Belgarath

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?

Oops - just read it more clearly. Please ignore my earlier reply.

I would say no, for the definition of ownership for this purpose, the attribution rules do not apply.

I'm having a heck of a time understanding the practical application of the new proposed regs under 1.410(b)-6(g), probably because I'm unable to relate them to a real life situation. Perhaps some of you 401(k) specialists can help me out? Suppose you have a 501©(3) organization, that currently sponsors a 403(b). Now the employer decides to offer a 401(k) as well. Under (g)(2) of the proposed regulation, it says that employees of a tax exempt organization who are eligible for a salary reduction under the 403(b) plan may be excluded if: (i) No employee of the organization is eligible to participate in the 401(k) plan, and (ii) At least 95 percent of the employees of the employer who are not employees of the organization are eligible to participate in the 401(k) plan. I note that (i) and (ii) use separate terms - organization and employer. But (i) and (ii) seem to me to lead you in a circle. First, you have to satisfy (i) that no employees are eligible to participate, then in (ii) at least 95% of the employees must be eligible to participate! But it distinguishes, in (ii) that the "employees of the employer who are not employees of the organization" must particpate. Now, what the heck does that mean, and what type of arrangement gives you employees of an "organization" who are not employees of the employer? Some sort of affiliated service group where they want to exclude certain employers within the group from participation in the 401(k)? Hellllppppppp...... Thanks in advance, and my sincere congratulations to those who can make sense out of this.

As one who became a Trekkie from the original series, I sometimes still have difficulty remembering that the Klingons are allies. However, since we still have the Romulans (with the recent addition of the Ferengi and the Borg) as the bad guys, I'll agree with Gary in hoping that the Klingon Empire can benefit from his response.

Yes, if that was the purpose I aqree completely.

I don't think it is quite that simple. (anyone who has read any of my previous posts on Controlled or Affiliated Service Groups will know that I'm the first to admit that I'm no expert, and I recommend legal counsel make the determination!) Nevertheless, is the son under age 21? And are you talking about controlled group attribution under IRC 1563, or ASG attribution under IRC 318? It can make a difference. In general, and not considering some of the possible screwball situations such as different stock classes, options, etc., and assuming for the moment that we are talking about a controlled group attribution question, and that the son is 21, then I would say there is no attribution to or from son. If the son is under age 21, then you have attribution. If you are talking about ASG attribution, then the son's age is irrelevant, and there is attribution. If the above seems rather wishy-washy, it's because it is! I've found more ways to be wrong on these questions than you can imagine, and I ALWAYS recommend the client seek legal counsel.

Appleby - I like your reasoning on this. But personally, I'd be hesitant to apply it - although what you say is very logical, I think, it nevertheless violates the plain language of the regulation. At least IMHO. I'd want a private letter ruling if 'twas me, or at least some assurance from the Service from the podium at some public forum...

IRASue - I find your statement here a bit baffling. "I am trying to alert management but in the meantime, I can't make myself sign up for the plan despite the 5% match." I'm not trying to defend the variable annuity (in fact, I've been an opponent of variable annuities in qualified plans forever) but I think you may be cutting off your nose to spite your face. If you defer $1,000 dollars, and your employer matches dollar for dollar, you have made $1,000, regardless of any interest. I'd be very doubtful that fees/charges would destroy this extra $1,000. Even if the fees were, say, $500.00 (and I'd frankly be rather surprised if they were that high) you still come out $500.00 ahead, not even counting the current tax savings on your deferral. So by all means continue in your efforts to get a different investment option or options made available in the plan, but realize that with that level of match, even in a poor investment, you are receiving a "return" on your own money which is probably FAR in excess of what you could ever hope to safely obtain on your own outside of the plan. And please take the above with the caveat that I'm not an investment advisor, and you may have specific unusual circumstances that render the above personal opinion completely invalid. Good luck!

I haven't been paying too much attention to this issue. Has the Service indicated yet when they will start accepting prototype and V/S submissions for opinion and advisory letters, updated for EGTRRA? Seems like 12-31-05 isn't all that far away any more...

Have you checked to see if the employer is eligible for VFC? If so, then the excise taxes could be eligible to be waived.

I'm not necessarily saying it must be an attorney - could be a CPA. Just somebody who has real life experience with IRS negotiation. Since the potential penalties are so high, it would seem worthwhile to pay the fee for competent legal/tax counsel.