Belgarath

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.

I'm assuming they are taxed as unincorporated? I'm not aware of any formal guidance on this exact question. Therefore, FWIW, I'd be inclined to take the conservative route and file a regular 5500. The potential penalties if you file an EZ and the Service decides you're wrong outweigh the benefits of filing the marginally easier EZ form. Others who are more aggressive may think I'm crazy, or hopefully someone knows of some guidance to the contrary. 'Cause it certainly seems reasonable that if you are taxed as a partnership, and use earned income for plan purposes, that you'd treat the plan as unincorporated for all purposes, including 5500 forms.

Ouch. I can't offer any valid input, as I've never worked with such a situation. My only advice is to engage the services of someone with REAL experience negotiating with the IRS in noncompliance situations. This can't be corrected under either DFVC or EPCRS, so some good negotiating experience is essential.

Update - In case anyone cares, the attorney concluded it wasn't a controlled group either...

I'd be a little hesitant to portray Derrin's statement quite so definitively. Without going back and checking it, I believe his example where he states this has the individual spending 5 hours per day in active management. I'd strongly recommend that you get either a legal opinion from Derrin or another attorney before accepting this example as a blanket invitation to incorporate and therefore use rental income for plan purposes.

IRS Notice 2002-23 says that they will not impose their separate $25.00 per day penalty for plans that are both eligible for, and satisfy the requirements of, the DFVC program.

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!