently, the Service ruled that health insurance premiums paid by a partnership on behalf of a partner for services rendered are taxable to the recipient partner and deductible by the partnership as a guaranteed payment. Thus, a partner cannot also be an employee of the partnership. In determining the taxation of a profits interest transferred to a service provider, Section 83 and Subchapter K should be mutually exclusive.

For your specific question, you might want to take a look at 2530.200b-3, which deals with the permitted hourly equivalencies for such situations.

Well, what about 1.401(a)(17)-©(1)? In other words, if the plan is silent on what compensation is used for performing the ADP test, then I think you can use the 401(a)(17) limit. If the plan has specific methodology defining compensation for this purpose as the 170,000 that you use for otehr purposes, then I think you are stuck.

AndyH - on #2, I'd simply add an additional caution that some plans don't allow for this. They have the same type of safe harbor language that you see in prototypes, where you'd automatically bring in participants to pass 70% testing. I don't know how common this is in age-weighted plans, because I don't see many of them, but I have seen it.

Is there such a thing as a prototype SAR-SEP? At one time, at least, the IRS was not accepting applications for prototypes on the SAR-SEPS, and the 5305A model SAR-SEP was the only option. And this prohibited maintaining another plan. However, this may have changed long ago - has anybody ever seen a prototype SAR-SEP? Or if not, do you know if a prototype/custom SAR-SEP is an option?

Just curious - do many employers allow for direct rollovers of loans INTO their plans? Seems like a lot of potential hassle. We don't allow it in our documents, but I was curious as to how many do,and if many employers choose to allow it if the document gives them an option not to allow.

Thanks. I will ask this, although I suspect the silence will be deafening.

There's a debate going on about a question to which I don't know the answer, so I'm staying out of it. But curious. Thought some of you may have an opinion... Corporation with 2003 fiscal year makes contribution in February of 2004, intended to be a deduction for 2003. Accountant files 2003 tax return and forgets to take the deduction. Question is, can they file an amended return for 2003 to claim the deduction? 1 faction says yes, don't be ridiculous, of course you can. 1 faction says no, the corporate return can't be amended to claim the deduction for 2003. Neither faction is presenting any cites or anything to reinforce their opinion. I have no firm opinion, although I went on the IRS forms and publications website and gave a quick scan through the 1120 and 1120x instructions. There was nothing that jumped out at me that appeared to prohibit filing an amended return to claim the deduction for 2003. And frankly, I can't see any common sense reason why you couldn't. Anybody know the answer to this? Thanks.