KJohnson

MJB, are you saying that Jed Macy's idea No. 1 doesn't work, I think it does under Treas. Reg. §1.411(a)-4T(a).

Employee obtains stock through an ISO, employee divorces and transfers ISO stock to wife through a bona fide property settlement pursuant to the divorce, can the ex-wife qualify for non-recognition under 1042 if she sells the stock to the ESOP?

As far as (k) money goes, I don't think you could have a distribution for any other reason. (There are of course hardships, but you can't roll a hardship). As far as the match, profit sharing, or any rollover account, the rules are more liberal. (stated age, seasoned money, five yearrs of participation) The IRS has approved documents that I have worked with that have in-service distributions at age 40 from these "buckets." You can also draft your plan to receive a distribution of a rollover account at any time. However, as people have stressed, you have to follow your document.

I thought the deficit was going to be about $520 billion. So what's a few more billion here or there.

HERE WE GO AGAIN ALL AMERICANS This Department of Treasury press release may be viewed at: http://www.treas.gov/press/releases/js1131.htm Today the Treasury Department announced that the Presidents FY 2005 Budget includes the following savings initiatives: Retirement Savings Accounts, Lifetime Savings Accounts, Employer Retirement Savings Accounts, and Individual Development Accounts The first proposal would create two consolidated savings accounts: Retirement Savings Accounts (RSAs) and Lifetime Savings Accounts (LSAs) that will allow everyone to contribute -- with no limitations based on age or income status. Individuals will be able to convert existing tax-preferred savings into these new accounts in order to consolidate and simplify their savings arrangements. RSA and LSA contribution limits will be $5,000 per year. This contribution limit is modified from last years FY04 Budget proposal, which had a contribution limit of $7,500. Americans want a secure future: simplifying savings will help them reach that goal, stated Treasury Assistant Secretary for Tax Policy Pam Olson. The savings options proposed today will give all Americans the opportunity and flexibility they need to save for their retirement security and other needs. The proposals make saving simple for everyone and for every purpose. They stress the importance of getting off the spending couch and into the savings gym. The second proposal would create Employer Retirement Savings Accounts (ERSAs) to promote and simplify employer sponsored retirement plans. The proposal would consolidate 401(k), SIMPLE 401(k), 403(b), and 457 employer-based defined contribution accounts into a single type of plan more easily established by any employer. This proposal is modified from the previous FY04 Budget proposal to enhance flexibility and encourage small businesses to fund a custodial ERSA for their employees. Employers with 10 or fewer employees would be able to fund an ERSA by contributing to a custodial account, which is similar to a current-law IRA. The third proposal would create Individual Development Accounts (IDAs) help lower-income individuals save. This proposal would provide dollar-for-dollar matching contributions of up to $500 targeted to lower income individuals. Matching contributions would be supported by a 100 percent credit to sponsoring financial institutions. The Presidents Proposal to Expand Tax-Free Savings Description of Proposal RETIREMENT SAVINGS ACCOUNTS (RSA) $5,000 annual contribution limit (indexed for inflation). Available to all individuals no income limits (contributions cannot exceed compensation), no age limits. Contributions would be nondeductible (like Roth IRAs). Earnings would accumulate tax-free, and qualified distributions would be excluded from gross income. Qualified distributions could be made after age 58 or in the event of death or disability. Nonqualified distributions: Distributions in excess of prior contributions would be included in income and subject to an additional tax. Conversions to RSAs: Roth IRAs, Traditional and Nondeductible IRAs Roth IRAs would be renamed RSAs and benefit from the new rules for RSAs. Existing traditional and nondeductible IRAs could be converted into an RSA by taking the conversion amount into gross income, similar to a current-law Roth conversion. No income limit would apply to the ability to convert. Existing traditional and nondeductible IRAs that are not converted to RSAs could not accept any new contributions after 2004. New traditional IRAs could be created to accommodate rollovers from employer plans, but they could not accept any new individual contributions. Individuals wishing to roll an amount directly from an employer plan to an RSA could do so by taking the rollover amount (excluding basis) into gross income (i.e., converting the rollover, similar to a current law Roth conversion). Several of the withdrawal exceptions would be eliminated, increasing the likelihood that money set aside for retirement is there for retirement. LIFETIME SAVINGS ACCOUNTS (LSA) $5,000 annual contribution limit (indexed for inflation). Available to all individuals no income limits, no age limits. Contributions would be nondeductible (like Roth IRAs). Earnings would accumulate tax-free and all distributions would be excluded from gross income. No minimum required distribution rules would apply at any age throughout owners life. Contribution limit of $5,000 applies to the individual owner of the account, not the contributor. o Contributors could make annual contributions to the accounts of other individuals. o Annual aggregate contributions to an individuals accounts could not exceed $5,000. Consolidation to LSAs: Individuals could convert balances from Coverdell Education Savings Accounts (ESAs) or Qualified Tuition Plans (QTPs) to LSAs. Individuals could continue to contribute to ESAs and QTPs as under current law. Health Savings Accounts (HSAs) and Archer Medical Savings Accounts (MSAs) would be retained. EMPLOYER RETIREMENT SAVINGS ACCOUNTS (ERSA) One Retirement Plan: Employer Retirement Savings Accounts would combine the array of existing retirement plans into one simple uniform regime: o 401(k) o SIMPLE 401 (k) o 403 (b) o Governmental 457 o SARSEPs o SIMPLE IRAs Access: Available to all employers Simplified Administrative Rules: The new plan would be much simpler for employers to administer, so employers who are not already sponsoring a plan, especially smaller employers without the resources for administering plans, will be more likely to offer a retirement savings program for their employees. A single nondiscrimination test would apply to ERSA contributions, as compared to the double test that currently applies to 401(k) plan contributions. Employers could avoid nondiscrimination testing altogether if they satisfy a simplified safe harbor. ERSAs sponsored by state and local governments and section 501©(3) organizations would not be subject to nondiscrimination testing under certain circumstances. A simple custodial ERSA would be allowed for employers with 10 or fewer employees to help reduce costs to small businesses and encourage them to offer plans. The custodial ERSA would be similar to a current-law IRA. Employers would be exempt from annual reporting requirements and provided relief from most ERISA fiduciary rules similar to the relief provided to sponsors of SIMPLE IRAs. The rules applicable to defined benefit plans would not be affected by this proposal. INDIVIDUAL DEVELOPMENT ACCOUNTS (IDAs) Individual Development Accounts would create accounts with dollar-for-dollar matching contributions targeted to lower income individuals. Dollar-for-dollar matching contributions provided to individuals up to $500. Single filers with incomes below $20,000, joint filers with incomes below $40,000 and head of household filers with incomes below $30,000 would be eligible. Matching contributions supported by 100 percent tax credit for sponsoring financial institutions that provide matches to individuals. A $50 per account credit for financial institutions to cover ongoing costs of maintaining and administering each account and providing financial education to participants. Qualified withdrawals of contributions and matching funds for higher education, first-time home purchase, and small business capitalization. The Presidents Proposal to Expand Tax-Free Savings Important for the Future Continues to Build an Ownership Society The United States is increasingly an ownership society. More than half of all households 84 million individual investors own stock directly or through stock mutual funds. The savings package further promotes an ownership society by: o improving access by removing barriers to tax preferred saving. o making savings simpler by reducing complexity and unifying the rules. o improving fairness by providing the benefits of tax preferred savings to those least able to save for the very long-term. Through the savings package, taxpayers get the benefit of paying the tax man upfront, rather than when withdrawing funds for retirement or other needs. Taxpayers receive the full return on investments giving them greater certainty about the amounts available for their retirement and other needs. A majority of taxpayers will be able to move all of their savings in a few short years into tax free savings accounts. This will allow taxpayers to avoid the complexities of reporting financial income on their tax returns and filing a schedule B and Schedule D. Increased education and financial literacy will help raise awareness of the importance of savings. o Financial services firms will be more focused on counseling clients on maximizing financial security rather than the intricacies of the tax rules adding value instead of paper work. Enhances Low- and Moderate-Income Savings Opportunities The savings package simplifies individuals savings decisions. o Complex and confusing eligibility rules are replaced with one rule for both LSAs and RSAs: everyone can contribute. o The special rules that dictate what qualifies as a penalty free withdrawal are replaced with one rule under LSAs: all distributions are tax-free. Tax preferred savings would become universally available. o Individuals saving will correspond more directly to their needs rather than to the special uses prescribed by the tax laws. o The availability of tax preferred savings opportunities to the low income under current law is largely illusory. The flexibility of LSAs allows access to tax preferred savings regardless of an individuals savings horizon and use. o The current alphabet soup of accounts are available to low and moderate income taxpayers, but their shear complexity, for all practical purposes, closes them to low and moderate income taxpayers who dont have access to the sophisticated tax and financial advice needed to take advantage of them. o Low-income individuals, in particular, may not have the resources to save for long into the future. o Low-income individuals are the most likely to need their savings in an emergency, and the most likely to pay penalties for early withdrawal under current law. Uniform and simple rules will encourage financial services firms to market tax preferred savings more aggressively and to spend their resources on financial education and literacy. Dollar-for-dollar matching contributions up to $500 would be made available to lower income individuals through Individual Development Accounts (IDAs). The matching contributions would be supported by a tax credit to financial institutions. Promotes Retirement Savings The ERSA proposal simplifies and unifies employer plan rules in a number of important ways. ERSAs will be much easier for employers to adopt and administer and will help reduce the costs to employers. ERSAs consolidate all types of employer plans into a single simplified plan. ERSA custodial accounts, available to employers with 10 or fewer employees, would be exempt from annual reporting requirements and provided relief from fiduciary rules. Lower administrative costs under ERSAs will translate into higher investment returns to employer plan participants, which will help encourage participation. More uniform employer plan rules may lead to greater competition between financial services firms, which may further help drive down costs and increase returns to investors. Encourages Savings and Promotes Economic Growth The package promotes savings in several ways. o These proposals remove the current law penalty on saving. The after-tax return to savings is increased through greater access to tax preferred savings. Higher after-tax returns encourage savings. o The simpler and more uniform rules for individual savings vehicles will encourage more savings. o Lower costs for setting up and maintaining employer plans will increase returns and encourage additional savings. o More uniform rules for employer plans will foster more competition for investor funds among financial services firms. More competition lowers costs and translates into higher returns to investors, further encouraging savings. Greater savings translates into more investment, greater capital accumulation, and higher living standards in the future. Greater savings means a more secure future for Americans of all income levels.

The one situation that I have seen where a "reversion" is possible is as follows: 1) Forfeitures occur in the year of termination prior to the actual termination of the plan. There is not a partial termination which would vest these participants prior to the formal termination of the plan. 2) The plan provides for an allocation of forfietures in the plan year after the plan year in which the forfieture occurs. 3) Along with the termination of the plan, all employees are terminated as well. 4) No allocation of forfeitures are possible in the next plan year because not only has the plan been terminated, but no participant will have any compensation. Thus any allocation of forfeitures according to the plan terms will be a 415 violation. The forfeitures would have to be placed in a 415 supsense account. 5) The "return" of a 415 suspense acccount to the plan sponsor is the one exception to the rule that dc plans cannot have reversions.

I think he maxed integration at $200,000 5.7% of Comp=$11,400 5.7% of Comp over TWB (for '03)=$6,441 Subtotal=$17,841 He then added the 3% safe Harbor=$6,000 Subtotal=$23,841 He then determined what was left for the 415 limit for '03 $40,000 - $23,841 =$16,159 left for the 415 limit. He then determined that as a percentage of comp $16,159/$200,000=8.08%

Wouldn't you still need to have a 125 plan in place to do this? There has been some extensive discussions of the reasoning in PLR 946002 on this Board. You might want to look at this thread. http://benefitslink.com/boards/index.php?s...t=0entry80435

Anywhere from $3,500 to $56,000 depending on the number of participants--at least according to the IRS disclosure at a fairly recent benefits conference. see the link below: http://www.benefitscounsel.com/archives/000688.html

Agreed, but the 502(a)(3) claim to enforce the terms of the plan (assuming it required the contribuiton) would not be contingent upon fiduciary status of the company or its officers. The relief available would be the interesting question.

I doubt the plan sponsor would have standing since it is not an enumerated party under (a)(3). I would ordinarily expect it to come from the trustee, but I think that plan administrator, as a fiduciary, would have standing under (a)(3) to enforce the terms of the Plan.

There is no class or statutory exemption on this. I have received an EXPRO exemption for such a transaciton. You can find a listing of the EXPRO exemptions that have been granted here: http://www.dol.gov/ebsa/regs/expro_exemptions.html

It would be an interesting case if you brought it. Unless you have something in your document that makes the "due and owing" match a plan asset, I think it would be tough to bring a fiduciary breach suit. Absent these "unmade" contributions being plan assets, the failure to make employer contribtions (as opposed to failing to remit employee contributions in the DOL sense) is generally not a fiduciary breach. You don't have the benefit of 515 of ERISA, because that only applies to multis and does not apply to multiples. You may be left with a 502(a)(3) claim to enforce the terms of the plan document, but this only provides you with equitable relief under Great West. You may be able to construct equitable relief that gets you where you want to be such as a constructive trust, but it would be an interesting case. If you brought a state law breach of contract action, you would be looking at some interesting preemption issues.

http://benefitslink.com/boards/index.php?s...t=0entry86192

My last post was before I saw the last four or five. I would note that the definition of excess amounts was the same under 2002-47 so I am not sure whether Sal will change his advice based on 2003-44

I think distributing is an option, but I am not sure that the definition of excess amount gets you there. To find support there, you first have to come to the conclusion that the deferral has to be distributed to maintain the qualification of the plan--which was the question in the first instance. The definition states: (f) any similar amount that is required to be distributed in order to maintain plan qualification. You may find more support under the general correction principle that says that when correcting an excess allocation, amounts should remain in the Plan--but specifically excludes a CODA: For example, if an excess allocation (not in excess of the § 415 limits) made under a Qualified Plan was made for a participant under a plan (other than a cash or deferred arrangement), the excess should be reallocated to other participants or, depending on the facts and circumstances, used to reduce future employer contributions. Conceptually, this would not seem any different than an ineligible employee deferring--the contributions should not have been received in the first instance under the Plan. Of course with this defect, you don't have the retroactive amendment option. As to ineligilble employees deferring, Tripodi in his outline says that either forfeiting or distributing is an option (if you don't want to amend).

From the 2002 DOL/JCEB-ABA Q&A's (Q&A 11 is more relevant, but read 10 first) QUESTION 10. An employer closed operations and proceeded to effect distributions of all accounts under its defined contribution plan to its former employees, all of whom had a termination of employment. The distribution election forms clearly stated that account balances would be credited with interest through June 30 and any earnings thereafter would be prorated among any accounts remaining under the plan. Election forms were returned and all accounts under the plan were paid out with earnings through June 30. The actual distribution of all accounts occurred August 31. The trustee placed the assets in an interest-bearing account as of June 30. The plan stated that administration costs could be assessed to the plan, but the employer paid those costs. Can the plan reimburse the employer from the post-June 30 earnings for the administrative costs associated with plan termination paid by the employer before distributing the post-June 30 earnings to the participants? PROPOSED/SUGGESTED ANSWER 10. Yes. It should be permissible for the plan to reimburse the employer for its payment of the plan termination-related plan expenses, assuming the expenses were necessary and reasonable for the administration of the plan. Reimbursement of the employer should be allowed under ERISA 408(b)(2). DEPARTMENT OF LABOR ANSWER 10. Staff agreed with the answer with certain reservations. Staff would want to see evidence of a “meeting of the minds” that the expenses would be reimbursed at or before the time the services were performed. With the plan language being permissive, the fundamental question is whether there is an obligation on the part of the plan to reimburse the expenses. The staff believe that where there is a clear understanding or agreement on or before the time the services are performed that the plan will reimburse the employer, a fiduciary could justify reimbursing the expenses. The staff did not believe that a written understanding or agreement is necessarily required. QUESTION 11. (Same facts as Question 10). Separate and apart from the termination costs referred to in the prior Question, can the plan reimburse the employer for administrative costs paid by the employer for prior years? PROPOSED/SUGGESTED ANSWER 11. No. The reimbursements would be impermissible under ERISA 406(a)(1)(B). DEPARTMENT OF LABOR ANSWER 11. Staff generally agreed with the proposed answer. As in the prior question, because the plan language is permissive (that is, allowing the plan to pay expenses), the fundamental question again is what circumstances would compel a fiduciary to reimburse the employer for paying those expenses. Again, reimbursement could be appropriate if there was a clear understanding or agreement on or before the time the services were performed that the plan would reimburse the expenses. Without such understanding or agreement, the staff felt there would be no basis for the fiduciary to reimburse the expenses. Staff felt that under the facts presented, a significant delay in reimbursement may stretch the “expectation” of reimbursement theory. Rather than a reimbursement theory, it might be possible to argue that reimbursement is consistent with Prohibited Transaction Class Exemption 80-26. However, the meeting of the minds about the arrangement (i.e., that there was an interest free loan) must be supported by evidence. Under the circumstances presented, the permissive plan provision would not, in and of itself, be sufficient evidence.

And this is from the 2003 Q&As 49. What is the best method for correcting early entry into 401(k) (i.e., deferring prior to date of eligibility)? Answer: The normal corrective method is to retroactively conform operation of the plan document. However, it is possible under EPCRS-VCP that a retroactive conforming amendment may be permitted if nondiscrimminatory and otherwise appropriate based on all the relevant facts and circumstances. See Rev. Proc. 2003-44.

For what its worth this is from the 2001 ASPA Q&As Obviously this is based on prior guidance when SCP was call APRSC. 34. A 401(k) plan mistakenly allows an employee to defer before he is actually eligible. Under APRSC the plan refunds the ineligible deferrals plus earnings. We don’t believe APRSC allows for a refund. We would suggest you amend the eligibility to make the contribution “good”. The next two parts of the question are moot. Is the corrective distribution subject to the additional tax imposed by Code Section 72? Is the corrective distribution counted as a distribution for purposes of determining whether the plan is Top Heavy? Reish and Luftman, at least back in early 2001, thought that a refund to the particpant is an option although they dismissed the "mistake of fact" concept. http://benefitslink.com/modperl/qa.cgi?db=..._defects&id=143

Thanks RLL- In this context I am trying to figure out the meaning and purpose of the langauge quoted below from 1.411(d)-4 Q&A 2 in the ESOP and stock bonus exception to the bar from eliminating optional forms of benefits. Do you know what this is getting at? The situation is a profit sharing plan, converted to an S ESOP in 2003 that only allowed for cash distribitons, that wants to add the mandatory put in 2004. It would seem that it does not matter whether it is a mandatory put or a cash distribution since the participant still gets cash--either from the Employer or the ESOP. ii) ESOP investment requirement. Except as provided in paragraph (d)(2)(iii) of this Q&A-2, benefits provided by employee stock ownership plans will not be eligible for the exceptions in paragraph (d)(1) of this Q&A-2 unless the benefits have been held in a tax credit employee stock ownership plan (as defined in section 409 (a)) or an employee stock ownership plan (as defined in section 4975 (e)(7)) subject to section 409 (h) for the five-year period prior to the exercise of employer discretion or any amendment affecting such benefits and permitted under paragraph (d)(1) of this Q&A-2. For purposes of the preceding sentence, if benefits held under an employee stock ownership plan are transferred to a plan that is an employee stock ownership plan at the time of transfer, then the consecutive periods under the transferor and transferee employee stock ownership plans may be aggregated for purposes of meeting the five-year requirement. If the benefits are held in an employee stock ownership plan throughout the entire period of their existence, and such total period of existence is less than five years, then such lesser period may be substituted for the five year requirement

Thanks RLL--I agree that a termination may change the analysis. As to a "normal put" what about a plan that says that the put is based on the last annual valuation? It appears that there is a built in "fix" for any valuation issues by having the two put periods and the participant can simply wait for the next valuation. Would you amend the Plan that has a determ letter to say that the put has to be FMV at the time of the put?

I am not going to find the cite, but if you look at the labor regulations for the definition of an employee benefit plan for purposes of Title I of ERISA you will find that this does not include a plan that only covers an owner or an owner and his or her spouse. Since the plan asset regulations (and the soon as administratively feasible requirement) come from Title I, then it would seem that such a Plan can ignore these regulations and you only need to pay attention to the 404 deductibility rules--the tax return date. The defintion of employee benefit plan makes clear, however, that if you have an employee in addition to the owner, the entire plan is an employee benefit plan and therefore I would think that the deadline for everyone falls under the provisions of the plan asset regulations.

I agree with Mike that it is included for Gateway purposes. However, I also think that you lose the benefit of the QNEC on the 401(k) side. I think the k regs are specific that in order to be a QNEC for ADP (or ACP) purposes you have to satisfy 1.401(a)(4)-1(b)(2) both with and without the QNEC. You can't satisfy 1.401(a)(4)-1(b)(2) in a cross-tested plan without making the gateway. Therefore if you can't meet the gateway without the QNEC then your QNEC really becomes just another non-elective contribution. I would note that the proposed (k) regs (issued after the (a)(4) reg gateway modifications) read just like the current (k) regs with regard to this point. Maybe this is something where the ASPA should submit a comment, but I don't see any other interpretation of the (k) regs.

I thought EGTRRA changed this and there are proposed regs that incorporate the EGTRRA changes. http://benefitslink.com/taxregs/optional-d...prop-2003.shtml Of course the regs aren't effective until final, but I am not sure whether this matters given the EGTRRA changes.

http://benefitslink.com/boards/index.php?s...t=0entry79841