Belgarath

"Have the client sign a special letter of indemnification that we had advised against it. In extreme situations we resign from the case. I can think of maybe a dozen cases in the 30 years I have been in this business where this has saved our bacon, not to say our jobs." We generally use the same approach that Rcline suggested above. And we have frequently terminated our administrative services contract with a client who insists on dubious transactions. They just aren't worth it.

I don't begin to know how to handle these situations. and they are varied enough so that even a solution that seems resonable in one situation won't quite "fit" another situation. It seems clear that the employees, whether illegal aliens or not, must be covered under the plan if they have U.S. source income. And they are entitled to receive a distribution when they terminate employment. But then the rot sets in - in real life administration you get into an endless circular flow, with conflicting legal obligations which can't necessarily be reconciled: They are entitled to a distribution. But how can you pay them and withhold when they can't provide you with valid identification? But they are entitled to a distribution.... First, I'd employ legal counsel to guide me through this maze. Second - I'd hope that they never apply for the benefits. If they don't, treat them as a forfeiture to the plan. Finally, if they do apply for benefits, either upon termination or at some future date, I'd go back to #1 and rely upon advice of counsel. I think it's a no-win situation, which is crying for guidance. Unfortunately, I have little faith that any guidance will be clear, concise, and administrable. Congress and/or the IRS have a history of taking small problems, and while making a good faith attempt to correct them, making them worse.

Ok, I decided to quickly look into it a bit. Note that I said quickly - it was by no means a careful analysis of the rules! Take a look at 1.416-1, T-12. I think this will give you your rules on whether or not it would have to be counted. If the deceased would have been counted as key as of the determination date, then it has to be included. (I.E. - did she have 1 year of service in the 1-year period ending on the determination date).

Interesting question. Without doing any research to support my opinion, I'd classify this as "related" and therefore must be counted.

Here's my 2 cents worth - and overpriced at that, no doubt. I agree with Archimage. I suppose that if you have a PS document that says if a board resolution is made to contribute a certain amount that that amount is then required, and it doesn't allow the employer to change that or rescind the earlier board resolution, then not contributing that amount would be an operational error. I have never seen such a document, but it certainly doesn't mean there are none. I have seen documents where the contribution is fixed - if you have profits, then a set percentage of the profit will be contributed. But in our documents and most of those I have seen, it is completely discretionary. Aside from a possible state law issue (like Archimage, about which I know nothing) or unusual document situation such as noted above, I'll never be persuaded that the contribution must be made just because there is a resolution saying they will contribute "x" dollars. Yes, tax returns must be amended, etc., but that's certainly not an insurmountable difficulty.

I'm not surprised that you get different answers, because it can be an extremely confusing set of circumstances - particularly where there are plan/fiscal year changes! IMHO - 1. It certainly can be correct. (And in my experience, this is the most common approach.) The deduction can be taken for either 2001 or 2002 fiscal year, depending upon what they want and what their CPA advises them. 2. If they want to deduct it for 2001, the contribution must be made by the tax filing deadline(including extensions) for 2001. 3. Minimum funding standards are based upon the plan year, not fiscal year. Of course they don't apply to the PS plan, but for the MP, it is 8-1/2 months after the end of the plan year.

Katherine - where at the IRS would you send this letter? In other words, if you are doing this voluntarily, you have to file forms with EBSA. What address or division of the IRS would you use to send the letter to the IRS to ask them to waive the penalty? Oddly enough, I just ran into a nearly identical situation, and I'm going to mention your approach for when they discuss with their tax/legal counsel. Thanks.

Thanks! I'l pass this along to her.

Yes, Q&A-4. But it seems unlikely that the 40,000 exactly matches the RMD amount, so if the 40,000 exceeds the RMD amount, the issue of distribution without consent is still there. Also, this Q&A-4 assumes the plan has made "reasonable efforts" to obtain consent. I suspect that might be hard to prove here.

I interpret it to be the 2 years from when the employee first starts participation with A.

I'm going to climb up on my soapbox a bit here, although I think I'm preaching to the choir. The IRS has really gone over the edge on this BRF issue. They put the plan fiduciary in a very difficult position. As Jon Chambers correctly notes - surrendering a good investment, while avoiding potential nondiscrimination issues, raises other issues of fiduciary responsibilities. A good investment should not be forced to be liquidated because the IRS has stepped beyond the bounds of common sense. For plans with individual accounts, there is no reason why a mutual fund/investment company shouldn't be able to make additional options available to larger accounts. The NHC with the smaller account isn't being "denied" anything that would otherwise be available - and if their account ever reaches the requisite minimum, they can enjoy the additional features as well. Revenue Ruling 2004-21 is yet another example of this being taken to extremes. While issued to legitimately curb some gross abuses, (that needed to be curbed!) it also sweeps legitimate, nonabusive situations into the net. A mutual fund allowing additional investment options for accounts over a certain level, while not providing them to small accounts where such services would represent a financial loss, or insurance companies refusing to issue a certain policy type below a minimum face/premium amount, should not be BRF violations!

Pax, I agree! Following is an excerpt from a letter I wrote to a client last year, who had several questions on calculating funding for "Regular" DB plans and 412(i) plans: "...in a very general way, IRC Section 412 concerns the minimum funding requirements for a DB plan (the actual calculation of which is a combination of mathematics, necromancy, and artistry more commonly known as "actuarial science"..."

A lady who works with me asked me a question about gains on stock that was gifted to her originally. This is a non-pension issue, and I have absolutely no knowledge in this area. So I told her I'd post her question, to see if any of the experts here can either provide some feedback, or provide some reference sources? Thanks in advance for any feedback! Here's her question: Situation: 366 shares of bank stock were gifted to me in the early 1980's. Value was approximately $8000. Dividends have been paid in cash so they did not purchase additional shares. I have not redeemed any shares since I have owned it. This stock has split twice so I now own 1464 shares. Value is now approximately $45000. This bank has been bought by another so I need to turn in my current certificates so I can be issued stock on the new bank. Questions: The stock was originally owned by a grandparent but I do not recall if it was gifted to me directly from the grandparent or if it went to a parent then to me. Do I need to know from which generation the stock was gifted? For 2004 tax purposes, will the sale of the stock of the original bank all be reported as a capital gain? If so, what info do I need to determine my basis? How do I obtain that info? I have possesion of all of the certificates but no additional information. Is it to my advantage to convert the stock to the new bank stock or would it be the same tax treatment as selling the stock? I had not planned on selling all of this stock in one calendar year as I don't want to increase my taxable income by more than $10000 in any one year. When selling stock that has been split, how is the basis determined? Is it a different method if selling all at once than if selling a portion? Advice welcome. thanks

I've often wondered how this type of thing is handled, and never knew. Seems like a good, common sense solution. Thanks for passing this along.

Mbozek - if you are interested, just saw the following re MBC - probably old news for any of you who deal with viatical issues: On May 3, 2004, the Florida Office of Insurance Regulation issued an Emergency Cease and Desist Order against Mutual Benefits Corporation ("MBC"). That Order, among other things, suspended MBC's Florida viatical settlement provider license. Furthermore, it ordered MBC to immediately cease from acting as a viatical settlement provider in and from Florida. On May 4, 2004, the United States District Court for the Southern District of Florida issued a Temporary Restraining Order against MBC. The Order also named several individuals and entities as defendants or relief defendants. Those named were Joel Steinger, Leslie Steinger, Peter Lombardi, Viatical Benefactors, LLC, Viatical Services, Inc., Kensington Management, Inc., Rainy Consulting Corp., Twin Groves Consulting, Inc., P.J.L. Consulting, Inc., SKS Consulting, Inc., and Camden Consulting, Inc. Additionally, the Restraining Order freezes the assets of the defendants and relief defendants. Section IV of the Order provides that it applies to anyone transacting any business directly or indirectly related to Mutual Benefits Corporation. To read the Order in its entirety, access the link below. As a result of the above actions, life insurance agents acting as viatical settlement sales agents for MBC, or for any other entity that offers Viatical Settlement Purchase agreements or investment interests in life insurance policies viaticated by MBC, should IMMEDIATELY CEASE ALL SALES ACTIVITY. Furthermore, sales agents with pending transactions should notify the court appointed Receiver immediately. The Receiver in the matter is: Bob Martinez, Esq. Colson Hicks Eidson 255 Aragon Avenue, Second Floor Coral Gables, FL 33134 http://www.mbcreceiver.com/ mbcreceiver@gardencitygroup.com Hotline: 1-877-267-1351 Hotline En Español: 1-877-267-1351 Outside the United States, U.S. international code, then 1-941-906-4699

Well, I think it doesn't apply, as per my earlier post. But I don't believe this was an EGTRRA change.

Also watch out if it is a community property state. According to some experts (including my personal favorite, S. Derrin Watson) in a community property state, there is direct ownership and the "spousal noninvolvement" clause cannot apply.

P.S. - if you want a reference for the employer/accountant, you could refer them to Rev. Proc. 2003-44, Appendix A, (.05).

It may make a difference if they are subject to electronic transfer requirements or not. I'd start with IRC 6656 and 6672 for your basic information. Unfortunately, that's about the extent of my knowledge in this area, and some other folks here can probably provide you with helpful details.

I'm relatively uninformed on the viatical settlement issues, but it seems like I recall that in some states, anyway, only state licensed viatical settlement companies can purchase policies on folks in which there is no insurable interest? Wouldn't this, in general, preclude a plan from even being allowed to purchase a policy on an unrelated person in the first place? On a personal level, I do find I have a hard time maintaining my objectivity on this issue. Cold hard logic says an investment is an investment, and there's no reason a plan shouldn't be able to "profit" from someone's untimely demise when another entity (a viatical company) can do the same. But the more human part of me finds it rather disgusting, particularly when you are looking at purchasing one policy on one individual. Obviously the Trustee has reason to believe that this particular individual is going to die early, so it will be a "good" investment. I know it isn't logical, or even necessarily reasonable - just doesn't seem right! But then, I'm a Red Sox fan, so logic obviously isn't a strength of mine...

Pax - are you sure the 50 person requirement applies to a DB plan for 401(a)(26) purposes? I believe 401(a)(26)(G) gives you a pass on the 50 person requirement of 414® that would otherwise apply. But, I'm speaking from a theoretical basis rather than practical, as we don't handle QSLOB plans, so there may well be other guidance, or my interpretation may be way off. What do you think?

Perhaps you are already ok. This requirement has been around since, (from memory) plan years beginning 4-18-01 and later. So maybe it is already written into the software you are using, and no specific update is necessary? If not, you may have failed to comply on a lot of prior filings...

Back again after a less than enjoyable stint working on the house. Sigh... Appleby - yes, I agree.

Appleby - while I definitely don't disagree with what you are saying, I'd be interested in your thoughts on the following. While what you say used to be true, I believe the new regulations did away with this requirement for IRA to IRA transfers. If you take a look at the preamble to the regs effective 1-1-2003, under the "Other Rules for IRA's" section (Page 25 & 26 on my copy, FWIW) it seems that the IRS made it very clear this requirement no longer applies to an IRA to IRA transfer. However, since this is an IRA to a 403(b) transfer, rather than an IRA to IRA transfer, how does one apply the law? In the absence of other guidance, one could perhaps take the approach that since under the regulations in 1.403(b)-3 Q&A-1(b), a 403(b) is treated as an IRA for purposes of applying the minimum distribution regulations, and since the new regulations clearly no longer apply the transferor rule between IRA's that you mention, perhaps this is no longer necessary. I don't have any sense of how the IRS would view this argument. And I don't find it all that persuasive myself, when you balance it against the other requirements in 1.408-8 that say you can't aggregate 403(b) minimum distributions with IRA money. So while I agree that the (probably) correct, and certainly safer approach, is to require the distribution from the transferor IRA, I'd be interested in any thoughts you have on this. Thanks.

I believe, without going back and checking, that the blackout notice is required for a 10 participant plan. I think only the "one participant plans" are exempted.