Belgarath

See 1.401(a)-13(b)(2).

Yes, and see 1.401(a)(9)-2, Q&A-2 ©, which refers you to the 416 definition of a 5% owner for purposes of 401(a)(9).

$1,000.00 for 2003.

Now there's an interesting question. I don't see why not. An employer contribution is allocable to plan participants whether or not it is currently deductible under 404. The employer bears the tax burden of excise taxes on nondeductible contributions. If they cannot be returned to the employer due to the exclusive benefit rule, any subsequent distribution to a participant should be eligible for rollover. IMHO. There are situations, such as a return of elective deferrals under a 401(k) to correct a violation of 415 limits, that are NOT eligible rollover distributions, but that's really a separate question.

This is perfect! Thanks so much.

Not for 1 second! If I were going to read 125/regs, I wouldn't have asked the question in the first place. Hence my question as to whether anyone knew of a good brief synopsis on the subject, to which I can refer the client.

Had a client ask about this. We do nothing whatsoever with Section 125 plans, so I haven't a clue. Can anyone either give me a 1 paragraph synopsis, or point me to a source/website that I can look at to simply tell the client "this is what you have to worry about, and go see someone who does 125 plans?" Thanks!

This response is kind of "off the cuff" so be careful of giving it much credence! I think that limiting it to a maximum dollar amount should be fine. I can't see how this would violate the nondiscrimination regulations. However, if it is limited to a percentage of deferrals, I can see how this might be discriminatory, since the H/C may have a higher deferral percentage. You could take a look at the DOL Regs 2550.408(b)-1 which might be helpful in working through the question.

Mbozek - if you have time, could explain # 3 in more detail? I freely admit to being clueless on this one - what section of the regs permits this? And are there any special plan provisions or mechanics or special hoops that the son must jump through in order to utilize this? It sounds like this could be very beneficial in certain circumstances. Thanks!

I think it does matter what type of plan. Contribution of property to a pension plan (ok to a profit sharing in certain circumstances) is generally a prohibited transaction. For some references, you could look at DOL Regulation 2509.94-3, DOL Interpretive Bulletin 94-3, as well as Commissioner v. Keystone Consolidated Industries, Inc.

Just a guess, but since I assume that no responsible Plan Administrator would allow a simple "transfer" into the plan I'm guessing that the plan purchased these policies from him, for their cash surrender value, utilizing Prohibited Transaction Exemption 92-5? I'm not going to touch the investment angle, since I've seen many vitriolic discussions on these boards where folks on both sides of the issue will fight to the death. And they tend to get personal and sarcastic, which has no place on message boards that should be a model of professionalism. Not worth going there!

Generally, no. Yes in some specific cases.

I agree with R. Butler. You might wish to take a look at PLR 9144041, which gives some insight into what the IRS might consider a "mistake of fact." Under the facts presented, I would feel quite comfortable returning this (properly documented, of course!) to the employer as a mistake of fact. I'm assuming that this is a DC plan - if not, and it is a DB plan, you might want to take a look at Revenue Procedure 90-49.

I agree with Blinky, Mr. Holland's opinion notwithstanding.

Sure. The formula is only one part of the requirements to be a safe harbor. For example, you might not comply with the Notice requirements. So even though your formula satisfies the safe harbor matching formula requirements, you still don't have a safe harbor plan.

If you are talking about other participant's deferrals, then I think such a claim is clearly ridiculous, and will go nowhere in court. I thought you were referring to the personal deferrals of the owner only.

I'm not sure anyone is necessarily right or wrong, it is what is determined in the courts and also by applicable state bankruptcy law. Just saw a decision the other day, In re Bellwoar, Pennsylvania bankruptcy case - bankruptcy court determined that under applicable Pennsylvania bankruptcy law, the amounts that a debtor contributed to a 401(k) account within the year preceding a bankruptcy filing could not be excluded from the bankruptcy estate... Now, I'm not an attorney, and have no idea where this might go on appeal. But it does indicate to me that across the board answers in this area are hard to come by.

Yes, you're right, it would helpif I read the question carefully first. But that's asking a lot, since my brain is in a geometrically progressing state of entropy. While it's just a matter of semantics, I guess I'd state it a little differently. Something like " A DC pension plan can be amended to eliminate annuity forms of payment to the extent that QJSA requirements don't apply" or something along that line. So if you had a DC pension plan with no married participants (or a QDRO requiring QJSA) you could have no annuities whatsoever for payment options. As an aside, does anybody ever take any form of life annuity payment? I've only ever seen one. And that was only because the benefit was funded with an existing deferred annuity, and the ins. agent got a commission if they settled under an annuity option...

Blinky - are you positive about this? My understanding was that the change does NOT eliminate QJSA requirements. This would apply to DC pension plans, and PS plans which were, for example, amended and restated from pension to PS. This "prior pension" money would still be subject to QJSA. So although 411(d) is modified, I think 417 still trumps 411(d) for QJSA. Vat you tink?

The section 318 attribution rules do apply for determining the more than 5% ownership for RMD purposes.

Brian - yes, we realize that it can simply be reissued. But it would be interesting to know if reissue is required, or if original Notice is considered valid. Chris/R Butler - actually, at this point, we don't know if client wants to honor it or not - this isn't a case we administer (yet, anyway). If plan hasn't been amended yet, then I see no problem with "revoking" this Notice, if in fact it is valid anyway. Even if invalid, it would seem wise to notify employees that they will NOT be implementing this plan, if they decide not to. Basically, I was just trying to get a feel for whether folks thought this Notice was valid due to the dating. There are various subsets of possible decisions depending upon timing of what is being contemplated, and whether the Notice is deemed valid or not. Thanks.

Let's say the employer provides a Notice that otherwise satisfies the Notice requirements to convert existing 401(k) to a Safe Harbor nonelective, effective 1-1-04. But the employer provides this Notice PRIOR to the 90 day period - in June of 2003, to be precise. Is this a valid safe harbor Notice, and is the employer bound to honor it? Prior to checking, I'd have said that if issued prior to the 90 day period, it wasn't valid. But note the following excerpt from IRS Notice 98-52. It says that it is a facts and circumstances test, then goes on to say that the timing requirements are DEEMED satisfied if between 30 and 90 days prior. But it really does not say that you CANNOT provide it earlier. Any opinions? Thanks. 2. Timing Requirement a. General rule The timing requirement of this section V.C.2 is satisfied if the notice is provided within a reasonable period before the beginning of the plan year (or, in the year an employee becomes eligible, within a reasonable period before the employee becomes eligible). The determination of whether a notice satisfies the timing requirement of this section V.C.2 is based on all of the relevant facts and circumstances. b. Deemed Satisfaction of Timing Requirement The timing requirement of this section V.C.2 is deemed to be satisfied if at least 30 days (and no more than 90 days) before the beginning of each plan year, the notice is given to each eligible employee for the plan year. In the case of an employee who does not receive the notice within the period described in the previous sentence because the employee becomes eligible after the 90th day before the beginning of the plan year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the employee becomes eligible (and no later than the date the employee becomes eligible). Thus, for example, the preceding sentence would apply in the case of any employee eligible for the first plan year under a newly established section 401(k) plan, or would apply in the case of the first plan year in which an employee becomes eligible under an existing section 401(k) plan.

mming - as you can tell, from a TPA point of view, insurance in a plan is about the biggest PIA since chocolate teapots. That having been said, and assuming the employer is going to do it: 1. Assuming the document allows it, you can use the rollover funds to pay premiums. 2. There is another issue which should at least be considered. The IRS (actually Jim Holland, I believe) at one time informally opined that the "withdrawal" under the 2/5 rule to pay life premiums would be considered a taxable withdrawal. They've never done anything to formalize this, and I don't see anyone worrying about it. The prevailing consensus is that as long as the employee is declaring the taxable term costs, the premiums are not otherwise taxable as a distribution. But it should at least be considered by their tax/legal counsel.

Don't 415 limits still apply? Can't the plan still be disqualified? I don't pretend to know the tax ramifications with a non-profit, but this would presumably then all be income to the individuals - can the IRS assess penalties for the whole arrangement as a scam? Although the "non-profit" itself hasn't avoided taxes, apparently, could the individual(s) directing this transaction potentially be in hot water for some form of tax avoidance? Just thinking out loud - I don't know anything about the down side to a non-profit doing this, but it seems unlikely that one could totally flout all restrictions to normal contribution levels with complete impunity.

Yes, Blinky, I forgot about that!