Belgarath

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!

Yes. But there are so many potential "facts and circumstances" situations that the permutations are nearly endless. First, depending upon the type of plan and whether it is group or individual accounts or segregated assets, there is potential fiduciary liability if a loan is made where objective standards indicate a poor credit risk. Beyond that, there are document and SPD issues, fair and consistent application of all standards, etc. etc... In an ideal world, the document and SPD would clearly state that no additional loans will be permitted to anybody with an unpaid loan in default status. If you don't have that, then you get into some judgement areas. I'd strongly recommend the client consult ERISA counsel.

I don't know the DOL's official stance on this. I suspect that they will not accept faxed signatures - there is no provision for this that I know of in the instructions. I'd say it is tough luck and just file under DFVC - if only a couple of days late, the penalty is small. As for the IRS, following are three paragraphs cut and pasted from a longer release, in case this info is helpful. The IRS on October 7 alerted several national groups of tax practitioners that the agency has adopted guidelines expanding the number of forms and other types of documentation practitioners can submit by fax in the course of many return-related inquiries. The IRS adopted the new general guidelines, which took effect October 1, based on requests from practitioners to expand the IRS's limited acceptance of forms via fax. The primary communication methods for most contacts between practitioners and the IRS during the filing process traditionally have been mail, phone, or personal interviews. Practitioners have been seeking expansion of the fax guidelines to reduce burden and to shorten the time it takes to resolve tax inquiries and cases. Employee Plan and Exempt Organization determination letter applications will not be accepted via fax, according to the IRS. Determination letter requests related to income tax, gift tax, estate tax, generation-skipping transfer tax, employment tax, and excise tax matters will not be accepted via fax. And consents to extend the statute of limitations for assessing tax (Form 872, SS-10, and other consent forms) will not be accepted via fax in normal operations.

Harwood - good point. Appleby - I agree with you in principle - in fact, that exact thought occurred to me. But Harwood's point also opens up an additional can of worms. 1. For example, if you DON'T offer the participant the opportunity to do a direct rollover, you're in hot water. And if the participant chooses direct rollover, what other choice do you have but to allow it, absent specific data? 2. Can you report a direct rollover as Harwood noted? I don't think so - I would, as my best guess, say that this reporting option is only available for a direct distribution. But that's just a gut feeling - I have no supportable basis for that opinion. 3. If you offer a direct rollover, and the participant chooses a distribution instead, are you obligated to withhold 20%? Or do you withhold nothing, and report as Harwood suggested? I think in this situation I'd withhold nothing and use Harwood's aproach. Any CPA's out there to jump in on this? It seems like this situation, while rare, might become somewhat more common in the future with the rising popularity of participant loans - some might default, then repay all or a portion. And once a plan has funneled through several recordkeepers, it would be easy enough to lose track of basis...

FWIW - If the employer/participant cannot provide you with any certified data to prove specific basis amounts, then I think you have to report as all taxable. (Or do a direct rollover) Granted this may ultimately be incorrect, but I don't see that there is any choice. At least that's how I'd do it...

Yes.

PS plan (no 401(k) feature) had an ineligible person receive a contribution. Ineligible due to census error where he was listed as having more than 1000 hours - but a year later client discovers that they botched it. So employee never satisfied initial eligibnility requirements. Based on 2.07(b) of appendix B in Rev. Proc. 2003-44, it's clear that one option is to retroactively amend to include this employee. But that would also bring in a bunch of others, and is obviously not desirable. The specific guidance in 2003-44 is heavily weighted toward 401(k) plans where there are elective deferrals. I'm trying to convince myself that this error can simply be corrected under SCP by placing the money into a suspense account and using it to reduce this year's contribution. And although it seems reasonable, there's an ingrained fear that taking something away from an employee, even though he never should have participated in the first place, might be viewed unfavorably by the IRS. Anybody have any specific experiences with this type of problem?

If the plans aren't aggregated for 410(b) testing, then I don't believe you must aggregate the BRF testing. You would just test each separately. And I think the 1.401(a)(4)-4 regs support this, in that they refer you back to 410(b) - so if you're passing 410(b) on a disaggregated basis, you test for BRF coverage on a disaggregated basis as well.

In my humble opinion, whoever told you they are easy falls into one or more of the following categories: A. Has never done admin on 412(i) plans. B. Is an extreme optomist. C. Is completely crazy. 412(i) plans SHOULD be easy. And in theory they are. In reality, you are dealing now with life insurance, annuities, and insurance agents, and many of the plans being sold improperly, or to clients who should never have a 412(i) plan in the first place. It adds up to a volatile mix, and I would recommend caution - it would be very easy to get hung on one of these plans. At the very least, I'd recommend that you have some sort of extremely specific contract with the client that limits your responsibilities only to those services/acts with which you feel comfortable. Good luck!

Yes.