Kirk Maldonado

Some people believe that simply filing the return to report the unrelated business taxable income may trigger an IRS audit of the plan.

I had asssumed that, because this was posted in the governmental plans message board, this question relates to a governmental plan. Please clarify the nature of the employer.

Do the instructions to the Form 1099-R provide any guidance?

I agree with Carol that direct transfers between plans are permitted even where there has been no event that permits a distribution to the participant.

If you are saying that a participant can take a distribution at any time, as long as he or she rolls it over, I disagree. If you are asserting a different position, please clarify.

Why don't you ask the annuity provider / insurer for citations to authority?

I disagree with SteveR about dollar cost averaging. Whether it makes sense or not depends on (1) whether the market is rising or falling and (2) whether you are talking about accelerating or decelerating the investments (meaning whether the lump sum investment would be at the beginning or end of the period). For examle, if you have a $1,000,000 lump sum cash rollover into an IRA, holding it in cash and investing it in equities in increments over a 12 month period is not a smart move in a rising stock market. I simply don't believe you can generalize.

What does the plan say about the timing of distributions? The plan is not obligated to pay the benefits until you reach normal retirement age, which is generally age 65. In other words, are you sure that this "freeze" is just happening now, and it wasn't something that has been in place all along? On the other hand, if the employer had a history of always paying out the benefits promptly, and the "freeze" coincided with the employer's financial difficulty, that is a very bad sign. If that is the case, you should consider contacting the DOL.

As a corollary to what MoJo said, the larger the amount that is to be invested, the higher the degree of scrutiny that should be applied. In other words, if you only have $1,000 to invest, you should not waste money hiring a professional advisor (at least if the advisor is paid out of the plan's money). On the other hand, if you have $100,000,000 to invest, you'd better make certain you have retained proper advisors.

You might want to consider contacting the DOL on this one.

Revenue Ruling 61-146, 1961-1 C.B. 25.

Given what has happened in the stock market recently, the participants are probably lucky that the amounts were uninvested. Would you propose to take amounts out of their accounts if they had lost money if the amounts had actually been invested during that time period?

I asked that same question to the IRS a number of years ago in the context of a Section 401(k) plan. I believe that they said it should be treated as a sale of stock, but my memory is very, very hazy on this point.

Joe: If you treat the individual as a terminated employee, would you allow the (now) 2% shareholder to elect to participate via COBRA?

ERISAGuy: Look at ERISA Section 514.

ERead: You don't like a loan from the employer to the plan even though the DOL has a prohibited transaction class exemption for it?

ERead: The reimbursement would, of course, be taxable to the employer. Are you thinking that there would be other (adverse) tax consequences? Personally, I don't think being taxed on amounts you receive is that bad. I would glad be willing to be taxed on unlimited amounts of income, if somebody were willing to pay it to me.

Does the plan provide for the direct payment of those expenses or the reimbursement of the employer for those expenses?

QDROPhile: Wouldn't ERISA preempt state law?

JPOD: There are also PLRs to that same effect regarding ESOPs. I think trying to argue with the IRS that the interests in LLC are "stock" would be a losing battle.

JPOD: You wouldn't have a cite on that PLR, would you? That result seems counter-intuitive to me, because it is an incentive stock option, and, by definition, limited liability companies don't have stock .

The applicable regulations provide that the "documents shall be made available for examination in the principal office of the employer and at each employer establishment in which at least 50 participants covered under a plan are customarily working."

Beth: I wouldn't assume that simply because the funds were in a money market account that participants lost out. Given what has happened in the stock market lately, participants would often have been better off if their funds had been uninvested.

Why not take a pragmatic approach and ask the court to direct who has to sign on behalf of the plan? Remember that the person is signing on behalf of the plan; not on behalf of the participants. I seem to recall that the DOL has succesfully asserted the position that the participants can still sue. That makes sense because it prevents the fiduciaries and other parties from collusively entering into a "sweetheart" settlement. Was the DOL involved in the litigation? If not, don't you have a risk that the DOL could itself bring litigation on the same issues? If the DOL wasn't a party, it would seem that they wouldn't be foreclosed from bringing a lawsuit.

My recollection is that there are also cases upholding binding arbitration.