Belgarath

Can't tell from the information given, but I think it is possible that you want the DFVC program, not VFC. But could be either depending upon your problem!No specific timeframe fro DFVC, except that once the DOL has notified the client of their intent to assess a penalty, then they are no longer for DFVC. And it won't cover criminal violations, etc... Penalties under DFVC are really pretty reasonable, as these things go. And the IRS agreed not to impose their penalties if you are eligible for and comply with DFVC. (IRS Notice 2002-23)

Appleby - thanks for the response. Just to clarify - are you saying that if you start with the old tables this year, that you MUST switch to the new tables in 2003? The new regs say you are permitted to change, but I'm not sure they say you HAVE to, although that may well be what was intended. Thanks. (It's an awfully nitpicky little thing, but may be a hassle for folks who have been doing it on their own, if they HAVE to change, and don't know it!)

I'm not a 403(B) expert, so when you say contributory, I'm assuming you mean that there are employer contributions? If so, then the ERISA prohibited transaction restrictions apply. (ERISA 406, 408(B).) So I'd say that yes, the spousal consent requirements apply.

MarZ - re your first question - I had the same question myself. It's interesting, because someone at the IRS, (maybe Marjorie Hoffman?) had stated that she didn't believe the new uniform tables from the Jan 2001 tables could be used for a 72(t) distribution, because they were for minimum distributions only. However, the preamble to the new 401(a)(9) regs makes it very clear that the new tables can be used. The question is whether they MUST be used, or if you start with the old tables, must you change to the new in 2003? It matters, because you can get a larger distribution under the old tables. And I don't feel like any clear guidance exists at this point. My gut feeling would be that since in 2002 you can use old regs, 2001 regs, or 2002 regs, that you can use the old table. And you wouldn't automatically have to update. But to be very safe, you would update and use new table in 2003. I'd be interested in hearing from anybody with contacts at the IRS as to what they think on this.

No. I think they are dead wrong if they actually said this. If you look at the SIMPLE Form 5304, under instructions for the employer on which employer may establish and maintain a SIMPLE plan, it even discusses self-employed individuals.

You need to look at the plan document. For example, some documents are drafted such that loans by Shareholder-Employees in an S-corp are permissible as long as they do not constitute a prohibited transaction. Since they no longer are, then such a plan would not normally require any amendment. However, some plans are drafted to simply prohibit such loans, and they would require an amendment.

Also PLR 8716060, where IRS opined that a shareholder is ineligible to contribute to a qualified plan on the pass-through income. 'Cause it wasn't "earned income."

Here's a bizarre question. You've got (had) a Profit Sharing plan. Plan terminated 10 years ago, all assets distributed, business no longer exists, Trustee has died. Don't ask me how this happened, but there was a small investment of the plan which somehow got lost. Evidently was not properly registered to the Trust, which is why no one ever knew about it. I don't know any more details than this - it was a phone call from an accountant. Any suggestions about what to do with this money? How to handle the situation? Is this going to revert to the state, etc.? Thanks!

You are correct. They can't rollover within the "2 year period." IRS Notice 98-4 gives some additional detail on this. Also note that if one of the exceptions to the normal 10% premature distribution penalty applies, then the 25% penalty doesn't apply either.

I'm not aware that any waiver is required. Generally the plan document would specify that no MRD would be required in the situation you describe, and wouldn't require an election or waiver.

Blinky is correct, but just a minor clarification, if I may. The EGTRRA increased 415 limit is for limitation years beginning 1-1-2002. Although the plan and limitation year generally coincide, they don't always, and you can get burned on this.

I was talking with somebody who recently attended a conference at (Spencers?) Now remember, this is third-hand, so I can't vouch for complete accuracy. However, there was apparently a gentleman who gave a presentation at this conference, who asserted that 401(a) plans that accepted IRA rollovers would have to separately account for this money, because it remained subject to the "IRA rules." And he apparently used IRC 408(q) as his source for this opinion. I specfically questioned the person I talked to whether he was talking just about IRA contributions under a plan that will allow them, or was he including IRA rollovers, and this person said his presentation included IRA rollovers. I don't reach the same conclusion from the code, EGTRRA, or the EGTRRA conference committee reports. I see nothing there that indicates this rollover money is still treated as an IRA, and subject to "IRA rules" where they differ from qualified 401(a) plan rules. I just wanted to get some other opinions as to what folks out there think? Thanks!

This thread is very interesting. Mbozek, the old IRS guidance I was thinking of is IRS Notice 88-127. Another interesting thing here - when we submitted our prototype for approval, we were told that in a prototype, absolutely no way, nohow, could you waive participation or compensation on a year by year basis, either totally or partially. OK to do it in a volume submitter, but the reviewer told us that the IRS "prototype group" had come up with this guideline. So we couldn't put it in our prototype, but did in our volume submitter. Amazing what you can do from one IRS document reviewer to another. But I'm still apprehensive about whether this is allowable for an unincorporated owner. Anybody else have an opinion on this aspect?

No, the 3% is only in the 401(k) portion. The employer discretionary profit sharing portion of the plan is treated as a separate plan under the mandatory disaggregation provisions of 410(B)-7. At least that's how I read it. So anyone who receives no allocation, either regular or top heavy, in the profit sharing portion, doesn't have to receive the gateway. Now, if I'm reading the original post wrong, and the 3% is in the profit sharing portion of the plan, then yes, they would be benefitting and would have to receive gateway. But it doesn't appear to me that that's what is happening, because they aren't eligible in the profit sharing yet.

I'm not sure I agree. 410(B)-7 provides for mandatory disaggregation, and I don't think there's any requirement for a gateway on the profit sharing portion, where the employees have not satisfied the eligibility and are not "benefitting" under that portion of the plan.

While I agree generally with the previous comments, it seems to me that there may be an additional problem to consider. There are many different terms to describe it, but yes, you can waive your allocation in many documents. HOWEVER, I haven't seen any that have been recently approved, even Volume Submitter documents where the IRS allows more than in Prototypes, where you can do this if you are self-employed. The IRS put the axe to this years ago, saying that it was an impermissible CODA. I believe that they still follow this line of reasoning. You may be able to get a custom document as mbozek suggests, but you should probably check with the attorney first to confirm whether you can do it at all with a self-employed. (I've seen newly approved VS documents that allow the waiver of allocation, but specifically prohibit it for unincorporated owners, and I think it is because of the CODA issue.)

Most of the plans I've seen define a termination of employment as a "Distributable Event." Although subsequent reemployment may prevent a break in service, these plans generally do allow the distribution in the situation you've described. Does the plan involved specifically prohibit a distribution in this situation? If not, then I wouldn't think there is any problem.

This question can get a little tricky depending upon the details. I'm assuming from your post that the participant terminated employment in 2000. I'm also assuming that the cure period ended 1-31-01. If this plan document is like most that I have seen, there would have been a deemed distribution and an immediate offset in 2001, which should have been reported on a 1099 for 2001. If there was an offset as mentioned above, then no further interest would accrue after the offset. When she takes the balance of her distribution (3,000) in 2002, it would have the mandatory 20% withholding if not a direct rollover, and a 1099 would be issued for 2002. This is further complicated by the fact that the final loan regs weren't final back then, so there were a lot of different interpretations and procedures by employers, trustees, and TPA's.

I agree with kjohnson. Although I may have missed something, my reading of 1.411(d)-4 does not indicate that the timing of a right to receive an optional benefit can be reduced or eliminated, except as provided. There's an example in Q&A 2 which allows only a de minimis change in the timing, and specifically mentions in-service withdrawals. We're treating in-service withdrawals as a protected benefit, which cannot be eliminated (except for benefits accrued after the amendment, of course)

It seems as if there are at least a couple of different situations to consider. 1. Suppose you have a cross tested PS plan only. Further suppose that you have a couple of participants who dropped below 1,000 hours, so are not eligible for a "regular" allocation of the employer contribution, but are eligible for a top-heavy minimum. Must they receive a Gateway contribution? It seems to me that they must, as under 410(B)-3, they are employees benefitting under the plan if it is a DC plan (not a 401(k) or (m)) and they receive an allocation taken into account under 1.401(a)(4)-2©(2)(ii). A top heavy contribution is not excluded under 1.401(a)(4)-2©(2)(ii). So although they do not receive a "normal" cross tested allocation, they must receive Gateway. And by the way, some people assume that Gateway is 5%. Although in reality it usually works out that way, it is actually the lesser of 5% or 1/3 of the highest allocation to a HC. 2. If you have a combined 401(k)/cross tested PS plan, where employees are eligible under the 401(k) portion, but have not satisfied eligibility for any employer contribution in the PS portion. Now this situation is different. Since 410(B)-7 provides for mandatory disaggregation, then it seems that no Gateway contribution could be required for the PS portion of the contribution for those employees who were excluded. If there were participants who were receiving a top heavy minimum in the PS portion, then they would have to receive Gateway.

I agree with mbozek. We would never handle something like this in such a manner, unless specifically instructed to (in writing) by the plan sponsor. Most plan documents grant the Trustee/Plan Administrator the power to interpret the document provisions, and administer the plan accordingly. At the very least, if I were the participant, I'd hire an attorney to see about a suit, and I'd complain to the DOL. As a plan sponsor, I'd think it was a pretty poor risk to follow the TPA's interpretation.

You are correct - Schedule A is not required when filing an EZ.

I agree with Pax. Although there isn't any specific guidance, since the alternate payee is treated as a beneficiary of the plan for 415, and since beneficiaries are included in the top heavy test, then it would seem logical to include the account balance inthis situation. (although I can see why people would argue against it) Also, as a practical matter, since this "distribution" would be for reasons other than separation from service, death, disability, or termination fo the plan, then wouldn't you have the 5-year lookback, at a bare minimum, even if you disagree with including this balance? I think you are stuck with counting it. I would hope that the IRS might come out with some guidance on this. Maybe someone can send this in as a question for the ASPA conference this fall?

b2kates - I just had to look into this for another purpose. According to the Joint Committee on Taxation technical explanation report, it is Section 401 of the Act.

I've got a rather unusual question for some of you attorneys out there. We have a client who has a life insurance policy in his pension plan. (and I don't want a debate about life insurance in qualified plans, please!) The client wants to purchase a new life insurance policy, within the plan, with another company. But they don't want to surrender and transfer the money to the new policy, because doing so would cause the new policy to be in MEC status. (And they know that MEC status doesn't make any difference while in plan, but they plan to purchase it from the plan in a couple of years.) What they are doing, on advice of counsel, is to do a 1035 exchange from company A to company B. Now, I'm not aware of anything in Section 1035 which says it CANNOT be used in a qualified plan. But I'm rather concerned that the act of assigning the policy to company B, even though part of an integrated 1035 transaction, might be considered a prohibited transaction as an impermissible assignment? Am I worrying about nothing? Any thoughts on this whole issue? Thanks.