Belgarath

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.

Thanks Harwood, now that I've got the correct number I can access it!

For all you QDRO experts, this may be old hat, but I found it interesting. ( I believe it was by someone named Tony Novak but I'm not positive about that. However, I'm unable to access this PLR, and when I do web searches, I come up with this one and another with the same # (the other one supposedly deals with minimum distributions.) First, is the number listed correct, and if so, do you know where I can access a copy? Second, if not correct, do you know the correct number? And finally, do you have any experience with this type of QDRO, and are you aware of more people using it? Thanks! The IRS recently approved a qualified domestic relations order (QDRO) in a divorce settlement that surprised tax planners and was previously thought to be not possible. Typically a QDRO is used to divide a retirement account between divorcing spouses without having the retirement plan lose its tax-advantaged status. A retirement plan can normally not be used as security for a debt. If this happens, the amount of assets in the retirement plan could be disqualified and become subject to immediate taxation plus additional tax penalties. But in this case, a spouse wanted absolute security for money that was owed to her by her spouse, but the couple did not wish to liquidate his retirement plan. The local court issued a QDRO securing the debt with the retirement plan and the IRS approved of the arrangement. (Letter Ruling 200252097). The IRS reasoning that was the QDRO allowed under Section 401(a)(13)(B) override and satisfies the anti-alienation restrictions that normally prevent a retirement plan from being used to secure a debt. The implications for tax planning are significant. Frequently a divorce settlement necessitates the liquidation of assets like a house and other investments. Even in situations where one spouse has a strong likelihood of high future earnings, these future earnings normally are not usually useful in negotiating a secure divorce settlement. The letter ruling allows a spouse to say "Instead of liquidating our (pre-tax or tax deferred) investment assets that we prefer to continue to use and keep intact, I will pay you $xx dollars per month from my (after-tax) earnings and my promise to pay will be secured by a court-issued lien on my retirement plan account." From a tax planning perspective, this strategy allows the couple to postpone otherwise taxable events and continue to benefit from tax-free compounding of internal value of assets. There are numerous other planning possibilities. The ultimate effectiveness of this tool will be determined by divorce attorneys' willingness to complete non-cash settlements that are based on secured promissory notes between spouses.

Every document that I've seen, at leat that I can remember, that has been drafted in the last 10 years or so, defines the term "spouse." They don't all define it the same. Some define it purely under the "Laws of the United States," some refer specifically to Title 1, Section 7 of the United States Code, some refer to state law (while some do not,) etc... There are also references to former spouses under a QDRO, etc.. So yes, I would say that it is a good idea. Mandatory, really, for all practical purposes, in my non-legal opinion. I'd be surprised if you founds docs that don't define it, but probably there are some.

Thank you both.

Plan testing was done incorrectly, which exacerbated the ADP and ACP failure, and 2 H/C received refunds of about $400.00 each. Plan would have failed ADP and ACP anyway, but correct refund amount should have been more like $150.00 each. What's the proper correction for this? I don't find anything in Rev. Proc. 2003-44 that really addresses this situation. The H/C don't care, and want to just leave it alone. They have already filed taxes for 2003, both individual and corporate. While this is certainly a simple solution, I'm not comfortable that it is the correct solution. Would appreciate thoughts on how you might handle this? Thanks!

I don't have any real details, other than that we are being told that there is a corporation (A) that is supposedly owned 50/50 by 2 individuals. Yet one person owns 100% of the stock. Has anyone ever heard of such a thing? It doesn't even seem possible, and there's probably a lot more to it. But before we go back and say "whaaaaaat?" or something similar, thought I'd toss this out. All I could think of was that perhaps they were talking about voting vs. nonvoting stock.

I think I'd better invoke my 5th Amendment rights here...

I certainly hope so. I remember reading a satire called "Bored of the Rings" which was really awful, but did have one humorous part - Gandalf became "Goodgulf." Of course, to many of the younger members of these boards, it wouldn't seem that funny because the Goodgulf advertisements were before their time. I'm starting to feel like the grandfather whose grandson asked him, "Grandpa, were you on Noah's Ark?" The grandfather replied, "Oh no, no, no - Noah's Ark was a very, very, VERY long time ago." The grandson then said, "Then Grandpa, how come you didn't drown?"

I'll take a stab, but I think you're in one of those dreaded "gray areas" which will ultimately require the Plan Administrator to take a stand one way or the other on interpretation. 1. I would say that you can probably offset it against the rollover account, in the absence of document and/or loan papers that don't address it one way or the other. 2. I would say that it is not a P/T. As long as it satisfied the requirements as a bona fide loan when made, then I don't believe it is a P/T. 3. If 2 is correct, N/A.

That's fine, but that shouldn't alter the fact that a termination would require a participant option to receive the funds. Is there some "carve out" to this rule that you are aware of that says a plan with husband and wife isn't subject to this requirement? If so, can you provide a citation so I can educate myself further on this issue? Thanks.

I'd say yes. I'm not aware of anything to the contrary, nor do I see anything in the instructions as to who is eligible to file an EZ that says you can't.