Belgarath

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.

See DOL Field Assistance Bulletin 2003-3, and IRS Revenue Ruling 2004-10.

Just for my information, how can you have an involuntary plan to plan transfer when terminating a DB plan? In order to terminate the DB, the participant would have to have had the option to receive the proceeds, or to rollover. Apparently he elected to do a rollover. So I'd say spousal consent is not required. But maybe I'm way off base.

After thinking about this further, I'm inclined to reverse my original opinion, and disagree with Sal as well. I think Appleby has the right idea.

We use the same approach Archimage suggested. Doesn't make any difference to us whether his comp is 200,000 (or whatever figure you need) or 40 million. As long as the comp he is certifying is sufficient for what needs to be done. I suppose this could cause some problems down the road in a DB plan if 415 limits rise substantially - as long as your service agreement allows you to charge him extra if this causes you extra work...

March 26, 1931. (Leonard Nimoy's birthday - as to whether the character Spock has an official birthday I don't know) Live long and prosper!

First question should be,"Have you consulted with an ERISA attorney?" But beyond that, following the advice of Mr. Derrin Watson in his book, Who's the Employer," you could start with basic issues first. 1. Determine which businesses are service organizations. A business which isn't cannot be an FSO or an A-ORG. 2. Determine what corporations qualify for the professional service corporation exception. A corp that is not a PSC cannot be an FSO for purposes of the A-ORG test. 3. Determine if there is cross ownership. If no cross ownership, it could be part of a management function group, but cannot be part of a traditional ASG. 4. Determine principal business. If performing management functions is not the principal business, it cannot be the manager of a management function group. Once you've answered these, you can move on to the more difficult questions, of which there could be many. I'd strongly recommend Derrin's book, or Sal Tripodi's "Erisa Outline Book" as sources that can assist you to understand some of the complexities. Personally, I avoid these questions like the plague whenever possible, and always have the clients discuss with their legal counsel. FWIW, I would say that the mere fact that they are sharing an address does not, by itself, make them an ASG. It could just be 3 different businesses sharing office space. Good luck!

This answer is purely as a consumer - I know nothing about the actual administration of these plans. Both of our children had braces, but the first was covered under my wife's plan, and the second under mine. Her plan reimbursed it all up front, mine did the monthly reimbursement routine. The Plan Aministrator for my plan was very definite in her statement that my wife's plan did it incorrectly. My wife's Plan Administrator was just as adamant that their approach was perfectly correct. We didn't care one way or the other, (we were just glad we had the plans!) but found it interesting that there were such strong opinions in disagreement.

As far as the Hallmark production goes, the numbers of actuaries would seem to be irrelevant. Even if there were millions of them, no one would send any of them a card anyway... (Hah, take that John!)

Pax, can you clarify a bit? I'm not sure if I'm understanding what you are saying. Take the following example - somewhat far-fetched, but possible. You have a 1 person plan - corp or sole prop, who contributes 60,000 to his profit sharing plan in 2003, and his income works out such that only 35,000 can be deducted. So he pays the penalty tax of 10%, or 2,500. In 2004, he has no income. I don't read 4972© to waive another 10% penalty for 2004. I read it to apply for every year until it becomes deductible under 404. Do you have a different opinion? Thanks.

I looked through some discussion threads. Many of them appear to rely on the Q&A 44 that KJohnson posted as the authority for opining that a rehire negates the "triggering event." I guess when all is said and done that a lot of us will agree to disagree on this subject. Most documents I've seen are pretty clear - cutting out all the gobbledygook and cross referencing and paraphrasing a bit, they say, in essence, that (A) your account balance/accrued benefit is your total interest in the plan. And it includes any amount receivable but not yet contributed by the employer. (B) if there's been a "distributable event" - generally a defined term that includes termination from employment, then you can elect a payout of your accrued benefit/account balance. If you have made a valid election to receive distribution of your accrued benefit/account balance, which includes the receivable, I'd argue that unless your document provides something to the contrary, that there is an obligation to pay the entire benefit to the participant. This assumes that the participant made a valid and timely election PRIOR to being rehired. I agree that if rehired prior to an election to receive a distribution, that there would have to be a new distributable event.

I don't have a specific cite for you, just my opinion. I'd say that yes, he's entitled to the additional distribution. The termination of employment was a valid "distributable event" and according to the plan terms, I'm assuming he was entitled to a distribution of his entire account balance? If so, then the fact that he was rehired in the interim shouldn't override his right to that distribution.

Yes, thank you - I had already considered that approach. But based on the client's preliminary estimate, the income will be more like 40,000 for 2003. First year of the business - in 2004 he's already estimating in excess of 300,000. Which is why he wants to defer the max for 2003.

g8r - in response to this portion of your question - "If it's an HCE it won't be a problem. If it's an NHCE, then you could flunk 410(b). I've always wondered what would happen in that situation. Since the person elected not to participate, you could certainly argue that the HCEs in the plan pay taxes b/c you can't do a corrective amendment pursuant to 1.401(a)(4)-11(g)." The typical plan document that I've seen contains a provision to the effect that if such an election not to participate would cause the plan to fail qualification requirements, the election is void as of the first day of the plan year in question.

You have a safe harbor 401(k) plan effective 10-1-03, so first year is a short plan year. Employees, obviously, are only allowed to defer on income on or after 10-1-03. But what about the sole prop owner? Can he defer based upon entire year schedule C income? Since this income is earned technically on 12-31-03, a literal reading would seem to indicate that he could. But this also produces a result which appears discriminatory, in that rank & file get to defer based upon 1/4 of their income, and the sole prop gets to use 100%. Any thoughts?