mbozek

I say most because all of the DC plans that I have seen permit cashing out the AP and under reg 1.411(a)-11(b)(6) the cashout does not require the APs consent. I dont seen any reason for a DC plan to allow the AP to remain in the plan as a beneficiary because of fid issues, plan loans, MRD and other rights required under ERISA.

While the reclassification language is sufficient for meeting the nondiscrimination requirments of the IRC I have never seen it cited by a fed ct to deny benefits where a leased employee makes a claim under ERISA. There are many cases where cts have dismissed claims by independent contractors for benefits under ERISA on s/l grounds where the there is an acknowdgement that the contractor is not eligible for benefits from the recipient employer.

Administratively a 403(b) is more desireable for employer contributions because there is no need to obtain a determination letter, the IRS does not require that the plan be administered in accordance with its terms (only has to comply with the IRC), the only qualfication requirement applicable to the plan is discrimination under 401(a)(4) which applies to each year's contributions on a discrete basis and there is no expense for terminating the plan. The nondiscriminaton rules are the same as the rules for a qualified plan. The only reason to maintain a qualified plan is if the er contributions will exceed $28,000 for HCEs in which case the er can set up a 403(b) or 457 plan for salary reductions.

Ther is no requirment that the AP be allowed to participate in the plan. Most Dc plans provide for the AP to recieve a Lump sum and can require that a lump sum distribution be paid upon approval of the QDRO to exclude the AP.

To avoid problems with illegal aliens participating in a qualified plan participation can be limited to US citizens and resindent aliens. Only salary reduction contributions would be returned to illegal employee upon proper proof of identity to the plan admin.

Since a statute outranks a regulation, a qualified DB or TB plan cannot exclude any employee on the grounds of being over age 60. Since 1988 IRS has been been requiring that DB and TB plans not exclude employees over age 60 from participation under IRC 410(a)(2) regradless of language in finl regs. See LRM language. ADEA protects employees over age 60 from being excluded from DB or TB plan by permitting lawsuits against employer.

ERISA 202a permits an employer to limit participation to employees who are in an eligible group defined by the employer. IRC 410b only requires that a plan cover a non discriminatory group of employees which can exclude leased employees and independent contractors. There are many cases which have held that an an employer can exlcude all leased employees as an ineligible class of common law employees. Why do you think differently? The written statement has nothing to do with ERISA or the IRC. It prevents a leased employee or inde contractor from proceeding on a latent claim for benefits under retirement plan as a common law employee who is eligible to participate in the plan long after employment commenced.

The purpose of requiring a leased employee (or independent contractor) to sign a written acknowledgement is to begin the period in which the employee can file a claim for benefits under ERISA. Leased employees frequently file claims for benefits under ERISA long after they began working for the recipient and demand that the employer pay retirement or 401k benefits on the grounds that they are eligible participants in the plan. The statute of limitations for filing a claim for benefits begins when the employee signs the agreement (not when the employee terminates employment) and expires within a period of 2-6 years after the agreement is signed preventing the leased employee from making a claim for benefits under ERISA.

Violatons of qualification rules by third parties are discoverable only in the unlikely event that the plan is audited by the by the IRS. Violations of the fiduciary rules are subject to expensive lawsuits by disgruntled participants and require the services of expensive lawyers.

Jon: Having the trustee screen the broker who can invest participants' assets makes the trustee a fiduciary with regard to the suitability of the broker to manage the participant's accounts under the DOL regs which is not in the interest of the plan sponsor or the fids. There is no liability to the plan fid if the participant directs the plan fid to appoint an investment manager selected by the partaicipant. Any broker selected by the participant needs to sign the appropriate agreement with the plan admin spelling out what are the limits on investments selected by the broker including no PTs, prohibition on withdrawals, no margin accounts as well as indemnification by the broker for negligence. All of the documents need to be drafted by counsel before being signed by the plan.

Moe: RE # 4. There is no statutory requirement under either ERISA or the IRC that requires the recipient employer plan to cover leased employees who complete a year of service. ERISA 202a permits the employer to limit participation to members of the eligible group. IRC 410b only requires participation by a non discriminatory group which can exclude participation by leased employees. To avoid claims for benefits the recipient employer should require each leased employee to sign a statement acknowledging that the leased employee is not an employee of the recipient and not eligible for benefits under the recipient's plan.

NUA is available only on employer stock paid to a beneficiary. Any other distribution of property is taxed as ordinary income unless 10 year averaging is available.

403b contributions are aggregated with contributions/benefits provided under plans of employers in which the 403b participant has more than a 50% owernership interest. IRS pub 571 P 4. E.g., college faculty member participates in both a 403(b) plan at the university as well as a Keogh PS plan for his side business in which he has 100% ownership. The 403(b) and keogh contributions are aggregated for 415 purposes for a maximum of $41,000. There would be no aggregation if the faculty member owned 50% or less of the businees, e.g., he owned 50% of a partnership.

There are cases upholding an employer's right to amend a plan to reduce benefit costs or exclude active employees from a plan. So why is it discriminatory to refuse to rehire an employee because of benefit costs. To maintain a 510 claim on the merits the employee has to present more than a conclusory allegation that employer action prevented the employee from accruing or a exercising a benefit right. There must be evidence that the interference with ERISA rights was a motivating factor, not just that loss of benefits occurred as a consequence of the employer action. Ali v. Chelsea Catering, 910 FSupp 338. Otherise the case will be dismissed on summary judgement. Fed cts can and do impose penalties on attorneys and clients who file frivilous lawsuits that have no factual basis.

Under the employment at will doctrine an employer isn't required to hire any former employee. There have been several case where cts have held that employees cant maintain a 510 claim because they are fired before they accrue maximum benefits at normal retirement age or become vested under the plan.

Isnt the practical answer that since there is no w-2 reporting of whether a plan permits catch up contributions, IRS cant limit contributions which are made to the plans of two employer to $13,000. If the IRS wanted to limit the application of the catch up to participants in plans that had a catch up provision, it would have said so (e.g., the regs permit only 1 catch up regardless of how many plans the participant makes contributions to).

DP: There is no need for such a statement since the trustee is not the fidiuciary under ERISA for the participants' investment decisions in a self directed account under 404c. Under DOL reg 2550.404c-1(f) example 9, where a plan participant directs a plan fiduciary to appoint an investment manager selected by the participant in a plan which provides participants with total discretion in choosing an investment manager, the plan fiduciary has no fiduciary liability to the participant for imprudent management of the participant's account by the manager and the plan fiduciary has no duty to determine the suitability of the investment manager because the plan does not designate him as an investment manager. The investment manager is only a fiduciary to the participant under ERISA. The lack of a letter does not create some implicit risk of fiduciary liability to the trustee or plan fiduciary.

Why not download the form and instructions at www.irs.gov?

Why arent the union employees disaggregated for 410b testing in 2002? See Reg. 1.410(b)-6(d) "union employee is always an excludible employee with respect to mandatorily disaggregated portion of any plan that benefits non union employees. "

No problem if the employee pays by check and the employer returns the check to the employee at the end of the course.

The above cases relate to whether spouses were employees of a business, not whether the owner was an employee (and under IRS rules cannot be cited as precedent in other cases). There are many citeable tax cases holding that the sole owner of a corp who performs services is an employee of the business. e.g., Joeseph Grey 119 TC 121, Mike Graham Trucking Inc., 2003 WL 548574. Since determination of status as an employee is an issue of fact, the owner needs a written contract describing his duties and remuneration as an employee in the event his co. is audited for open tax years.

Since the determination of status as an employee is an issue of fact, the purpose of having a written contract is to establish an position for audit that the shareholder is performing services as an employee if the IRS reviews the taxpayers return. In Header the spouse of the owner had no written contract defining her duties which in any event the ct determined were not employee functions. The purpose of the written contract to is to establish the duties to be performed by the shareholder for the corporation as an employee and the remuneration paid by the employer. It makes no difference if the employee's remuneration is paid in property (e.g., health ins), barter or cash compensation. A individual can be an employee if he works for $100 a year or $100,000 as long as he perform employee duties. If you think the shareholder needs a W-2 to be classified as an employee then he could receive $100 a year from the corp plus the health ins for the duties he performs. If you had read Wollenberg you would have noticed that the ct held that the tax payer could not retroactively establish a health reimbursement plan for his spouse to cover expenses paid prior to the date the plan was adopted. It had nothing to do with the duties performed by the spouse.

Prior to the extension of IRC 457 to NP entitities in 1986 IRS permitted NPs to establish nonqualified deferred comp plans for employees- See Rev Rul 73-126. Since IRC 451 applies to taxation of employees who are not subject to 457 why cant an employer establish a nq plan under 451 which follows the requirements of 457(b) e.g., 100% vesting of all deferrals? The fact that an employer is not subject to 457 doesnt mean that it cant establish a plan that follows the requirements of 457 under the broader rules for establishing a plan under 451.

In the unlikely chance that the employer is audited, to demonstrate employee status under IRC 3121(d) there should be a written employment contract between the corporation and the shareholder defining the services he will perform for the corporation and his remuneration which can be the payment of the health care premiums by the corp.

Roth contributions can be made from any type of compensation for personal service such as W-2 income and other income that is not subject to income taxation such as foreign earned income. See IRS publicaton 590, P 55 available at irs.gov. How are you deducting your income on the 1040 form under the treaty- As an itemized deduction not subject to the 2% reduction or some other offset? Be glad to review the tax issues if you want a formal opinion.