Belgarath

They should consult with legal counsel, but they could still use an effective date of 1/1/03 for the plan. By using the full period for the plan and limitation year, you avoid the proration. I do not believe that the IRS has ever FORMALLY ruled on this, but they have informally approved it. I'd recommend filing for a determination letter and specifically noting what you are doing in the request. We have done this, and have received favorable determination letters (and haven't had any rejected using this approach.) Good luck.

I don't think so. For lifetime distributions, you use the uniform table (or J&S if spouse more than 10 years younger) but there's no election - you just automatically recalc each year. Or, for example, on post-RBD deaths, you either recalc or not depending upon whether there's a designated bene, and if so, is it spouse or non-spouse. But the calculation is governed by the answer - I don't believe there is an election.

Could anyone tell me in relatively plain English what 1.417(a)(3)-1©(2)(i)(B) means when it provides for "Stating the amount of the annuity that is the actuarial equivalent of the optional form of benefit and that is payable at the same time and under the same conditions as the QJSA." They don't seem to provide an example of this approach. Thanks!

You may get differing opinions on this. I'd look at the outstanding balance on the DAY during the past year when it was highest. Since the 27,000 loan was paid off prior to the 13,000 loan being taken, the highest balance on any day would be the 27,000. FWIW, I would not use the 40,000 figure.

Interesting thread. I think KJohnson is on the right track, at least on a theoretical level. But if you take the more conservative approach and assume that the IRS/DOL wouldn't agree, and that this should be treated as being subject to these requirements, it seems unlikely that the deadline for an unincorporated sole prop should be any sooner than for an unincorporated partnership. If you then look at the preamble to Treasury Reg 2510.3-102, as referenced by Archimage, I would conclude that you do have until the earliest date they can be reasonably segregated AFTER those monies would otherwise have been distributed to the partner. And wouldn't the date they would "otherwise have been distributed" depend upon when the tax return is completed? I don't agree with the conclusion that they must be deposited by the end of January - I don't read the language of the preamble to require this. In the view of the Department, the monies which are to go to a section 401(k) plan by virtue of a partner's election become plan assets at the earliest date they can reasonably be segregated from the partnership's general assets after those monies would otherwise have been distributed to the partner, but no later than 15 business days after the month in which those monies would, but for the election, have been distributed to the partner.

Maybe I should clarify my question. The prototypes I'm familiar with generally have an "other" election in these areas which is essentially a fill in the blank. And likely this is what q8r is referring to. I was asking in the case where a prototype document does NOT have such an option - is there authority for inserting it? Thanks!

q8r - can you cite some regulation/authority for allowing this?

Assume this is a corporation? If so, no. If this is an unincorporated entity, then it would seem that they'd fit the definition of "partners or the partners and the partners' spouses in a partnership" in the 5500 instructions. There's nothing in the instructions that says that it can only be 2 partners. I've never actually run into this latter situation...

Yes, and although we aren't directly involved in the bonding process, I hear rumors that they may be in for sticker shock when it comes time to renew. I've heard that many companies are planning substantial increases in the premuim rates. Don't know if it's true or not.

Blinky - although I haven't seen anything to do with a SARSEP for years, I did scrounge up a copy of an old 5305A-SEP form (from 1994) for SARSEPS, and it's the same - you can't use it if you "currently maintain any other qualified retirement plan." (Other than a regular SEP)

I know there are some that advocate, in this situation, going ahead with the DB plan, and assuming this disqualifies the SEP but that the larger deduction under the DB may justify it. They take the attitude that disqualification of the SEP is no big deal, and that it's a small price to pay. (I'm not one of those people!) But I do have a question that perhaps some of you have explored, or might have first-hand experience... Under 1.415-9(b)(4) relating to disqualification of plans, it says that the SEP will not be disqualified until all of the other plans have been disqualified. So it would seem to me that perhaps the above is an even greater risk than some might think, as the DB could be disqualified first? Just curious as to any opinions on the whole argument.

We've never actually required that we see the bond. We just have the client certify the name of the bonding company and the amount of the bond for the period in question. If this is what you mean by proof, then I'd say yes, you need proof.

That's allowable, but depending upon how nitpicky you want to get, you can technically have a little more time to actually ADOPT the amendment, assuming a favorable determination letter is filed for timely and is ultimately issued. See Section 7(.02) of Revenue Procedure 2003-72. I haven't looked at it for a couple of months, but as I recall, it allows you to submit for determination using a proposed document/amendments, then you actually have something like 90 days to actually adopt the amendments AFTER the determination letter is issued. But if my memory serves me wrong, someone will undoubtedly give you other input.

I have a question for you QDRO experts out there: The following excerpt is from a news blurb on benefitslink today. "This case involved a divorce that occurred in June 2000. In November 2000, an order was entered granting the wife, Mrs. Singleton, an interest in her husband's two pensions, and designating her as the surviving spouse for his retirement benefits. However, when Mrs. Singleton (or more likely, her attorney) presented the two domestic relations orders to the plan administrator in February 2001, the copies presented were not signed by the parties, the judge, or the attorneys. The plan administrator notified her that the orders would be qualified (in other words, that they met all the requirements for a QDRO) if they were properly signed. Mrs. Singleton did not respond." My question is this - I find nothing in ERISA which requires the signatures of the parties involved. However, a state authority must issue a judgement, order, decree, or otherwise approve a property settlement agreement before it can be considered a "domestic relations order" under ERISA. Can a plan administrator require both parties to sign before considering it a QDRO? Or maybe if the state of domicile requires both parties to sign in order for it to be a "DRO" then no judge would approve it in the first place if unsigned... This is one more reason why we always require the client to consult their legal counsel as to the validity of a QDRO!

FWIW - we've had several such situations. In all but one, the only people who receive the "predecessor" service credit are H/C only. After telling clients the potential problems, and requiring a hold harmless where they certify they have consulted with legal counsel, we hold our noses and our breath, and submit for a determination letter. In every case, the IRS has never questioned it, and issued a determination letter with no problem. Having said that, I still always hope I'll never see another one!

I think creditworthiness can be a valid consideration. For example, what if the participant is in all kinds of financial trouble, is a bad risk, and is likely to suffer other loan defaults, etc. - even payroll deduction might not help if wages are garnished to satisfy other obligations. I have no idea what debt obligations take precedence. And if the assets have dropped in value, there's a potential loss to the plan. This is probably less a concern in individually directed account plans like a 401(k). In the real world, I've not seen much evidence that this issue is generally considered by Plan Administrators/Trustees when granting loans.

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!