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Everything posted by Belgarath

  1. I had the same question a while back. I couldn't find an "official" cite that I could use to back my assumption that you can use the new rules for 2001 for 403(B). There are sideways references and hints, but I couldn't find anything in black and white. I still think you can, but if asked to prove it, I'd have to do some tap-dancing.
  2. I'm going to tell this client to consult an attorney, but I'm curious for my own information. Client has both a money purchase and a profit sharing plan. 3 HC's, currently no NHC's. In 1994, they had a NHC who was a participant. Their certified census data for 1994 said the NHC terminated employment. Lo and behold, it now turns out that this wasn't true. Don't have the details yet, but it appears that at that time, they shifted employee over to some sort of leasing organization, but continued to employ him full time. NO contributions were made for him in 94-97, when he did actually terminate employment. My best guess is that this would have to be handled under VCP. (took me 20 minutes to figure out which letters went with which correction program - changed a lot since I last looked!) Possibly under VCO, but I'd be concerned that this would be considered an "egregious" failure. Any opinions on this? Also, since contributions under the money purchase plan were missed, will the client have minimum funding penalties as well? Thanks in advance for any opinions you might have.
  3. Here's a good one! A participant in a 457 plan died. 60 years old. Spouse is sole beneficiary. An insurance agent read that you could roll 457 to IRA now, but didn't realize that you couldn't until 2002. The 457 plan was funded with a deferred annuity. What they now want is to 1035 exchange the annuity in the 457 plan to a new annuity, in the name of the Trustee of the 457 plan, but with the deceased as annuitant! Then in 2002, the 457 Trustee, acting upon the instructions of the spouse beneficiary, will roll the money to an IRA in the name of the spouse. I don't have a problem with the second part of the transaction, but how the heck can you do a 1035 exchange when the annuitant is deceased? (The logical approach, to me at least, if the 457 Trustee agrees, is to keep the money there until 2002, then just do a rollover.)
  4. The plan has an operational failure. For correction, you can look to the SVP program - I'd have to look, but I think you'd generally correct under APRSC.
  5. I was wondering about this myself. I didn't look at the conference committee report on this, because I deal very little with 403(B)'s. Was this intentional, or is this a likely target for a technical corrections bill, since EGTRRA axed the exclusion allowance calculation, thereby making the 403(B) tantamount to the "old" C election? Obviously you use the law as is until changed, but for those of you more in tune with the 403(B) world, would appreciate your thoughts on this.
  6. EGTRRA 641© expands this to include 403(B) and 457. My question is, who is the "administrator" under a typical 403(B) salary deferral arrangement? In other words, who will be responsible for this - the employer, or the insurance company, mutual fund, etc.? Thanks.
  7. You can use either. IRS Notice 98-52 originally required that plan year was required. Then they modified this in IRS Notice 2000-3 to allow the "payroll" method. Check Q & A-2 of 2000-3 for the details.
  8. Was the plan effective 1-1-2000, or 1-1-2001? Assuming the latter, you are correct - you would calculate his minimum distribution for 2001 based upon a zero account balance on 12-31-2000 - therefore a zero minimum distribution.
  9. First make sure there is no controlled or affiliated service group. If not, shouldn't be any problem.
  10. Eric - I think folks are just trying too hard on this. Section 401(k) of the IRC, and the accompanying regulations thereunder, specify the rules for 401(k) plans. There is nothing in 401(k) or the regulations which precludes the employer in the situation you described from sponsoring a 401(k) plan. One word of caution - since an S-corp, make sure you use only the W-2 income - you cannot use the "pass-through" income from an S-corp when calculating contributions to a qualified plan. Hope this helps.
  11. I agree with rcline. The fact that they can have a 401(k) is so incontrovertibly established that you shouldn't waste your time proving they can. Tell them to prove that you can't - because they can't prove it. To Eric Cernyar - this is an area which is under constant litigation in the courts. The Supreme Court, in Patterson V. Shumate, upheld that a participant's interest in an "ERISA qualified plan" was exempt from bankruptcy proceedings. Everyone hoped that this would settle the matter. However, as you mentioned, bankruptcy trustees developed a new strategy of challenging the qualified status of the plan, since the "one person" plans are not subject to Title I of ERISA. They have had some success with this for bankruptcy purposes. Also some failures. I don't track the "legal scorecard" but my impression is that they have had far more failures than successes. Any attorneys out there to comment on this? Regardless of the bankruptcy issues, for IRS purposes, assuming you have a proper plan document and follow the normal plan rules, etc., it will indeed be a qualified plan for other purposes.
  12. As we were discussing amendments for our clients, we realized that for BEGINNING OF YEAR defined contribution (money purchase, target) pension plans, the 100%/40,000 limit will not kick in until plan years beginning 2003. Here's how it works: The BOY plan has a valuation date of 1-1-2002. It therefore uses a limitation year beginning 1-2-2001, and ending on the valuation date of 1-1-2002. Since 415 limits are actually for limitation years (which normally coincide with the plan year, but not always), the increased EGTRRA 415 limits for DC plan will be for LIMITATION years beginning after 12-31-01. If you look at the example above, for such BOY plans, the limitation year beginning after 12-31-01 will be 1-2-02, and will be applicable to the PLAN year beginning 1-1-2003. Be careful with your illustrations or what you tell clients on such plans. The above scenario applies to DC plan only, as the DB plan limitation year date is for limitation years ENDING after 12-31-2001.
  13. I agree. This would not normally be considered a "settlor" expense, and the plan can pay it.
  14. Assuming the plan allows it, take a look at 1.411(a)-4(B)(6). With account balance of less than 5,000, after doing all the diligent searches, etc. that folks have discussed, you can treat these as forfeitures. If more than 5,000, it's a little murky, but I'd say that you cannot do it until it could be paid out without participant's consent. Since the advent of 411(a)(11), I'd say that this would usually be normal retirement age.
  15. I'm going from memory here - always a dangerous thing to do, but as I recall, the "60 day" election period, for the first year of a SIMPLE plan, must include either the date the employee becomes eligible, or the day before.
  16. Yes, with death prior to RMD, "old" rules apply, but a surviving spouse can roll to own IRA, and use the "new" rules. Maybe someone else will have a different opinion on this.
  17. October 1 is the latest you can adopt the SIMPLE.
  18. I'm assuming from your post that the beneficiary is a spouse - otherwise the beneficiary would have had to use the 1 year or 5 year rule, and couldn't have waited until participant would have attained 70-1/2. You can use the new tables. This is provided that the plan language permits this - plans are not required to amend their language to follow the "new" rules until 2002. Does the plan permit a lump-sum payout? If so, may be easier to roll out to an IRA in the surviving spouse's name, and take the minimum dstributions from the IRA. Most Trustees and participants prefer this if plan allows it.
  19. It's an interesting conundrum. You actually do have a 25% limit. The employer can contribute, and deduct, the 25%. I also agree with you that the practical implication is that you are left with 10% of this as a taxable distribution to the employee, under 402(h). This brings up a host of different questions which I haven't had time to investigate, (and probably won't bother, as I'm hoping for that technical corrections act!) This would be reported as 1099 income, rather than W2. Maybe an accountant out there can figure out if one way is more beneficial to the employer - I would assume that since it would be considered 1099, and therefore no SS payroll tax due, that this might be more beneficial to the employer than paying it out as salary. Might benefit a 1 person corporation, or husband and wife corporation, if they are old enough to avoid the 10% premature distribution penalty. Etc... too early in the morning to think too hard!
  20. I don't agree that the limit remains at 15% in 2002. EGTRRA Sec. 616(a)(1)(B) also amends IRC 404(h)(1)© - striking 15% and changing to 25%. So if your compensation is high enough, you should be able to get the full 40,000. I couldn't find where 402(h) had been similarly amended, but I'm assuming this was an oversight - can't imagine the IRS ever asserting there was a problem with this.
  21. Thanks for the response. I probably wasn't too clear on what I'm trying to find out. Suppose (as Trustee) you go down the street to your local stockbroker - you instruct them to purchase you 1000 shares of IBM. This is where my ignorance of the stock world comes in. I've heard that you have a choice - you can have the stock certificates physically delivered to you, to keep in your posession, although this is rarely done. Or you can have the stockbroker hold them in the brokerage account, and you will just get a reporting monthly, annnually, whatever. I'm not sure if the above is accurate. If so, it would seem that if as Trustee you physically hold the certificates, it would NOT be a qualifying asset. Hence my question - as a TPA, must one take the extra step to determine who actually holds the stock certificates, or is an affirmative answer from the Trustee that the stock was PURCHASED from a registered broker sufficient? Maybe I'm just being paranoid! Thanks again.
  22. The preamble to the PWBA regs (Oct 19, 2000) makes it reasonably clear that stocks, etc., held by a registered broker-dealer, are qualifying assets. I don't know much about the stock investment end of financial services. Could we reasonably assume that in an annual data gathering pamphlet, if the client answers "yes" to a question such as, "Are the stocks and bonds held by a registered broker-dealer" that these are qualifying assets? Or do we need to take the extra step to ask who actually physically holds the stock certificates? Obviously we'll also need to know the name of each brokerage firm for the SAR disclosure. I'd be interested to hear how the rest of the world is handling this. Thanks in advance!
  23. Interesting question. I can't cite anything specific in the code, but I don't see how this would have to be included, as by definition the required beginning date is April 1 of the following year (2002). I think there will be no income taxation to anyone until payments are made to the beneficiary under the normal RMD rules. Is the beneficiary the spouse? If so, the spouse is allowed to roll over the entire amount, so how could there be taxable income to be reported?
  24. I agree with the first response from sdolce. It's always difficult to try to interpret the thought process (or lack thereof) in a committee report. Absent specific guidance on this issue, I think you have to stick with the letter of the law. My understanding was the same as sdolce as to the purpose of the "penalty waiver."
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