Belgarath

Kirk - we must have different sources. Mine is from CCH's 2004 Pension and Employee Benefits Code ERISA Regulations, Volume 1. In that volume, the question you cite is listed as Q&A 17, not 16. Also, following is an excerpt from the GPO access website, which also lists the Q&A I cites as 16. What source are you using? Thanks. [Title 26, Volume 5][Revised as of April 1, 2002]From the U.S. Government Printing Office via GPO Access[CITE: 26CFR1.401(a)(31)-1][Page 218-225] TITLE 26--INTERNAL REVENUE CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY (CONTINUED) DEFERRED COMPENSATION, ETC.--Table of Contents Sec. 1.401(a)(31)-1 Requirement to offer direct rollover of eligible rollover distributions; questions and answers. The following questions and answers relate to the qualification requirement imposed by section 401(a)(31) of the Internal Revenue Code of 1986, pertaining to the direct rollover option for eligible rollover distributions from pension, profit-sharing, and stock bonus plans. Section 401(a)(31) was added by section 522(a) of the Unemployment Compensation Amendments of 1992, Public Law 102-318, 106 Stat. 290 (UCA). For additional UCA guidance under sections 402©, 402(f), 403(b)(8) and (10), and 3405©, see Secs. 1.402©-2, 1.402(f)-1, and 1.403(b)-2, and Sec. 31.3405©-1 of this chapter, respectively. List of Questions Q-1: What are the direct rollover requirements under section 401(a)(31)? Q-2: Does section 401(a)(31) require that a qualified plan permit a direct rollover to be made to a qualified trust that is not part of a defined contribution plan? Q-3: What is a direct rollover that satisfies section 401(a)(31), and how is it accomplished? Q-4: Is providing a distributee with a check for delivery to an eligible retirement plan a reasonable means of accomplishing a direct rollover? Q-5: Is an eligible rollover distribution that is paid to an eligible retirement plan in a direct rollover currently includible in gross income or subject to 20-percent withholding? Q-6: What procedures may a plan administrator prescribe for electing a direct rollover, and what information may the plan administrator require a distributee to provide when electing a direct rollover? Q-7: May the plan administrator treat a distributee as having made an election under a default procedure where the distributee does not affirmatively elect to make or not make a direct rollover within a certain time period? Q-8: May the plan administrator establish a deadline after which the distributee may not revoke an election to make or not make a direct rollover? Q-9: Must the plan administrator permit a distributee to elect to have a portion of an eligible rollover distribution paid to an eligible retirement plan in a direct rollover and to have the remainder of that distribution paid to the distributee? Q-10: Must the plan administrator allow a distributee to divide an eligible rollover distribution into two or more separate distributions to be paid in direct rollovers to two or more eligible retirement plans? Q-11: Will a plan satisfy section 401(a)(31) if the plan administrator does not permit a distributee to elect a direct rollover if his or her eligible rollover distributions during a year are reasonably expected to total less than $200? Q-12: Is a plan administrator permitted to treat a distributee's election to make or not make a direct rollover with respect to one payment in a series of periodic payments as applying to all subsequent payments in the series? Q-13: Is the eligible retirement plan designated by a distributee to receive a direct[[Page 219]]rollover distribution required to accept the distribution? Q-14. If a plan accepts an invalid rollover contribution, whether or not as a direct rollover, how will the contribution be treated for purposes of applying the qualification requirements of section 401(a) or 403(a) to the plan? Q-15: For purposes of applying the plan qualification requirements of section 401(a), is an eligible rollover distribution that is paid to an eligible retirement plan in a direct rollover a distribution and rollover or is it a transfer of assets and liabilities? Q-16: Must a direct rollover option be provided for an eligible rollover distribution that is in the form of a plan loan offset amount?

Agree with FundeK, but I might add that some plans do have a NRA of less than age 62. In this case, even if terminated, you can't force the payout until age 62. Under 1.411(a)-11©(4), it is the later of NRA or age 62.

P.S. - if you want a cite, it is 1.401(a)(31)-1, Q&A-16.

Yes.

So have it a deemed distribution, and leave it at that. I'd also, if I were the Plan Administrator, document the situation, and change my procedures so that in the future, a new loan check will not be issued until the payoff has cleared. Call me foolishly naive, but I find it unimaginable that the IRS would disqualify a plan if they picked this up on audit, and the documentation/procedures are in place so that this could not happen again.

Does anybody know of, and have experience with, a computer "translator" program that they would trust to translate a SPD from English to Spanish? If so, how much is it? I fiddled with various free programs from the internet, and while they work well for simple sentences, they aren't very good for long or complex documents. My inclination is to refer the client to an attorney who prepares them in Spanish, but thought I'd check with you folks first to see if you have any great ideas. Thanks.

I'm not sure there is a concrete answer. FWIW, I asked an actuary, who said that it depends upon the situation - can be done either way, but for FASB, it must be surrender value.

Under 72(p)(2)©, the substantially level payments must be made at least on a quarterly basis. So I'd say you have 1 quarter, plus possibly a "cure" period if the plan provides for one.

I don't have any specific citation to back up my opinion, but I agree with you. I don't see how this could be construed as a withdrawal/distribution subject to taxation. As an aside, do participants in this plan really get charged 800 bucks for a QDRO determination, or was that just a fictitious figure? I ask only out of curiosity - I'd say that seems pretty high, but since these are never paid from plan assets in our plans, I never actually see what clients get charged for the QDRO determination. Maybe that's why they persist in trying to get us to do it!

Assuming, of course, that it isn't a "one person" plan, which isn't eligible for DFVC.

I think your proposed solution is pretty clever to start with. I honestly can't think of anything to help. But tell me, is there any potential problem with gift taxes or some such stuff with giving the children options? I truly have no idea - just wondered. And why wasn't your proposed solution good enough? Sounds like they want to eat their cake and have it too...

P.S. just an addition to my previous post - I grabbed a 401(k) document to look at some "standard" spousal consent language, and it starts like this..."A Participant must obtain the consent of his or her Spouse, if any, to use an Accrued Benefit which is a QJSA Benefit as security for a loan...."

I've got a dumb question - does the plan really require spousal consent? Many 401(k) plans do not, as if the plan is not subject to QJSA rules, the spousal consent is not necessarily required. Ditto for loans of less than 5,000. Assuming your plan language and situation does require spousal consent, I believe the IRS rep is incorrect if QJSA requirements wouldn't apply but for the plan language. In that case, I think you can correct under the voluntary compliance program - I think this would be an operational failure. Just because 2003-44 doesn't specifically list this situation or give a specific fix under Appendix A or B doesn't mean that a 2003-44 correction is not allowed. Of course, you can be right and still have to fight with the Service, and maybe lose. Possibly worth trying VCP instead of SCP?

I would ask the Plan Administrator for a detailed explanation/breakdown. If there is a loan default, there is a deemed distribution of the entire loan balance, including interest that is accrued through the date of default. 1.72(p)-1 Q&A-10. However, whether the interest calculation/reporting is correct is impossible to answer from this end.

I agree with Appleby - I do not believe that a contribution can be made to the IRA of the deceased by the surviving spouse. Following is an excerpt from the PLR 8527083 that he references: Letter Ruling 8527083, April 12, 1985.., Retirement savings: Contribution to IRA in year earner spouse died: , (Apr. 12, 1985) This ruling is based upon your representation that no contribution has been made for 1984 on behalf of your husband to his IRA. This ruling does not permit a contribution to your husband's IRA for 1984. Any such contribution made to your husband's IRA for taxable year 1984 would be considered an excess contribution and subject to the 6 percent excise tax for the year the contribution is made and each year it remains in your husband's IRA.

I think I'd simply refer him to IRC 402(f)(2)(A). Then I'd refer him to IRC 3405©, and tell him that it makes no difference whether he agrees, or whether he likes it or not, the 20% is going to be withheld. Period.

Have had it happen once. After a couple of inquiries, rather than fight with the insurance company, we just prepared the forms as per the instructions WDIK notes. My fondest hope was that the DOL would lock up the ins. management, fine them, make their lives generally miserable, etc. - but I never heard what, if anything, happened. The information was provided the next year, however...

Thanks. So how do you do the calculation? Suppose 10% formula, with 50,000 of W-2 income. Are you going to calculate 5,000, or are you going to toss it in with the K-1 and do the earned income reduction on the whole amount? In my next incarnation I'm going to do something easier than pension administration. Like solving the meaning of life... Anybody ever read "The Hitchhiker's Guide to the Galaxy?" I have a dim memory that the answer to the meaning of life was "4" but my memory may be totally wrong on that. Maybe I'll just write Vogon poetry.

I've seen this twice in the last two weeks, and I don't understand it. You have a LLC, taxed as a partnership. But the 2 "partners" are reporting income from the LLC both on W-2 and on a K-1. Can somebody explain to me how this works, or even if it is possible? I'd have said that if you are being taxed as a partnership, then all income would be K-1. Is what they are doing correct? Anybody else dealt with this issue? Thanks!

I think the best answer, in this case, is to read 1.72(p)-1, Q&A-20. This will answer your question far more coherently than I could.

Well, the argument doesn't make any sense to me. It runs against the regulations under 1.401(a)(26)-1 and -2. I was trying to think about why anyone would think this - I suspect that this may stem from a situation where there are SURPLUS assets, and the plan provides for the full or partial allocation of these surplus assets to the participants. If any HCE receives any of the surplus assets in this situation, then the "free pass" on coverage testing wouldn't apply, and you'd have to test. Perhaps this is what they really mean. Just speculating...

You'd have to ask a product actuary. I would like to think that there is in fact a correlation. I suspect there is, particularly in an older policy that wasn't designed for a "rollout" such as those the IRS has just targeted. To my admittedly non-mathematical mind, using nothing more than the rule of 72, if you have a 100,000 CV now, at 5%, it would become 400,000 in around 29 years. That would put these folks somewhere in their 90's? So at a guess, this seems reasonable, but I'm speaking from a position of ignorance.

Blinky - you're absolutely right! Wasn't thinking clearly, trying to do too many things at once - my apologies to all. See why I refer these to ERISA counsel?

Andy - I'm not sure what you mean when you ask if the sale makes sense from the plan perspective? Are you asking if the cash surrender value is a valid sale price from the plan perspective? The plans I've seen with LI usually specify that the policy will be offered to the participant, either as a distribution or as a sale for the cash surrender value. The plan usually has to either transfer policies to the participants or surrender. From what you say, it sounds like a surrender value sale by the plan is valid. If the plan surrenders the policies, this is all the value the plan would receive, so this amount satisfies PTCE 92-5 or 6, I forget which one governs a saly by the plan. But maybe I'm answering something totally different than you are asking!

First, is the son under age 21? Second, are we discussing only controlled groups, or are you also looking at an affiliated service group? The 1563 controlled group attribution between parents and children is different than the ASG attribution under 318. Under 318, age is irrelevant. Assuming we are looking only at a CG, and the son is 21, then IMHO I would say there is no attribution to Dad, but there is attribution to Son from Dad, because Son owns more than 50%. So Dad would own 100% of Entity 1 and 40% of Entity 2. Son would own 100% of both 1 & 2. I'm also assuming nothing fancy, like stock options, trusts, etc. If I seem overly cautious, it's because I always refer these questions to ERISA counsel - the possible permutations become horrifying!